Complying with California Wage Payment and Hours of Work Laws

 

Overview

Navigating the wide range of California's complex laws can be challenging for employers. This article is intended to help establish and manage compensation practices in compliance with California wage payment and hours of work laws. The article discusses the principal sources of the laws and regulations, the business case for complying with those laws and regulations, and human resource professionals' role in helping their organizations to do so.

In addition, the article examines the employer/employee relationship for purposes of California's wage standards, and it details the rules regarding wage payment laws such as minimum wages, wage deductions and final pay rules as well as hours of work laws in California including travel time and breaks.

Although the focus of this article is compliance with California law, employers should always consult federal as well as state laws concerning wage and hour compliance. See U.S. Department of Labor Wage and Hour Division

Background

The payment of wages and hours of work for employees in California is governed by a complex array of statutes, regulations, interpretations and precedents. The state's laws and rules on wages are set forth in various provisions of the California Labor Code and in wage orders of the state's Industrial Welfare Commission (IWC). Although the IWC is not currently in operation, the state's wage orders continue to be enforced by the California Division of Labor Standards Enforcement (DLSE). 

A core question for employers is whether they are covered by California law regarding the payment of wages. Generally, a business operation registered in California and having at least one employee working in California is considered a California employer. The designation of California employer applies even if the organization is headquartered elsewhere and has only a branch or other physical location in the state—or in some instances even if it has no locations in the state but has at least one employee working in the state. The type of business does not matter; it can be a corporation, for example, or a sole proprietorship, an LLC, a partnership, etc. See Doing Business in California.

Employers must also consider California-based employees working outside the state. For example, employers located in California may have remote employees who live and work in other states; those employees usually would not be covered by California wage and hour laws when not in California. However, the California Supreme Court has held that a business headquartered in California that employs out-of-state residents to temporarily visit California for work may be subject to the California Labor Code in certain instances (Sullivan v. Oracle Corp., 51 Cal. 4th 1191 2011). It remains unanswered if the courts will enforce the labor code on companies headquartered outside California that send employees to work within California. Legal guidance is strongly advised when sending employees to California for short-term assignments. See What overtime rules apply to employees who are not residents of the state of California, but who occasionally perform work in the state of California for a California-based company?

Although there is a significant overlap between federal and state wage rules, there are also some important differences. Compliance with California's laws and regulations on payment of wages and hours of work can be daunting; however, compliance is crucial. Employers that violate wage payment and hours of work laws can incur substantial costs, including civil damages, recovery of attorney fees and other litigation expenses, monetary penalties, and enforcement proceedings funded by the state government. In addition, executives who devise or implement strategies to circumvent the law may be subject to individual liability, which may not be covered by liability insurance. See Are You Personally on the Hook for Wage and Hour Violations? and California Strengthens Wage-Theft Laws.

HR's Role

Human resource professionals assist their organizations by ensuring compliance with a wide range of federal and state statutes and regulations. In addition to understanding federal wage laws, HR professionals whose organizations do business in California must be knowledgeable about the state's wage and hour laws.

HR's role includes ensuring that the employer's policies and practices comply with California's various laws on the subject. Although payroll may be a function that reports to departments other than HR or that is outsourced, it is nonetheless a function that relates closely to human resources. HR is often responsible for establishing policies to ensure employees are paid what is due them and when it is due. HR also provides guidance on activities related to the payment and the recording of employees' salaries, wages, bonuses, net pay and deductions. As such, HR professionals must have a thorough knowledge and understanding of California's wage laws applying to their specific organization. See 10 Scary Laws That Affect California Employers.

Employer/Employee Coverage

The California Supreme Court, in the case of Martinez v. Comb, 49 Cal.4th 35 (2010), adopted the definition of an employer set forth by the IWC. An employer is one who does any of the following:

• Exercises control over the wages, hours or working conditions of the employee.
• Suffers or permits the employee to work.
• Engages the employee, thereby creating a common-law employment relationship.

 

Independent contractors

In determining whether a worker is an employee or an independent contractor, California's DLSE starts with the assumption that a person rendering service for another is an employee of the person for whom services are rendered. 

In order to consider someone an independent contractor, California employs a three-factor "ABC test" for most occupations. See How do I know if an individual is considered an employee or independent contractor in California? and Independent contractor versus employee for more information.

Family members 

A spouse, parent or child of an employer who is registered as a sole proprietor or partnership in California is generally excluded from the definition of employee and therefore not subject to wage laws.

Interns

As to whether an individual can be classified as an unpaid intern and thus not be covered by wage and hour rules, the DLSE has taken the position that it will look at six distinct factors to make that assessment:

• Onsite training similar to that of a vocational school is provided.
• Training is given for the benefit of the student or trainee.
• Interns do not displace regular employees, and they work under close supervision.
• The employer does not receive an immediate advantage from interns' activities, and, on occasion, the employer's operations may be impeded.
• Interns are not necessarily entitled to a job at the end of the training period.
• Interns and the employer understand that the interns are not entitled to wages for time spent in training.

See DLSE Opinion: Educational Internship Program

In 2018, the U.S. Department of Labor (DOL) adopted a "primary-beneficiary test" for determining whether interns are employees that differs from the DLSE guidance under state law. Employers must ensure that both federal and state laws are considered when classifying unpaid interns as trainees. See Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act.

Wage Standards

The California labor code determines wage standards affecting employees in both the private and the public sectors. These standards can include, among others, the methods for calculating and paying employees' wages, deductions from wages, notices and record-keeping, establishing the state minimum-wage rate and determinations of hours worked. In addition to the various state statutes, California has wage orders governing wages, hours and working conditions for various occupations, trades and industries. See Which IWC Order? Employers in California must consider the wage orders and the labor code together and ensure compliance with both.

Wages are defined in Labor Code Section 200 as "all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation."

Fair Pay

The California Fair Pay Act requires employers to demonstrate that any disparities in pay between men and women doing "substantially similar" work are based on a limited number of acceptable factors, including seniority, education, and "quantity or quality of production" of goods. The Wage and Equality Act further amended the labor code and prohibits employers from paying employees of one race or ethnicity a lower wage than employees of different races or ethnicities. See California Businesses Struggle with Fair Pay Act One Year Later and California Legislature Adds Extra Set of Teeth to Fair Pay Act's Protections.

Minimum Wage

One of the key roles for the DLSE is governing the minimum wage for hourly workers in California. Although there are some exceptions, almost all employees in California must be paid no less than the minimum wage as required by the laws of the state or a particular jurisdiction. Beginning in 2017, the California state minimum wage for all industries will be increasing annually based on employer size. For current minimum-wage rates, see DLSE: Minimum Wage. There are also local ordinances that provide for higher minimum wages in certain cities and counties within California, and employers should ensure compliance with the highest applicable minimum-wage rate based on where employees work in California. See Why Learning How to Count to 26 Just Became Important in California and IWC Minimum Wage Order.

Complying with the state minimum-wage law is an obligation for all employers and cannot be waived by any agreement, including collective bargaining agreements. Any remedial legislation written for the protection of employees may not be violated by agreement between the employer and employee.

Exceptions to the Minimum Wage

The following employees are not covered by the minimum-wage requirements:

• Individuals who are the parent, spouse or child of the employer.

• Apprentices regularly indentured under the California Division of Apprenticeship Standards.

• Outside salespersons.

A lower minimum wage applies for the following employees:

• Employee learners, regardless of age, may be paid 85 percent of the state minimum-wage rate, rounded to the nearest 5 cents, during the first 160 hours of employment in occupations in which they have no previous experience.

• In some specific instances, certain types of disabled employees may be paid at a rate less than the minimum wage with authorization by the DLSE. Employers must obtain licenses from the DLSE to do so. However, a nonprofit organization, such as a sheltered workshop or rehabilitation facility, may obtain a special license to pay subminimum rates without requiring individual permits for disabled employees. 

• Eligible student employees, camp counselors and program counselors of organized camps may be paid a subminimum wage. See CA Labor Code Section 1182.4.

Tip Credits

"Gratuity" is defined in the labor code as "a tip, gratuity or money that has been paid or given to or left for an employee by a patron of a business over and above the actual amount due for services rendered or for goods, food, drink or articles sold to or served to patrons. It also includes any amount paid directly by a patron to a dancer."

California law "prohibits employers and their agents from sharing in or keeping any portion of a gratuity left for or given to one or more employees by a patron. Furthermore, it is illegal for employers to make wage deductions from gratuities or to use gratuities as direct or indirect credits against an employee's wages. The law further states that gratuities are the sole property of the employee or employees to whom they are given."

The employer may not make any deduction for credit card processing fees or costs that are charged to the employer by the credit card company. The employer must pay the employee the full amount of the tip that is indicated on a credit card payment. In addition, payment of a gratuity made by a patron using a credit card must be paid to the employee not later than the next regular payday following the date the patron authorized the credit card payment.

The California Labor Code does allow for involuntary tip pooling. An employer can require employees to share tips with other staff members who provide service in a restaurant. In this regard, the DLSE says that when a tip-pooling arrangement is in effect, the tips are to be distributed among the employees who provide "direct table service." Such employees could include not only waiters and waitresses but also busboys, bartenders, hosts and hostesses, and maitre d's.

Employees who do not provide direct table service and who do not share in the tip pool include dishwashers, cooks and chefs; however, in restaurants where chefs prepare food at patrons' tables, the chefs may participate in the tip pool. Tip pooling cannot be used to compensate the owners, managers or supervisors of the business even if such individuals provide direct table service to patrons.

See Weekly Tip-Pooling Policy Doesn't Violate California Labor Code.

Mandatory service charges invoke special considerations. A mandatory service charge is an amount that a patron is required to pay based on a contractual agreement or a specified required service amount listed on the menu of an establishment. An example of a mandatory service charge that is a contractual agreement is a 10 percent or 15 percent charge added to the cost of a banquet. Such charges are considered amounts owed by the patron to the establishment and are not gratuities voluntarily left for the employees.

Therefore, when an employer distributes all or part of a service charge to its employees, the distribution may be at the discretion of the employer, and the service charge, which would be a bonus, would be included in the regular hourly rate of pay when calculating overtime payments.

See DLSE Tips and Gratuities and California Employers: Service Charges Can Lead to Costly Mistakes.

Piece Rates

Piece rate or piecework is defined as work paid according to a set rate per unit. A piece rate must be based on an ascertainable figure paid for completing a task or making a piece of goods. The piece rate earned must equal or exceed the state's minimum wage for all hours worked.

See Piece-Rate Compensation — Labor Code Section 226.2 (AB 1513).

Incentive Pay

In addition to paying hourly wages and salary, employers use methods of compensation such as bonuses that are based on the performance of the individual employee, or of the work unit or the entire organization. When incentive pay is paid to a nonexempt employee and is not discretionary, it is included in the employee's regular rate of pay for overtime pay purposes.

A bonus is considered discretionary if it is at the sole discretion of the employer to award it, is not pre-announced and is not an expectation by the employees. A bonus is nondiscretionary if it is pre-announced, the employer from the outset determines the standards that are required to receive a bonus based on meeting specific criteria, the employees expect to earn the bonus if they meet the criteria, and the criteria are based on such things as performance, attendance and efficiency. 

See What is the difference between a discretionary and a nondiscretionary bonus?

If an employee is discharged before completing the terms of a bonus, the employee may arguably be entitled to recover at least a pro rata share of the promised amount in certain circumstances. If the employee resigns prior to payment of a bonus, he or she may be denied a bonus if continued employment is a requirement for earning a bonus. Similarly, an employee who is discharged for cause related to his or her misconduct may also be denied a bonus where the employer's bonus plan provides for denial in such circumstances. See In the state of California, how are commission and bonus payments handled for employees who terminate employment?

In Prachasaisoradej v. Ralphs Grocery Company Inc., 42 Cal.4th 217 (2007), the California Supreme Court rejected the employee's argument that the employer's supplemental profit-based incentive bonus plan violated California labor laws because bonuses under the plan were calculated after reducing store profits by costs such as workers' compensation, cash shortages and merchandise losses.

The California Supreme Court found that employees had no expectation of compensation until after store profitability had been determined. Accordingly, calculating a supplemental bonus based on net profits was not an "unlawful recovery" of business expenses from an employee's wages. The court stated that the result might have been different if it had been a commission compensation plan, in which commissions constituted the bulk of the compensation paid to the employee.

Commission-Based Pay

Commission as a form of compensation is narrowly defined in California. Employees who receive commissions must be principally involved in selling (as opposed to producing) a product or service, and the compensation must be based on a certain percentage of the price of the product or service sold.

Employers using a commission-based compensation structure must be aware of the specific rules in California. Following are some key portions of the rules:

All employers doing business in California must draft written contracts for any agreements with employees that involve commissions as a method of payment for services, under Section 2751 of the Labor Code as amended by AB 2675 and AB 1396 relating to sales commission agreements. Employers also must provide a signed copy of the contract to every employee covered by the commission agreement; must obtain a signed receipt for the contract from each employee; and must explain the method, timing and manner of payment. See Does the state of California have specific rules regarding the payment of commissions as a form of compensation? and What are the requirements in the state of California for written contracts for employees who are paid on a commission basis?

Commissions are forms of wages in California. Under the labor code, wages must be paid within a specified time after they are earned. Employees who quit or are terminated must generally be paid their final wages on their last day of employment unless an employee does not give more than 72 hours' notice of resignation. However, there is an exception to the rule on final payment of wages: If it is not possible to calculate a bonus or a commission at the end of a person's employment, an employer must pay the earned bonus or commission when it is reasonable to do the calculation. 

Deductions and Garnishments

California law strictly prohibits any deduction from an employee's wages that is not either authorized by the employee in writing or permitted by law. See What are the rules in California regarding wage deductions? and DLSE: Deductions from Wages.

Deductions

California law clearly states that an employer can lawfully withhold amounts from an employee's wages only under the following conditions:

• When required or empowered to do so by state or federal law.
• When a deduction is expressly authorized in writing by the employee to cover health care premiums, benefit plan contributions or other amounts that are not rebates from the employee's wages.
• When a deduction to cover health, welfare or pension contributions is expressly authorized by a wage or collective bargaining agreement.

In most other circumstances, Labor Code Section 221 prohibits employers from "receiving" wages paid to employees. In other words, employers may not normally take deductions from the wages earned by employees.

The employer's ability to deduct amounts from an employee's wages due to a cash shortage or breakage or loss of equipment or as a result of an overpayment is specifically regulated by the IWC orders and is limited by court decisions. See Can an employer in California recover overpayments of wages from employees? 

An employer cannot legally make deductions from an employee's wages if, because of a mistake or an accident, a cash shortage or breakage or loss of company property or equipment occurs. The California courts have held that losses occurring through no fault of the employee or because of simple negligence are inevitable in almost any business operation and thus the employer must bear such losses as a cost of doing business.

However, there is an exception in certain wage orders. An employer may make such deductions from an employee's wages if the employer can show that the cash shortage or the breakage or loss of equipment was caused by a dishonest or willful act or by the employee's gross negligence. Be aware that the exception is not recognized by the labor code, and an employer should consult with legal counsel before acting.

Garnishments

Organizations are permitted to make deductions from an employee's paycheck for the purposes of complying with bankruptcy court orders and garnishment (usually for child or spousal support). Under Labor Code Section 224, an employer may not discharge an employee because a garnishment of wages has been threatened or if the employee's wages have been subjected to a garnishment for the payment of one judgment.

Under Section 706.050 of the Code of Civil Procedure, the maximum amount of an individual's disposable income subject to a garnishment withholding order during any workweek may not exceed the lesser of the following:

• 25 percent of the individual's disposable earnings (the portion of earnings that remains after deducting all amounts required to be withheld by law) for that week.
• 50 percent of the amount by which the individual's disposable earnings for that week exceed 40 times the state minimum hourly wage in effect at the time the earnings are payable. If a judgment debtor works in a location where the local minimum hourly wage is greater than the state minimum hourly wage, the local minimum hourly wage in effect at the time the earnings are payable shall be used for the calculation.

Exempt Salary Reductions

Employers may make deductions from an exempt employee's salary for work absences only under certain conditions. These conditions are in direct relationship to the reason for the employee's absence and to any leave time that the employer chooses to provide, such as paid sick leave or paid vacation leave. While the state generally accepts the federal FLSA guidelines for docking exempt employees' salaries, state-specific guidance can be found in Section 51.6 of the DLSE Enforcement Manual.

Employers can make deductions from an exempt employee's available paid time off (PTO) in partial or full-day increments when the employee is absent for personal reasons or because of illness. However, after all available PTO has been exhausted, the employer cannot legally dock the pay of an exempt employee for absences that are for a period of less than a day. See May California employers require that exempt employees use paid time off for partial-day absences?

Holiday Shutdowns

Many employers shut down their operations for various holidays. This is not a wage issue for nonexempt employees, who are simply paid for the hours they work. But exempt employees must be paid a salary that cannot be reduced by days not worked because of the employer's decision to close its business operations during the holiday.

Arguably, if the employer provides at least 90 days' notice, it can mandate the use of any accrued but unused vacation time to cover the days of shutdown and ensure that the exempt employee receives a full week's pay without reduction. Employers should note there is a legal dispute as to whether nine months or three months constitutes sufficient notice. If the employee does not have adequate accrued but unused vacation, the employer can advance vacation time. See DLSE Internal Memorandum.

Hours worked on holidays, Saturdays and Sundays are treated like hours worked on any other day of the week. California law does not require that a private employer provide its employees with paid holidays, that it close its business on any holiday, or that employees be given the day off for any particular holiday. See In the state of California, what rules apply to holiday shutdowns?

In addition, there is nothing in the law that requires an employer to pay an employee a special premium for work performed on a holiday, a Saturday or a Sunday, other than the overtime premium required for work performed in excess of eight hours in a workday or 40 hours in a workweek or other overtime rules.

Further, nothing in the state's law requires an employer to close its business on any particular day. It is up to the employer to select which days, if any, it chooses to be open or closed for business.

Timing and Method of Payment

Most employees must be paid at least twice during each calendar month on the days designated in advance as regular paydays. Employers must establish a regular payday and post a notice that shows the day, time and location of payment. See DLSE: Paydays, pay periods and the final wages.

Manner of Payment

An employer may pay employees by cash, by check payable on demand without discount or fee, or, with the employee's voluntary consent, by direct deposit into an account at a financial institution of the employee's choosing.

In addition, an employer may pay an employee's wages through a payroll card program if all the following requirements are satisfied:

• The employer has obtained the employee's voluntary written consent to receive wages by payroll card. Before obtaining consent, the employer must provide the employee, in the language the employer normally uses to communicate employment-related information to the employee, the following information:
• • A description, stated in plain language, of the employee's options for receiving wages.
  • The terms and conditions of the payroll card account, including a clear, conspicuous and complete itemized list, in a form the employee may retain for his or her records, of any fees that may be deducted from the employee's payroll card account by the issuer.
  • A list of the services available to the employee.
• The employer has not made participation in the payroll card program a condition of hire or of continued employment.
• The employer has offered the employee—and the employee has declined—both the option of receiving wages by direct deposit to a depository account of the employee's choosing and the option of receiving payment by paper check.
• The employer honors a request by the employee to change the method of receiving wages from the payroll card account to another method allowed by law, within two pay periods from the time of the request.
• The funds must be available immediately on payday. The employee must be able to withdraw the full amount paid.
• Furthermore, the payroll card contract between the employer and the issuer requires that the issuer provide the employee, at no cost to the employee, the following:
• • The right to make at least one withdrawal per pay period from an automated teller machine (ATM).
  • At least one method to withdraw the entire amount of wages for each pay period.
  • A periodic statement at least once each month, or at least once every three months, if there is a balance on the payroll card but no activity on the payroll card account.

The funds in a payroll card account do not expire, but the account may be closed for inactivity—with reasonable notice to the employee—as long as the remaining funds in the account are refunded to the employee at no cost. If the payroll card has an expiration date, the issuer must provide a replacement card to the employee at least 15 days before the expiration date at no charge to the employee.

Timing of payments

Wages earned between the 1st and the 15th of the month are to be paid no later than the 26th day of the month in which the employee worked. Wages earned between the 16th and the final day of the month must be paid by the 10th day of the following month. A collective bargaining agreement that provides for different payroll periods and pay dates is permitted by the labor code.

For payroll periods other than the 1st through the 15th and the 16th through the final day of the month—periods such as weekly, biweekly or semimonthly—wages must be paid within seven calendar days of the end of the payroll period in which the wages were earned.

An organization that fails to pay an employee's wages can be subject to civil penalties. For the first violation, the penalty is $100 for each failure to pay each employee. Subsequent violations or any willful violations are $200 for each failure to pay each employee plus 25 percent of the amount unlawfully withheld.

Final paychecks

An employee who is terminated or laid off must be paid all of his or her earned and unpaid wages, including accrued but unused vacation or other paid time off, immediately at the time of termination; the place of the final wage payment is the place of termination.

An employee who does not have a written employment contract for a definite period of time and who gives at least 72 hours' prior notice of his or her intention to quit—and who quits on the day given in the notice—must be paid all wages, including accrued but unused vacation or other paid time off, at the time of quitting. An employee without a written employment contract and who quits without giving 72 hours' prior notice must be paid all wages, including accrued but unused vacation or other paid time off, within 72 hours of quitting. The employee may request that the final wage payment be mailed to a designated address. The date of mailing is considered the date of payment.

See:

What are the rules regarding payment of final wages in the state of California?

California Labor Code – Payment of Wages

After-Hours Resignation Didn't Start Clock for Final Pay

Waiting-time penalty

A waiting-time penalty applies to the willful failure to pay wages at the end of employment. The penalty is equal to the employee's daily rate of pay and is calculated by multiplying the daily wage by the number of days that the employee was not paid, up to a maximum of 30 days. See DLSE: Waiting time penalty

Defining Hours and Days of Work

Any time that an employee works on behalf of the organization, or any time the organization knows or has reason to know that work is being performed by the employee, is compensable time, regardless of where the work is performed (with some limitations). Time spent working is compensable even when it is done without prior approval. See In California, what rules apply when determining what constitutes hours worked?

California has adopted the federal regulations that allow the practice of computing working time by rounding to the nearest five minutes, or one-tenth or one-quarter of an hour. Such rounding is acceptable as long as it is applied for both the employee and the organization so that, in the long run, it does not result in failure to compensate employees properly for all time they have actually worked. See Neutral System That Automatically Rounded Employee Time OK in California.

Workday and workweek

California labor law defines a workday as any consecutive 24-hour period commencing at the same time each day. The 24-hour period may be set to begin at any hour during a calendar day; however, after the period has been established, employers may not arbitrarily make changes to workday or workweek hours.

A workweek is defined as any period of seven consecutive days beginning on the same calendar day each week.

An employer may make changes to the workday or the workweek only if the change is intended to be permanent.

California employers will need to determine internally how the workday and workweek will be defined; that is, what day and time will the workday and workweek begin and end. This is essential in determining time worked and wages due for California-based employees. See CA Labor Code Section 500

Alternative work schedules

California Labor Code Section 511 and most of the current IWC orders provide for alternative workweek schedules. An alternative workweek schedule means any regularly scheduled workweek requiring an employee to work more than eight hours in a 24-hour period. An alternative work schedule can be created for any readily identifiable work unit, such as a division, department, job classification, shift or separate physical location with the approval by secret ballot election of at least two-thirds of the affected employees in the work unit. There are numerous requirements of employers seeking to implement alternative workweek schedules in California.

Any organization wishing to adopt or repeal an alternative workday/workweek schedule must follow the procedures set forth by the IWC and Labor Code Section 511. Before an alternative work schedule is implemented, an organization must meet specific requirements in terms of proposing the schedule to the employee group, explaining the effects of the alternative workweek schedule and conducting a secret vote.

However, there are differences within the orders and among the industries covered by the specific orders—both in the schedules that may be adopted and in the election procedures that are to be used. In addition, certain health care workers have special alternative workweek rules.

Consequently, an employer must carefully review the provisions of both the IWC orders and the Labor Code sections to understand the alternative workweek rules. Not all IWC orders provide for alternative workweek arrangements. Alternative workweeks are provided for in Orders 1-13, 16 and 17.

Single schedule or options. The regularly scheduled alternative workweek proposed by an employer for adoption by employees may be a single work schedule that would become the standard schedule for workers in the work unit, or a menu of work schedule options from which each employee in the unit could choose. The menu of options may also include a regular schedule of eight-hour days. Employees who adopt a menu of work schedule options may, with the employer's consent, alternate between schedule options on a weekly basis.

Overtime rules. The alternative workweek may not require more than 10 hours of work per day or more than 40 hours of work in a workweek, with some exceptions. Any overtime between 10 and 12 hours worked above the alternative workweek schedule must be paid at one and one-half times the regular rate of pay, and any overtime beyond 12 hours worked must be paid at twice the regular rate of pay. Employees working longer than eight hours but not more than 12 hours in a day pursuant to an alternative workweek must be paid an overtime rate of at least one and one-half times their regular rate of pay for any work exceeding the regularly scheduled hours established by the alternative workweek agreement and for any work exceeding 40 hours per week.

See What are the rules for alternative workweek schedules in California? and How to Implement Alternative Workweek Schedules in California.

Determining Time Worked          

The amount of pay due an employee cannot be determined without first knowing the total number of hours actually worked by that employee in each workweek. An employee must be paid for all of the time considered to be hours worked, and all hours worked must be counted when determining overtime hours worked. The DLSE defines "hours worked" as "the time during which an employee is subject to the control of an employer," including "all of the time the employee is suffered or permitted to work, whether or not required to do so."² See 9th Circuit Expounds the Meaning of Compensable Time and Calif. High Court: Starbucks Must Pay Workers to Close Store.

Work not requested but permitted to be performed must be paid for by the employer. For example, an employee may voluntarily continue to work at the end of the shift to finish an assigned task or to correct errors. The reason is immaterial. The hours are work time and are compensable.

Call-back, on-call and standby time

An organization does not automatically have to pay a nonexempt employee for being available outside of regular work hours. Whether the on-call time is compensable depends on factors such as the degree of the restriction on the employee's freedom, whether the employee is required to be on the organization's property and the impact the on-call policy has on the employee's ability to perform personal business. On-call time may be paid at a rate different from what the employee would receive for time worked.

See How should we pay on-call, nonexempt employees for time they are not actually working when on call?

Whether on-call or standby time away from the worksite is considered compensable must be determined by looking at the restrictions placed on the employee. Among the factors considered are:

• Whether a fixed time limit for response is unduly restrictive.
• Whether the on-call employee can easily trade his or her on-call responsibilities with another employee.
• The extent to which the employee engages in personal activities during on-call periods.

During times when an employee is subject to the employer's control, on-call or standby time at the worksite is considered compensable hours worked, even if the employee does nothing.

Rest periods

All nonexempt employees are entitled to a minimum of 10 minutes of rest for every four hours worked or major fraction thereof. California defines a major fraction thereof as any amount of time greater than two hours. If an employee's total hours worked in a day are 3.5 or less, a rest period is not required. The rest period must be counted as hours worked and may not be deducted from an employee's wages. California employers should schedule rest breaks near the middle of each four-hour work period to the extent possible. If the organization requires employees to take their rest periods onsite, in a specified area, the period of rest does not begin until the employee arrives at the rest area. 

Organizations can require employees to stay on the work premises during a rest period. If the organization fails to provide an employee with a rest period in accordance with the applicable wage order, the organization must pay the employee one hour of pay at the employee's regular rate of compensation for each workday that the rest period is not provided. See DLSE: Rest Periods and What are the meal and rest break requirements for California employees?

Exemption for safety-sensitive position at a petroleum facility. Assembly Bill 2605 exempts certain unionized employees from the requirement to be relieved of all duties during a rest period if the following criteria are met:

1. The employee is in a safety-sensitive position and required to carry and monitor a communication device, such as a radio, pager, or other form of instant communication, and to respond to emergencies, or is required to remain on employer premises to monitor the premises and respond to emergencies.
2. The employee is subject to Industrial Welfare Commission Wage Order No. 1.
3. The employee is covered by a valid collective bargaining agreement that expressly provides for the wages, hours of work, and working conditions of employees, and expressly provides for rest periods for those employees, final and binding arbitration of disputes concerning application of its rest period provisions, premium wage rates for all overtime hours worked, and a regular hourly rate of pay of not less than 30 percent more than the state minimum-wage rate.

If a nonexempt employee's rest period is interrupted to address an emergency, another rest period must be provided promptly after the circumstances that led to the interruption have passed. If circumstances do not allow for the employee to take such a rest period, the employer shall pay the employee one hour of pay at the employee's regular rate of pay for the rest period that was not provided. See Assembly Bill 2605.

This exemption is valid from Sep. 20, 2018, until Jan. 1, 2021, and may be extended. 

Meal periods

Organizations are also required to provide nonexempt employees with a meal period of no less than 30 consecutive minutes for any work period of more than five hours; however, when the work period will not exceed six hours, the meal period may be waived by mutual consent of both the employer and employee. Employers should document in writing any meal period waiver agreements. The meal period must begin before the end of the fifth hour worked; that is, no later than the start of the employee's sixth hour of work.

In addition, employees who work more than 10 hours must be given a second meal period of not less than 30 consecutive minutes. The meal period must begin before the end of the 10th hour worked. Employees who have not waived the first meal period and who will work more than 10 but fewer than 12 hours for a shift may waive the second meal period. The waiver must be completed before the second meal period and it is recommended that employers document such waivers in writing. 

Employees must be relieved of all duty and should not perform any work during meal periods. Employers must provide employees with a minimum of 30 consecutive minutes without interruption and employees must be able to leave the employer's premises for the meal period to be unpaid.

If the organization fails to provide an employee with a complete, 30-minute meal period in accordance with the applicable wage order, the organization must pay the employee one hour of pay at the employee's regular rate of compensation for each workday in which a meal period is not provided.

In 2012, the California Supreme Court issued its decision in Brinker Restaurant Corporation v. S.C. (Hohnbaum), 2012 Cal., which resolved several questions on the employer's obligations with respect to meal and rest periods. Most important, the court held that employers must merely "provide" meal and rest periods. Employers are not required to "ensure" employees take them. Accordingly, employers are not required to force employees to take meal or rest breaks as long as they are reasonably "provided" to employees.

On-duty meal periods. California law narrowly defines on-duty meal periods. An on-duty meal period is allowable only when the nature of the work prevents the employee from being relieved of all duty and when there is a written mutual agreement between the organization and the employee. The written agreement must state that the employee may, in writing, revoke the agreement at any time. In addition, if the organization requires the employee to remain at the worksite during the meal period, the meal period must be paid. This is true even when the employee is relieved of all work duties during the meal period. If an employee is not relieved of all duties and there is no on-duty meal period agreement, it will be treated as a missed meal period.

Waivers in the health care industry. Employees in the health care industry who work shifts exceeding eight hours in a workday may voluntarily waive the right to one of the two meal periods as confirmed by SB 327 in 2015. To be valid, all waivers must be in a written agreement that is voluntarily signed by both the organization and the employee. The employee may revoke the waiver at any time with a written notice to the organization at least one day in advance. The employee must be fully compensated for all working time, including any on-the-job meal period, while the waiver is in effect.

Exemptions under a collective bargaining agreement. Construction workers, commercial drivers, security officers, gas and electric company employees, and employees of publicly owned local electric utilities are exempt from California's meal period provisions if the employees are covered by a valid collective bargaining agreement containing specific provisions regarding meal periods, according to California Labor Code Section 512(e)-(f). To be exempt, the collective bargaining agreement must include the following:

• A provision for the wages, hours of work and working conditions of employees.
• A provision expressly providing for meal periods.
• Final and binding arbitration of disputes concerning application of the meal period provisions.
• Premium wage rates for all overtime hours worked.
• A regular hourly rate of pay at least 30 percent more than the state minimum-wage rate.

If a collective bargaining agreement exists, employers should be careful to ensure that each of the above requirements is met. Otherwise, the employer may leave itself open to substantial liability.

Exception for commercial drivers of licensed commercial feed manufacturers. Effective Jan. 1, 2019, Assembly Bill 2610 authorizes a commercial driver employed by a motor carrier transporting nutrients and byproducts from a licensed commercial feed manufacturer to a customer located in a remote rural location to commence a meal period after 6 hours of work, if the regular rate of pay of the driver is no less than one and one-half times the state minimum wage and the driver receives overtime compensation in accordance with specific provisions of existing law. See Assembly Bill 2610.

See 6 FAQs on California's Meal and Rest Break Rules and Employer Must Pay Undocumented Workers for Wage and Hour Violations.

Make-up time

California law allows an employee to request the opportunity to make up time not worked under certain situations. See In California, is make-up time allowed without incurring overtime when that time takes an employee beyond 8 hours of work in a day?

If the employee misses time for personal situations, that employee can request the opportunity to work longer hours on another day to make up the missed time. If the organization decides to allow make-up time, it must comply with these regulations:

• The time off must be made up in the same workweek.
• The organization may not encourage or suggest that the employee work make-up time; the option has to be freely selected by the employee.
• In each instance when the employee asks the organization for permission to make up time, the request must be written and signed by the employee.
• When making up time, the employee must not work more than 11 hours on another workday during that week and must not work more than 40 hours in the workweek. The organization need not pay overtime over eight hours on the day with make-up time if the employee does not work more than 11 hours. Make-up time that causes the total amount of time worked to exceed 11 hours per day or 40 hours per week must be counted toward an employee's total hours worked for purposes of overtime.
• The organization needs to keep detailed records of requests for make-up time and the actual hours of make-up time that are worked.

Travel time

Whether an employer needs to pay a nonexempt employee for travel time depends on many circumstances. Here are some examples of when travel time is or is not considered work time.

Commuting—traveling from home to the designated worksite—is not paid travel time. If the organization provides the employee with a company vehicle, the travel time to the employee's usual worksite is generally not paid time, although the specific circumstances will be considered. See DLSE – Wages.

Most other travel time is considered compensable work time, including the following:

• Travel to a nonusual worksite on a temporary basis or when an organization does not allow an employee to use his or her own transportation.
• Travel time when the employer requires its employees to meet at a designated place and use the employer's transportation to and from the worksite and prohibits employees from using their own transportation.
• Travel time longer than the employee's normal commute to and from the regular worksite. Employees who are required to report to a temporary worksite must be compensated for any time spent traveling that exceeds the time normally required to report to their regular worksite.
• Time spent driving or as a passenger in an airplane, a train, a bus, a taxicab or car, or other mode of transportation for traveling on an out-of-town business-related trip—and time spent waiting to buy a ticket, check baggage or get on board—is considered time spent under the employer's control and is therefore compensable as hours worked regardless of whether the travel falls within the employee's normal work hours.

Rate of pay for travel time. Nonexempt employees may be paid for their travel time at a pay rate lower than the usual rate of pay. This rate may be as low as the minimum wage. The rate at which the travel must be compensated depends on the nature of the compensation agreement. If the employee has agreed to a fixed hourly rate of pay for any work performed, then travel time must be paid at that regular hourly rate or, if applicable, the required overtime rate. An employer may establish a separate rate of pay for travel before the work is performed by hourly employees, provided the rate does not fall below the statutory minimum wage. Salaried nonexempt employees must be paid at the appropriate overtime rate for any hours worked in excess of eight in a day or 40 in a week, computed by converting the weekly salary to an hourly rate.

Travel time must be counted as work time when calculating overtime for nonexempt employees.

Split-shift pay

In California, a split-shift occurs when an employee's work schedule is interrupted by a nonpaid, nonworking period of more than 60 minutes. When there is more than one hour between shifts, the employee is entitled to one additional hour of pay at no less than the minimum-wage rate. An example of this is an employee scheduled for 7 a.m. to 9 a.m. and then again from 4 p.m. to 6 p.m. in the same workday.

A unique situation arises when an employee's workday, as defined by the employer, crosses workdays. A night-shift employee who works from 12:01 a.m. to 4:00 a.m. and then again from 10:00 p.m. to 4:00 a.m. is entitled to split-shift pay, assuming a workday of 12:01 a.m. to 12:00 a.m. In situations such as these, employers can redefine the workday for the group of employees as long as it is not on a temporary basis to avoid overtime. A defined workday of 9:01 p.m. to 9:00 p.m. in the night-shift example would prevent the employer from having a split shift.

In Aleman v. Airtouch Cellular, 209 Cal. App. 4th 556 (2012), a California court of appeal held that a split-shift premium is not required when an employee's pay is sufficiently greater than minimum wage. See DLSE Split Shift

Regardless of how the workday is defined, split-shift pay normally does not become part of the calculation for overtime because it is not a payment for time worked.

See CA Split Shift Pay Policy

Reporting-time pay

When an employee reports to work at his or her regularly scheduled time, but the employer sends the employee home because there is no work, the employee must be paid for at least half of the hours scheduled to work, but, in no case, for less than 2 hours nor more than 4 hours at the employee's regular rate of pay. See What are the rules regarding reporting time or "show-up" pay in California?

Notices and Record-Keeping

In accordance with California Labor Code Section 226, employers have a legal obligation to maintain and keep accurate payroll records on each employee for a minimum of three years, and such records must be made readily available for inspection by the employee upon reasonable request. A copy of wage statements and the records of deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the state of California.

In a response to the trend of allowing employees to work remotely, California will permit employers to distribute required notices and posters to employees by email, effective Jan. 1, 2022, in addition to physically displaying required posters in the workplace. See Senate Bill No. 657.

Posting requirements

California Labor Code Section 207 requires all employers in California to post and keep posted a notice specifying the regular paydays and the time and place of payment. The notice must be posted in a conspicuous location at the place of work, if practicable, or otherwise where employees can see it as they go to or come from their places of work, or at the office or nearest agency for payment kept by the employer. 

IWC wage orders that are in effect must be posted by all employers in an area frequented by employees, where the orders can be easily read during the workday. Copies of the wage orders are available from the Department of Industrial Relations' Workplace Postings Page.

Notifications to employees

In accordance with the California Wage Theft Protection Act, employers must provide each nonexempt employee at the time of hire with a notice containing the following:

• The rate or rates of pay and whether payment is by the hour, shift, day, week, salary, piece, commission or otherwise, including any rates for overtime, as applicable.
• Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances.
• The regular payday designated by the employer.
• The name of the employer, including any "doing business as" names used by the employer.
• The location address of the employer's main office or principal place of business and a mailing address if it differs from the location address.
• The employer's telephone number.
• The name, address and telephone number of the employer's workers' compensation insurance carrier.
• Information regarding California's paid-sick-leave law (Healthy Workplaces, Healthy Families Act of 2014).
• Any other information the labor commissioner deems significant.
• For employers who are temporary services employers, the notice must also include the name and physical address of the main office, the telephone number of the legal entity for whom the employee will work, and any other material designated by the labor commissioner.

However, the requirement does not apply for employees in the following categories:

• Exempt employees.
• Employees directly employed by the state or any political subdivision of the state.
• Employees covered by a valid collective bargaining agreement that expressly provides for the wages, hours of work and working conditions of the employee and provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of not less than 30 percent more than the state minimum wage.

The law also requires an employer to notify nonexempt employees in writing of any changes in the information in the initial notice to the employee, generally within seven calendar days after the time of the changes. Changes reflected on a timely wage statement can satisfy that requirement. See, How much notice must an employer in California provide employees prior to making changes to a pay date or pay period?

Wage statements

Every organization is required to provide all employees, at the time of payment of wages, an accurate itemized statement in writing. The statements must be recorded in ink or other indelible form and must show the month, day and year. In addition, the organization must keep a copy of the statement on file for at least three years at the place of employment.

The statement must include the following:

• Name and address of the legal entity.
• Name of the employee and only the last four digits of the employee's Social Security number. 
• All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.
• Inclusive dates of the period for which the employee is paid.
• Gross wages earned.
• Total hours worked for nonexempt employees who do not receive compensation in the form of salary.
• Number of piece-rate units earned and piece rate, if applicable.
• Any and all deductions.
• Net wages earned.
• Employers who are temporary services employers must include the rate of pay and total hours worked for each temporary services assignment worked by an employee.

See:

Example wage statement – hourly employee

Example wage statement – piece rate employee

What Do California Employers Need to Know About Wage Statements?

PAGA Wage-Statement Claim Doesn't Require Proof of Injury

Time-keeping records

Every organization is required to keep accurate time records detailing when nonexempt (hourly) employees begin and end each work period and meal period, along with split-shift intervals and the total hours worked each day. It is not permissible under state law to rely on work schedules posted in advance. In addition, organizations must keep a record of the applicable rates of pay, the total hours worked in the pay period per nonexempt employee and the total wages paid each payroll period. Organizations must keep records of this information for at least three years for every employee, but legal counsel may recommend maintaining records for a longer period.

These records must be maintained at a central location in the state or at the plants or establishments at which employees are employed and must be available to the employee to inspect upon reasonable request. The records must be maintained in English and properly identified by date, month and year. The organization must also keep a record showing the names, addresses, occupation/job titles and Social Security numbers of all employees and the date of birth of all minor employees. The organization must also keep payroll records showing the hours worked daily by, and the wages paid to, each employee and the number of piece-rate units earned by, and any applicable piece rate paid to, employees employed at the respective plants or establishments.

Labor Code Section 206.5 was amended to help prevent employers from using false time records as a means of avoiding wage-and-hour litigation. Under the amendment, employees cannot be required to validate a statement of hours as a condition of getting paid when the employer knows that the statement of hours is false.

 

Endnotes

¹ State of California, Department of Industrial Relations. Independent contractor versus employee. Retrieved from http://www.dir.ca.gov/dlse/faq_independentcontractor.htm

² State of California, Department of Industrial Relations, State of California, Division of Labor Standards Enforcement. (2017). The 2002 update of the DLSE enforcement policies and interpretations manual (rev.). Retrieved from http://www.dir.ca.gov/dlse/DLSEManual/dlse_enfcmanual.pdf