California’s wage and hour laws are complicated and is constantly changing. As a result, employers often find themselves running afoul of one (or more) of these laws and facing potential liability.
To mitigate your risk of a wage claim, we recommend that employers regularly audit their wage and hour practices to ensure compliance with California law. When conducting this audit, make sure you have a clear understanding of the following common problems relating to compensating non-exempt employees:
Overtime And Double Time For Non-Exempt (Hourly Paid) Employees
- California employers must pay overtime (1.5 times the employee’s regular rate of pay) to non-exempt employees as follows:
- For all hours worked over eight hours in a workday or 40 hours a week
- The first 8 hours worked on the 7th consecutive day of work in a workweek
- California employers must pay double time (2 times the employee’s regular rate of pay) to non-exempt employees as follows:
- For hours worked over 12 hours in any workday
- For hours worked over 8 hours on the 7th consecutive day of work in a workweek
Calculating The Regular Rate Of Pay
- The regular rate of pay is the employee’s actual rate of pay, which includes the employee’s regular hourly earnings (i.e. hourly rate of pay) plus any additional compensation that must be included in the regular rate of pay – including:
- Commission payments;
- Piece rate payments;
- Non-discretionary bonuses (e.g. productivity bonus, performance bonus, attendance bonus, longevity bonus, cost-of-living bonus);
- Awards or prizes won for quality, quantity or efficiency;
- Shift differentials;
- Premiums paid for hazardous, arduous or dirty work;
- Non-cash wages in the form of goods, board, or lodging;
- Pay for non-productive work hours (e.g. rest breaks, waiting time, attending meetings); and
- Lump sum on-call payments.
- Payments excluded from regular rate of pay:
- Premium (or extra) pay for daily or weekly overtime;
- Premium pay for work on weekends, holidays, regular days of rest or the sixth or seventh day of the workweek (if it is at least 1.5 times the rate for work performed during non-overtime hours on other days);
- Premium pay for work outside the agreed to hours (if it is at least 1.5 times the rate for work performed during the agreed to hours);
- Discretionary bonuses;
- Certain payments that are not made as compensation for hours of work (e.g. vacation pay, paid time off, sick time, and reimbursement for business expenses);
- Payments to a bona fide profit-sharing plan or trust or a bona fide thrift or savings plan;
- Irrevocable contributions to employee health and welfare plans; and
- Certain stock options, appreciation rights and purchase programs.
Split Shift Premiums
- Under the split shift premium rule, an employee must receive one hour’s pay at no less than the minimum wage rate for the time between shifts. An employer can use any hourly amount the employee earns above minimum wage to offset the split shift requirement.
Reporting Time Pay
- “Reporting time pay” is partial compensation for employees who report to work expecting to work a specified number of hours and who are deprived of that amount because of inadequate scheduling or lack of proper notice by the employer. The provisions of the law regarding reporting time pay are as follows:
- Each workday an employee is required to report to work, but is not put to work or is furnished with less than half of his or her usual or scheduled day’s work, he or she must be paid for half the usual or scheduled day’s work, but in no event for less than two hours nor more than four hours, at his or her regular rate of pay.
- If an employee is required to report to work a second time in any one workday and is furnished less than two hours of work on the second reporting, he or she must be paid for two hours at his or her regular rate of pay.
- Employers are required to provide a 10-minute, duty-free rest break during each period of four hours (or major fraction thereof, i.e. 2 hours) worked by an employee. Employers are not required rest periods when an employee’s total daily work time is less than 3½ hours. This means that employees are entitled to rest periods as follows:
- An employee who works more than 3½ hours and up to 6 hours is entitled to 1 rest period
- An employee who works more than 6 hours and up to 10 hours is entitled to 2 rest periods
- An employee who works more than 10 hours and up to 14 hours is entitled to 3 rest periods
- An employee who works more than 14 hours and up to 18 hours is entitled to 4 rest periods
- Any employee who works more than five hours in a day must be provided with a 30-minute unpaid, duty free meal period. The meal period must be provided no later than the end of the employee’s 5th hour of work (in other words, before the start of the employee’s 6th hour of work).
- If an employee’s entire workday is completed in six hours or less, the meal period may be waived by mutual consent of the employer and the employee. This consent should be in writing and signed by both the employee and the employer. If the employee’s workday is more than 6 hours, then the meal period cannot be waived.
- Any employee who works more than ten (10) hours in a day must be provided with a second unpaid, duty free meal period, also at least 30 minutes in duration. The second meal period must begin no later than the end of an employee’s 10th hour of work (i.e. before the employee works more than 10 hours).
- If the total workday is 12 hours or less, the second meal period may be waived by mutual consent of the employer and employee, but only if the first meal period was taken. If an employee works more than 12 hours in a day, the second meal period may not be waived (except employees in the health care industry may voluntarily waive their second meal period after 12 hours).
- Employers must record the beginning and end of each workday and the beginning and end of unpaid meal or other unpaid periods.
Wage Theft Protection Act Notice
- All non-exempt employees must be provided with a Wage Theft Prevention Notice at time of hire and within 7 days of a change. A sample notice is available here.
Cellphone Reimbursement (** also applies to exempt employees)
- Employers must reimburse employees who use personal cellphones for business purposes for both voice and data fees incurred for business purposes.
Paid Sick Leave (** also applies to exempt employees)
- Employers must provide employees with paid sick leave in accordance with state or, if applicable, local law.
Pay Stub Requirements (** also applies to exempt employees)
- Employers must provide all employees with an itemized statement of wages that includes the following information:
- Gross wages earned;
- Total hours worked by the employee (not required for salaried, exempt employees);
- For piece-rate employees, the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, and the total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period, and the total hours of other nonproductive time, the rate of compensation, and the gross wages paid for that time during the pay period;
- All deductions (all deductions made on written orders of the employee may be aggregated and shown as one item);
- Net wages earned;
- The inclusive dates of the period for which the employee is paid;
- The employee’s name and the last four digits of his or her social security number or an employee identification number other than a social security number;
- The name and address of the legal entity that is the employer; and
- All applicable hourly rates in effect during the pay period, and the corresponding number of hours worked at each hourly rate by the employee.
- In addition, all employee paychecks must list the address of a specific location within the state where the check can be cashed without a fee.
Vacation Pay (** also applies to exempt employees)
- Forfeiture of vacation is prohibited in California
- “Use it or lose it” policies are not permitted
- All accrued but unused vacation must be paid upon termination
Final Paychecks (** also applies to exempt employees)
- All employees must receive their final wages within the following timeframe:
- Immediately upon involuntary termination
- Within 72 hours if employee resigns without notice
- On last day of work if employee resigns with at least 72 hours’ notice
- All wages “due and owing” must be paid with the final wages, otherwise waiting time penalties are assessed. This includes accrued, unused vacation and/or meal/rest period premiums
- Commissions or other performance-based pay must be paid as soon as it can be calculated, regardless of when it otherwise would be paid.
- No deduction may be taken from final paychecks unless legally mandated, authorized in writing by the employee, or for a loss attributable to the employee’s dishonest or willful act or gross negligence (but only if the employer is absolutely positive that it can be proven that the employee was not simply negligent). No balloon deductions for payoffs of employer loans to employees.