Transparency Amidst Complexity: Understanding and Meeting NY Pay Stub Compliance Laws

pay stub compliance

Article contributed by Valiant Solutions

As more and more legislation is passed within the State and Federal labor agencies, there is a growing focus on regulations surrounding wage transparency to employees. One of these surrounds the need to provide accurate and detailed explanation of wage and labor rates on pay stubs. 

While this hasn’t seen its face on the Federal level, State legislation such as the New York Wage Theft Prevention Act (WTPA) has begun to lead the charge to ensuring that complete visibility into wage rates, deductions, and various wage variances are evident on each pay stub given to employees. New York is just the first of states to initiate this type of detail, but other states such as California are following suit.

What is Pay Stub Compliance?

Essentially, the WTPA mandates that all employees must receive a pay stub that not only outlines their gross pay, but also provides comprehensive detail on how that pay is broken out.  For many industries, this can be a straightforward approach;  however, for the hospitality industry, it is a complex task – and one that many companies have a struggle in adherence. 

For hospitality, wage rates are not entirely fixed.  There is a multitude of factors that go into the wage and labor rates, depending on the type of position or shift an employee is working.  Some of the complexities can include (but are certainly not limited to):

  • Blended Rates:  An employee may work Front of House (FOH) and Back of House (BOH) during a given work week.  The Fair Labor Standards Act (FLSA) require that all hours worked performed at two or more rates, overtime must be paid out at a blended overtime rate. These are typically two separate pay rates, and without the ability to discern between the two in a Payroll Management Solution, this can be a manual process to determine the appropriate overtime premium rate the employee should be paid.
  • Meal Allowances and Credits:  Many organizations will provide a meal credit or allowance for staff, depending on their shift and their time worked.  This is a deduction that needs to be shown on the pay stub in order to remain compliant.
  • Tip Credits and Tip Pooling:  One of the biggest challenges is the ability to calculate minimum wage while having a tip credit applied to their pay rate.  Whether a company decides to institute tip credits per wage rate, or creates a tip pooling program within their business, the calculations behind tip management and the ability to accurately display this information can be a challenge.
  • Overtime Rates:  Companies that have employees incurring overtime not only must follow the guidelines on overtime pay rates, but also must accurately display what the overtime hours are, the overtime rate, and factor this – in detail – on the employees’ pay stub.
  • Tax Deductions:  In order to comply with the WTPA and the IRS, the tax deduction must not only be accurate based on the pay rate, shift, tips, and other factors – it must also clearly be displayed on the pay stub in compliance with their time worked.  Again – in a simple industry this may not be a challenge, but in hospitality this is a challenge, and one that without the proper visibility and automation can be difficult.
  • Benefits and other Deductions:  Whether a company offers any other programs, such as benefits, transit cards, 401K or other deductions, they must be displayed on the pay stub – in detail.

So what kind of complexity are companies facing with respect to Hospitality?  Let’s take an example of a blended rate, which is fairly common, but the calculation can be complex if you want to remain compliant (see the chart below).

Host Milano January 2019 728×90

In order to remain compliant, the key is to ensure you are calculating the pay rates, the overtime, and any deductions in a manner that is fair to the employee and within the NY State FSLA standards.  This can be daunting, but there are some ways to make this less cumbersome (we’ll touch on that later in the article).

The Risks of Not Complying

Not complying with the WTPA, particularly in NY, can result in fines to the employer.  The first is pay notices.  Employees must receive pay notices at the time of hire and/or if there are changes in information on the pay notices in order to remain compliant.

Failure to provide such notices = $50 per employee per day

In addition to pay notices, the state requires a provision of a “proper wage statement” for all employees.  This is a wage statement that outlines in detail all the components of the Gross and net pay, with deductions, and credits we discussed earlier in the article.

Failure to provide a proper wage statement = $250 per employee per day

In addition to the fines for improper notification and statements, an employee has a right to seek damages for not receiving a proper wage statement.  This can add up the most, since an employee can seek the damage and is a potential risk to the employer.

Damages from an Employee suit on improper wage statements = up to $5000 per employee

In addition to all these potential risks, the Department of Labor can also institute a fine of up to $20,000 and additional liquidated damages of up to $20,000.  So, this is not just a matter of compliance for “compliance sake”.  This is a real challenge for companies, one that comes with real risks. Source

How to Get Pay Stub Compliance and Mitigate Risk

Ultimately, companies want to do the right thing and provide the proper pay stubs to their employees, and ensure that they are giving full transparency.  But it is a complex task, and one that cannot easily be handled manually.  For many, the implementation of payroll management solutions seems to hold the key – provided there is the capability.

“We’ve seen many requests from our clients and the market on the notion of pay stub compliance”, says Brenda Casanas, Implementation Manager at Valiant Solutions, based in Woodbury, NY.  “The complexity of the hospitality industry in terms of wage rates, coupled with the inability of a solution to help them stay compliant has held many businesses back in their method of providing pay stubs that meet NY WTPA requirements.” 

Brenda goes on to say that, while Payroll Management Solutions certainly help to mitigate risk of control over payroll and regulatory compliance, many are still struggling to provide the level of detail required.  “As far as I know, there is only one solution in the market that is currently providing a true answer to meeting – and exceeding – the requirements of pay stub compliance.  And that is Valiant Solutions.”

Recommendations for Making Your Payroll WTPA Compliant

While there are plenty of options in the market for building a Payroll that is compliant and efficient. Companies are turning to Payroll Management Solutions to help bridge the gap from complexity to efficiency.  Even while many solutions are able to automate aspects of payroll to help companies operate more efficiently, virtually none are taking into account the level of detail that is needed on Pay Stubs to build efficiency and compliance into a seamless operation.  Companies such as Valiant are leading the charge on the notion of automated solutions that provide Payroll Processing coupled with Pay Stub Compliance.  As New York State law is breaking ground in employee visibility into wage and labor, you can expect more states to follow along in the coming years. Having robust, compliance-centric solutions such as Valiant will be the answer to overcoming complexity and focusing on efficiency.