Business & Corporate Articles

10 Steps You Can Take Today to Reduce California Wage and Hour Liability

Wage and hour violations, even small ones, can create big liability for California employers.  We cannot possibly do justice to the subject of wage and hour requirements, or avoiding violations of those requirements, in an article of this length.  Our goal through this article is to highlight a few steps you can take today to reduce your risk of liability.  

  1. Are You Providing Employees with Adequate Notice on Hire?  At the time you hire a non-exempt employee, you must provide him with written notice, in the language the employer normally uses to communicate employment-related information to the employee, the following information: (1) The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable; (2) Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances; (3) The regular payday designated by the employer; (4) The name of the employer, including any "doing business as" names used by the employer; (5) The physical address of the employer's main office or principal place of business, and a mailing address, if different; (6) The telephone number of the employer; (7) The name, address, and telephone number of the employer's workers' compensation insurance carrier; (8) (beginning July 1, 2015) That an employee may accrue and use sick leave, has a right to request and use accrued paid sick leave, and has the right to file a complaint against an employer who retaliates; and (9) any other information the Labor Commissioner deems material and necessary. 
  2. Are You Applying the Right Minimum Wage?  California’s current minimum wage is $9 per hour, and will increase to $10 per hour on January 1, 2016.  Remember, this also impacts the minimum salary requirement for the Administrative, Professional and Executive exemptions, as employees in those exempt positions in California must be paid at least two times minimum wage, presuming a 40 hour workweek (or annualized $37,440 now, and $41,600 beginning January 1, 2016).  If you employ exempt “Computer Professionals,” effective January 1, 2015, the hourly minimum payment is now $41.27, and the minimum annualized salary will be $85,981.40.  Also remember that various cities, like San Diego and San Francisco, have their own minimum wage requirements.  Failure to pay appropriate wages can expose employers to claims for unpaid wages, penalties, interest, and attorneys’ fees and can jeopardize an employer’s otherwise appropriate classification of an employee as exempt.
  3. Are You Providing Your Non-Exempt Employees with Adequate Meal and Rest Periods?  California employees are entitled to a reasonable opportunity to take an uninterrupted unpaid meal period of at least thirty (30) minutes for each five hours worked.  That meal period should be initiated within the first five hours of work.  When an employee is scheduled to work fewer than six hours in a relevant day, the meal period may be waived by mutual consent of the employer and the employee.  Employers must provide a second meal break of no fewer than 30 minutes for any workdays on which an employee works more than 10 hours. The second meal break should be initiated before the 10th hour of work.  An employee can waive the second meal period if the employee does not work in excess of 12 hours, if there is mutual consent, and if the first meal break of the day was not waived.  Employees are entitled to a paid rest period for each four hours worked (or major fraction thereof, which is defined as 2 hours or more).  An employer is not required to police the taking of the meal or rest period, but should not impede or discourage employees from taking these breaks.  The failure to make these breaks available can result in penalties of one hour of extra pay and the employee’s regular rate of pay per violation.  Make certain you have written policies that educate non-exempt employees on these entitlements, and ensure that your managers are affording employees the opportunity to take unfettered breaks. 
  4. Are Your Pay Stubs Complete and Accurate?  California employers are required to provide employees with itemized wage statements that include: (1) gross wages earned, (2) total hours worked by the employee (except for exempt employees); (3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, (4) all deductions; (5) net wages earned, (6) the inclusive dates of the period for which the employee is paid; (7) the name of the employee and only the last four digits of his or her social security number or an employee identification number other than a social security number; (8) the name and address of the legal entity that is the employer and, if the employer is a farm labor contractor, as defined by law, the name and address of the legal entity that secured the services of the employer, and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee and, if the employer is a temporary services employer as defined by California law, the rate of pay and the total hours worked for each temporary services assignment.  Effective July 1, 2015, paid sick leave entitlement also should be reflected in the pay stub.  Failure to provide a complete pay stub may result in penalties of $50 for the initial pay period and $100 for each subsequent pay period in which the pay stub is inaccurate, up to a total of $4,000.  Be aware, this pay stub violation may accrue if the amounts included in the pay stub are inaccurate (for example if overtime was calculated incorrectly or unpaid, if various pay rates are not reflected, if an employer failed to pay for and reflect non-productive time or if an individual was incorrectly designated as an exempt employee).
  5. Have You Accurately Classified Your Exempt Employees?  We could dedicate an article (and a long one at that) to summarizing the requirements for the various exemptions available under California and federal law.  Instead, consider the following minimum California requirements for the Administrative, Executive or Professional exemptions:  The employees must meet both a salary and a duties test.  In California, the salary must be at least two times minimum wage (presuming a 40 hour work week) and should not be subject to reduction (except in limited circumstances) based on hours worked.  Although the duties requirements vary for each exemption, a consistent requirement is that the individual customarily and regularly exercises discretion and independent judgment on matters of significance.  In other words, the employee must have the authority to make unsupervised decisions on matters of significance involving evaluation of possible courses of conduct rather than using skills and knowledge in following prescribed procedures.  At least 51% of the employee’s time must be dedicated to exempt duties that are not performed by non-exempt employees.  An incorrect designation can expose the Company to claims for unpaid wages, unpaid overtime, failure to provide meal and rest periods and failure to provide accurate wage statements, along with penalties. 
  6. Have You Accurately Characterized Your “Independent Contractors”? California law presumes that an individual worker is an employee, and the burden of rebutting the presumption lies with the employer.  Every agency that considers this designation may apply its own test, but some of the primary questions an employer should ask itself in all cases before designating an individual as an independent contractor include: (1) is the worker engaged in a distinct occupation or business, or performing duties that are part of the Company’s core business?  (2) Is the kind of work usually done by a specialist without supervision?  Stated differently, does the worker have a unique skill set outside the company’s core skill set, which the worker applies without supervision by the Company? (3) Does the worker supply his own instrumentalities, tools and place of work?  In other words, does the worker bear the risk of profit and loss for his own business?  (4) How is the worker paid?  (5) Is the worker free to work for other companies?  (6) Does the Company employ individuals who are performing the same work as the worker?  There are more questions to ask, but this will give you a sense of the test.  Getting this wrong can expose the Company to a host of consequences too many to name in an article this length, and include statutory penalties for making the incorrect designation. 
  7. Do You Have Mandatory Postings?  There is a long list of mandatory postings, and the larger the Company the longer the list.  From a wage and hour perspective, you must post the applicable IWC Wage Order, the minimum wage and payday notice.  Other postings, like those related to Workers Compensation and to leaves of absence, have implications for payment of wages.  Effective July 1, 2015 employers also are required to display a poster reflecting that an employee is entitled to accrue, request and use paid sick days in accordance with the new California Sick Leave law, the amount of sick days provided, the terms of use of paid sick days, and that retaliation or discrimination against an employee who requests paid sick days or uses paid sick days, or both, is prohibited.  Penalties can be steep.  For example, failure to maintain the appropriate workers’ compensation postings can expose employers to penalties up to $7,000 for each violation.  Failure to post the sick leave law will result in a penalty of $100 per offense. 
  8. Does Your Employee Handbook Accurately and Lawfully Capture Your Pay Practices?  Is your vacation policy compliant with California law?  Have you considered how you will treat exempt employees under your plans?  Have you considered the new California sick leave laws (effective July 1, 2015)?  Have you addressed the effect of a leave on compensation?  Have you been clear with your employees on how they will be compensated in the event of holidays?  Tardiness? Absences?  Remember, the more clear your expectations, particularly through the employee handbook, the more likely employees will perform to those expectations.  
  9. Have You Created Written Commission Plans?  Not only are they a good idea, California law requires that commission plans be in writing and that they set forth the method by which the commissions shall be computed and paid.  Commission is defined as “compensation paid to any person for services rendered in the sale of such employer's property or services and based proportionately upon the amount or value thereof.”  Be particularly clear on when the commission is earned, e.g. is it on execution of a sales contract?  When sums are received from the customer?  When product ships?  California employers also are required to provide a signed copy of the commission agreement to the employee, and the employee must sign the document to acknowledge receipt.  If the agreement has an expiration date, and the employee continues to work after that date, the contract terms are presumed to remain in full force until the employee is terminated or a new contract is issued. 
  10. Are You Paying Correctly on Termination?  A terminated California employee must be paid all wages, including accrued vacation or PTO, immediately at the time of termination.  An employee without a written employment contract for a definite period who gives at least 72 hours prior notice of his or her intention to quit must be paid all wages, including accrued vacation, at the time of quitting.  An employee who quits without giving 72 hours prior notice must be paid all wages, including accrued vacation, within 72 hours of quitting.  Did you know that direct deposits of wages to an employee's bank, saving and loan, or credit union account that were previously authorized by the employee are immediately terminated when an employee quits or is discharged?  If you want to direct deposit final wages as opposed to providing a check, the employee must voluntarily authorize that deposit.  Employers cannot withhold payment of final wages until the employee returns equipment or meets some other employer expectation; the penalty for failure to time pay wages, including final wages, is up to thirty days wages (one day for each day the Company willfully fails to pay final wages).

Again, we cannot really do justice to any of these subjects in so few words.  Moreover, a checklist like this cannot guarantee success in avoiding employment-related lawsuits.  Remember too, the suggestions above do not constitute legal advice, which can only be offered in response to a detailed discussion of specific fact situations.  Having said that, remember, an ounce of prevention is worth a pound of cure.  Take the time to review your practices - you will be glad you did. 

- Renée S. Schor and Cindy Freeland of Schor & Freeland, LLP

This article is for information purposes and does not contain or convey legal advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer.