Wage & Hour Primer for Employers
For California businesses, interpreting the labyrinth of labor laws that employers of all sizes must follow can be an immense task. In fact, one particularly thorny area within the state’s labor code – wage and hour regulations – is a constant source of litigation simply because there are so many rules to remember. But staying on top of these laws, or simply periodically refreshing one’s memory, can help prevent many employment disputes.
This primer aims to assist California employers by addressing the key federal and state wage and hour laws to remember. Please note that this synopsis is not exhaustive and that some laws may differ in industries with more onerous requirements (such as healthcare). For questions, please contact Ross Schwartz, Dick Semerdjian or Sarah Evans at 619.236.8821.
I. APPLICABLE LAWS
California employers are subject to both federal and state law. The Fair Labor Standards Act (FLSA) establishes Federal minimum wage and overtime pay rates for both private and public employees, and is enforced by the U.S. Department of Labor (DOL). California wage laws, on the other hand, are found in the California Labor Code and the California Industrial Welfare Commission (IWC) Wage Orders, and are enforced by the Division of Labor Standards Enforcement (DLSE).
When state law and the FLSA conflict, private employers should generally follow the law that is more favorable to the employee. Thus, in most cases, California wage and hour laws will trump federal law because California is often more generous to employees.
The most explicit example where California law is more favorable to employees than federal law is the minimum wage. The California Minimum Wage is $8.00, as opposed to the federal minimum wage of $7.25.
For the most part, California employers must pay all employees – full and part-time – at least the minimum wage. In some cases, however, a California employer must pay their employees a higher local living wage if the city in which they operate, or provide services to, is subject to a local minimum wage ordinance. For example, San Diego has a local living wage ordinance that requires employers providing services to the city to pay their workers at least $13.77 (for 2013, though this amount rises annually).
There are a few narrow exceptions to the minimum wage requirement. Jobs that may fall outside the scope of minimum wage include outside salespersons paid on commission, apprentices (as defined by the State Division of Apprenticeship Standards), trainees with no previous experience on the job (but only at $6.80 for up to 160 hours), and individuals who are the parent, spouse, or child of the employer.
VOLUNTEERS & INTERNS
Even volunteers are often entitled to minimum wage. Only non-profit employers, such as churches and community-based organizations, can have unpaid volunteers, and only if the individual intends to donate his or her time gratuitously and without contemplation of pay. Surprising, most student interns are entitled to minimum wage as well, unless certain criteria are met (such as regular employees not being displaced). The criteria are outlined at https://jobs.ca.gov/PDF/Student_Internship_Program_Guide.pdf (pg. 4).
Generally, employees who are on-call must only be paid for the time when they are actually working. The FLSA only requires the waiting time to be paid if the employee must remain on, or so close to, the employer’s premises that the employee could not utilize the time for personal use. In California, payment is required if the worker is subject to the “control of the employer” or “all the time the employee is suffered or permitted to work” in order to be entitled to pay. See Madera Police Officers Assn. v. City of Madera (1984) 36 Cal.3d 403. Merely requiring an employee to wear a cell phone, or respond to call backs, does not require that the employee be paid for all the hours the device is on.
This standby time can be paid at a different hourly rate from the regular rate paid for working time, so long as the standby rate is set beforehand is at least minimum wage. For overtime, where two or more rates are used, California requires that the employee receive a “weighted average” of the two rates.
REIMBURSEMENT OF EXPENSES
Under California Labor Code section 2802, California employers must reimburse employees for all expenses sustained in performing their duties, including expenses for travel, dining, and mileage (other than commuting from home). This right is non-waivable.
Additionally, employers who reimburse employees at less than the standard IRS mileage rate (56.5 cents for 2013) must prove that the employee's vehicle expenses were less than the standard IRS mileage rate, or must pay the difference.
Employees working in the state of California are entitled to California's minimum wage and all of their earned tips. The rule under California Labor Code section 351 is that every gratuity is declared to be the sole property of the employee or employees to whom it was paid, given, or left for. This includes any tips paid by credit card.
A restaurant employer may, on the other hand, require employees to share their tips with other staff who assist in direct table service. As discussed in Etheridge v. Reins International California, Inc (2009) 172 Cal.App.4th 908 (interpreting Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062), tip-pooling allows anyone who operates in the “chain of service” to share in tip-pooling, even if they don’t provide “direct table service.” This includes busboys, dishwashers, and kitchen staff. Labor Code 351 makes clear, however, that employers (the owner, managers and supervisors) may not participate or collect, in whole or in part, a tip or gratuity left by a customer for an employee.
In California, overtime pay laws require the payment of time and one half to non-exempt employees for: (1) each hour worked over eight in a single workday, (2) each hour worked over forty in a single workweek, and (3) the first eight hours worked on the seventh day of work in a particular workweek. These laws also require employers to pay employees double time for: (1) each hour worked over twelve in a single day and (2) each hour worked over eight on the seventh consecutive day of work in any given workweek.
Overtime rights are non-waivable and employers must pay overtime whether it is authorized or not. If an employee works unauthorized overtime, the employer is limited to disciplining or terminating the employee. These laws also apply to out of state employers who send an employee to work in California, even on a temporary basis.
ALTERNATIVE WORK WEEKS
In California, employers may offer employees alternative workweeks of workdays that exceed eight hours, but no more than ten hours, without overtime pay if certain criteria are met.
Under Labor Code section 511, an alternative workweek proposed by an employer may be either a single work schedule that would become the standard schedule for workers in a “work unit,” or a menu of work schedule options, from which each employee in the unit would be entitled to choose. A work unit means “a division, a department, a job classification, a shift, a separate physical location, or a recognized subdivision.”
This flexible scheduling requires the employer to provide full disclosure to affected employees and to obtain at least a two-thirds vote of the employees in the affected work unit in a secret ballot election before performance of the work. The disclosure to the affected employees must include the effects of the proposed workweek on employees’ wages, hours, and benefits, as well as duly noticed meetings, held at least 14 days prior to voting, to discuss the effects of the alternative workweek schedule.
Under an alternative workweek schedule, after an employee works ten hours, the employer must pay overtime at one-and-a-half times the regular rate and at double the regular rate after twelve hours per day and for any work in excess of eight hours on those days worked beyond the regularly scheduled workdays.
The employee's job duties determine whether the employee is exempt from overtime and whether or not that employee is entitled to such pay. If the employee's job duties and salary do not meet all the requirements for an overtime exemption, the employee is entitled to overtime pay.
Whether an employee is exempt from overtime pay is a constant source of trouble for employers who either intentionally, or accidentally, misclassify their employees. Thus, it is critical that an employer be familiar with each classification of exempt employees. The complete list of exemptions can be found at http://www.dir.ca.gov/dlse/faq_overtimeexemptions.htm.
It is not uncommon for employers to be tempted to classify some workers as independent contractors to avoid paying overtime and other benefits. But if a worker is misclassified as an independent contractor, when instead that worker qualifies as a non-exempt employee, the worker is entitled to overtime pay and the employer is liable for not only the difference in pay, but all other benefits that non-exempt employees are entitled to.
The legal distinction between independent contractor and employee depends on the extent to which the employer dictates the terms and conditions of the job, which is often a slippery slope when litigated. As determining whether a person is an independent contractor or an employee can be difficult, here is a link to an IRS web site http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F and to a State of California web site http://www.dir.ca.gov/dlse/faq_independentcontractor.htm. If you are unsure of how to classify an employee, please contact Schwartz Semerdjian or another knowledgeable attorney.
MEAL AND REST PERIODS
Labor Code section 512 requires employers to provide employees with a 30 minute, unpaid, uninterrupted, off-duty meal period for every work period that exceeds 5 hours, but permits the employer and employee to agree to waive the meal period in writing if the workday is not more than six hours. Employers must also provide a second such 30 minute meal period if the workday exceeds ten hours, but again permits the employer and employee to agree to waive this second meal period if: (1) the total workday is not more than twelve hours and (2) the first meal period was not waived.
In addition to the required meal periods, the labor code requires employers to provide employees with a 10 minute rest period for every four hours worked, or, as interpreted by the California Supreme Court, anything more than two hours. Rest periods are to be permitted in the middle of the shift “insofar as practicable.”
Employers must also treat rest periods as hours worked, and must pay rest periods as time worked. But because employees receive compensation for rest breaks, they can be required to remain on the premises during their rest breaks. Under Labor Code section 226.7, if an employer fails to provide an employee a meal or rest period, the employer shall pay the employee one additional hour of pay at the employee's regular rate of compensation for each work day that the meal or rest period is not provided.
Last year, in Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal. 4th 1004, the California Supreme Court held that while employers cannot impede, discourage or dissuade employees from taking meal and rest breaks, employers need only provide employees with an opportunity to take their uninterrupted off-duty break, and are not required to ensure they are in-fact taken.
If the nature of a job does not allow for an off-duty meal break, an employer may require the employee to work through a meal so long as the employer pays the employee for this time and can prove that the nature of the work prevents the employee from being relieved of all duties. In these very limited circumstances, the employer must have the employee sign an agreement consenting to an “on duty” paid meal period and advising the employee that she or he may, in writing, revoke the agreement at any time.
If the employer requires an employee to stay on the premises during lunch, the employer must pay the employee his or her regular rate of pay for the meal period and provide the employee with a break room in which there is a table and chair(s), refrigerator to store meals and a microwave to warm food and beverages.
All non-exempt employees must be paid at least twice a month on days selected in advance, and the employer must post a notice that shows the day, time and location of payment. Wages earned between the 1st and 15th of any calendar month must be paid on or before the 26th day of the month; wages earned between the 16th and last day of the month must be paid on or before the 10th day of the following month.
An employer may also pay non-exempt employees weekly, bi-weekly or semi-monthly, as long as payment is made within seven days of the end of every pay period. If an employer is closed on a payday for a holiday, payment may be made on the next business day. Employers may pay exempt employees monthly on or before the 26th day of the month.
Please note, even when an employee fails to turn in a time card or time sheet, the employer must still pay the employee on the recognized payday.
PENALTIES FOR COMING TO WORK LATE
California Labor Code section 2928 allows an employer to remove a half hour's wage from an employee's paycheck if the employee is late to work by less than 30 minutes. And, if the employee is more than 30 minutes late, the employer may reduce the amount the employee would have earned while the employee was absent.
HOLIDAY AND VACATION PAY
California law does not require the payment of Holiday or Vacation Pay. However, if an employer has such a policy, then the law requires that an employee be allowed to take or use the vacation time. An employer’s vacation policy may exclude certain classes of employees, such as part-time or temporary employees, so long as the employer provides advance notice to the employees.
Although earned vacation time cannot be forfeited, an employer can place a reasonable cap on the amount of vacation benefits that may accumulate, and when such vacation may be taken. Under California Labor Code section 227.3, all earned and unused vacation must be paid to the employee on the employee's final day.
Hours worked on holidays, Saturdays, and Sundays are treated like hours worked on any other day of the week. In California, there is no law that requires an employer pay an employee a special premium for work performed on a holiday, Saturday, or Sunday.