Interest on unpaid wages in California: How is it determined?

In California, interest on unpaid wages is determined by state law or the employment contract. If the contract states what interest rate is to be used, then that rate applies. If the contract does not state what rate is to be used, then California law applies a rate of 10 percent per year, starting when the wages are due.

If the employment contract states the rate

Some employment contracts state what the interest rate will be for unpaid wages. If your employment contract says what they rate will be, then that will be the rate.

The employment lawyers at our law firm have found that many large California employers have started including the rate in their employment contracts. They may do this in an attempt to reduce the amount of a wage and hour claim.

If it does not, California wage laws apply

If your employment contract does not say the interest rate for unpaid wages, then California’s wage law sets the rate at 10 percent per year.[1]

According to the California Civil Code:

“If a contract entered into after January 1, 1986, does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after a breach.”[2]

This rate applies to wage and hour awards made by:

• California courts after a successful civil lawsuit,[3] and
• the Labor Commissioner’s Office at the California Division of Labor Standards Enforcement (DLSE) after a wage and hour claim has been filed with the agency.[4]

This also applies to employment contracts that were entered into before these wage laws went into effect in 2001. A California Court of Appeals held that the laws apply retroactively.[5]

How long interest accrues on unpaid wages

Interest begins to accrue on unpaid wages in California starting on the date they were originally due. It continues to accrue until the date that they are actually paid.[6]

Our employment attorneys make frequent use of this provision of the law. It helps to hold employers accountable when they do everything that they can to delay your case.

You can file a wage claim to collect back pay

To get your unpaid wages, as well as any interest on them, you need to file a wage and hour claim. To do this, you would have to:

• understand your legal and contractual rights,
• gather evidence of a suspected violation of them, generally including your pay stubs, wage statement, and a log of the number of hours of work that you performed,
• file your claim with the DLSE,
• help with the subsequent investigation by providing evidence of the violation,
• attend the settlement conference,
• if no settlement is reached, wait for the hearing officer’s written decision, and
• if the decision is insufficient, consider appealing it to court in an unpaid wages lawsuit.

You have to start this process before the statute of limitations has expired. Which statute of limitations applies depends on the nature of the labor law violation. You have:

• 1 year if your employer’s paycheck bounced or they restricted your access to payroll or personnel records,[7]
• 2 years if an oral agreement to pay more than the minimum wage was violated,[8]
• 3 years if illegal deductions were taken from your paycheck,[9]
• 3 years if your employer failed to:
  • pay the applicable minimum wage,
  • provide the correct overtime pay,
  • provide rest periods and meal breaks,
  • provide sick leave, or
  • reimburse you for business expenses;[10] and
• 4 years for other violations of a written employment contract.[11]

Our employment law attorneys have found that most wage and hour claims fall under the 3-year statute of limitations. However, it is extremely important to get legal advice or a case evaluation well before any of these time limitations has begun to approach. Failing to file a wage and hour claim in a timely manner will mean that it can get quickly and easily dismissed. It will not matter how strong of a case you have.

How these wage violations tend to happen

In California, unpaid wage claims tend to happen after employers violate the law by:

• not paying the applicable minimum wage for your jurisdiction,
• failing to pay the correct overtime wage, whether that be one-and-a-half or double your regular rate of pay, and
• not correctly providing rest and meal breaks.

Less common, but still serious, violations include:

• misclassifying workers as independent contractors or non-exempt employees as exempt ones,
• not paying all of an employee’s wages in their final paycheck, including unused paid vacation time,
• failing to reimburse workers for work-related expenses,
• not paying sick or vacation leave,
• not paying your wages promptly after you are terminated or quit, and
• refusing to pay an employee’s tips, bonuses, or commissions.

These problems with the payment of wages can amount to wage theft. If your employer has a pattern or practice of violating California wage and hour laws, you can join or create a class action.

Certain labor code violations carry other penalties

If the unpaid wages resulted from an accident or mistake, then your employer has to pay you your back wages, plus interest.

If the unpaid wages were the result of labor code violations, your employer would also be responsible for your:

• attorney’s fees, and
• court costs.[12]

If the violations were intentional or were not from a good-faith mistake, your employer could also have to pay you liquidated damages, or twice what you are entitled to receive.[13]

If the unpaid wages were from failing to provide meal periods or rest breaks, your employer would have to pay you an hour of your wages at your regular hourly rate for each missed break.[14]

If the unpaid wages were from your final paycheck, your employer could pay a waiting time penalty. You are entitled to the full amount of your final wages:

• immediately on your final workday, if you are either terminated or resign with at least 72 hours of notice, or
• within 72 hours, if you quit without at least 72 hours of notice.[15]

Failing to pay you in a timely manner subjects your employer to a waiting time penalty. They have to pay you your daily rate of pay for each day the final payment is late, up to 30 days.[16]

Legal References:

[1] California Civil Code 3289(b) CIV.

[2] Same.

[3] California Labor Code 218.6 LAB.

[4] California Labor Code 98.1(c) LAB.

[5] Bell v. Farmers Insurance Exchange, 135 Cal.App.4th 1138 (2006).

[6] California Labor Code sections 98.1 and 218.6 LAB.

[7] California Code of Civil Procedure 340 CCP.

[8] California Code of Civil Procedure 339 CCP.

[9] California Code of Civil Procedure 338 CCP.

[10] Same.

[11] California Code of Civil Procedure 337 CCP.

[12] California Labor Code 1194 LAB.

[13] California Labor Code 1194.2 LAB.

[14] 8 California Code of Regulations (CCR) 11040.

[15] California Labor Code 202 LAB.

[16] California Labor Code 203 LAB.