April 2023

Wage theft is undoubtedly a major issue in the United States.  According to a study by the Economic Policy Institute, wage theft could amount to $50 billion dollars per year owed to unpaid workers.

To combat wage theft, California has passed onerous regulations and severe penalties for non-compliance.  These rules are often so burdensome that it can be difficult for even the most well-intentioned employers to comply with all requirements. The ramifications of non-compliance can be devastating to businesses as they may face crippling class-action lawsuits and Private Attorneys General Act (“PAGA”) claims. There are, however, steps that employers can take to try and minimize their risks associated with costly wage and hour lawsuits. 

1. Pay Minimum Wage

Paying minimum wage may seem like a no-brainer, but there are still many ways that an employer can be tripped-up in California. For example, minimum wage rates may vary by city or county.  As of January 2023, California’s minimum wage is $15.50/hour.  But in the City of Los Angeles, the minimum wage is $16.04 and is set to increase to $16.78 on July 1, 2023.  San Diego’s minimum wage is currently $16.25, and San Francisco’s minimum wage is currently $16.99.  Some locations may have higher minimum wage rates that apply to larger employers.  Employees must also be paid the minimum wage for the location where the work is performed, not where the employer’s business is located.  Employees who work at various job sites, therefore, may be entitled to different minimum wage rates.

2. Pay Employees Twice Per Month

California Labor Code section 204 requires employers to pay employees at least twice per month.  Wages earned from the 1^st to the 15^th must be paid by the 26^th of the month and waged earned between the 16^th and the end of the month must be paid by the 10^th day of the following month.  Employers currently paying employees once per monthly are likely violating California law and should consider changing to a bi-monthly payments immediately.

Importantly, however, employers who pay weekly should also consider changing payroll to twice monthly.  Many of California’s wage and hour violations assess damages and penalties on a “per pay period” basis.  As such, an employer paying employees on a weekly basis could be assessed twice the damages and penalties as an employer paying employees on a bi-monthly basis for the exact same violations.  

3. Eliminate Rounding Policies

For years, California permitted employers to use neutral rounding policies where time punches would be rounded to the nearest 10 or 15-minute increment.  Recently, however, courts have held that these policies can violate wage and hour laws that require employer to pay employees for all time worked.  Employers should eliminate all existing rounding policies and begin paying employees based on the exact hours worked. 

4. Implement Appropriate Timekeeping Programs and Maintain Accurate Timekeeping and Pay Records

In order to pay employees for all time worked, employers should implement accurate timekeeping programs.  California courts have been extremely stringent on the requirement to pay employees for all time worked.  Recent cases have held that employees must be compensated for the time it takes to start up their computers when working from home, the time spent putting on protective clothing at the start of a work shift, and the time spent waiting for and having their bags checked by security at the end of the day.  Any timekeeping program must be able to accurately capture all of this time.

Equally important is maintaining accurate timekeeping and pay records.  If an employee is paid a premium wage for missed meal and rest periods (as discussed below), the timesheets and wage statements should reflect this payment.   If an employee’s timesheet needs to be corrected for any reason, the timesheet should reflect why the time was altered and the employee sign their approval of the change.  Wage statements must also conform to California law and must include: (1) gross wages earned; (2) total number of hours worked for that pay period; (3) applicable hourly rates; (4) all deductions; (5) net wages; (6) the employee’s full name and identification number (or last four digits of the employee’s social security number); (7) the employer’s full legal name and address; (8) the inclusive dates of the pay period; and (9) the total piece-rate units earned if an employee is paid on a piece-rate basis. 

5. Pay Meal and Rest Premiums

If an employer does not provide an employee the opportunity to take a compliant meal or rest break, the employer must pay the employee a meal premium equal to one hour of wages at the employee’s regular rate of pay.  If the employee takes a 29-minute meal break, the employee is owed a meal premium. If the employee did not take a meal break prior to the sixth hour of work, the employee is owed a meal premium. If the employer discusses work related matters while the employee is on a break, the employee is owed a meal premium.  Any non-compliant break should be recorded, and the wage statement must reflect the payment.  Courts often take a suspicious view of employers who have never paid meal premiums to any non-exempt employees.

6. Understand How to Calculate “Regular Rate of Pay”

California uses the term “regular rate of pay” for many wage and hour regulations.  For example, the meal premium payment is calculated by the employee’s “regular rate of pay.”  Similarly, overtime rates are based on an employee’s “regular rate of pay.”  Regular rate of pay does not mean the employee’s base hourly rate.  Rather, regular rate of pay must account for all forms of wages.  For example, if an employee earns a base rate of $20/hour and then earns commissions for that pay period equal to $10/hour, the employee’s regular rate of pay is $30/hour.  The regular rate of pay must account for all forms of wages for that pay period, including commissions, non-discretionary bonuses, and premium payments.  As a result, the employee’s regular rate of pay may be different each pay period. 

7. Pay Employees Timely and Accurately at the End of Employment

California is strict as to when employees must be paid on termination or resignation.  Employees who are terminated or who resign with at least 72 hours’ notice must be paid immediately on the last day of employment.  If an employee resigns with less than 72 hours’ notice, the employee must be paid within 72 hours of the date of resignation.  The final paycheck must include all wages owed, including accrued but unpaid vacation time, earned commissions, and earned non-discretionary bonuses.   Employees who are not properly compensated for all wages owed at the time of separation are entitled to waiting time penalties.  These penalties accrue at a rate of one day of wages at the employee’s regular rate of pay for each day wages are owed, up to an aggregate of 30 days. 

8. Reimburse Employees for Necessary Business Expenses

California requires employers to compensate employees if the employees incur necessary business expenses. Necessary business expenses are not limited to out-of-pocket expenses an employee may have incurred to purchase tools or equipment.  Employees are entitled to reimbursement for use of their own vehicle for work related purposes.  This mileage should be reimbursed at the IRS mileage rate (currently 65.5 cents per mile for 2023).  Employers must also consider expenses incurred for employees who work from home.  Employers should reimburse employees for reasonable expenses related to use of an employee’s personal cell phone and internet.  Similarly, the employer should provide necessary equipment or provide a reasonable reimbursement for use of the employee’s personal equipment, such as computers, printers, scanners, etc. 

9. Maintain and Updated Employee Handbooks

Employers should maintain detailed employee handbooks that include wage and hour policies and should update their handbooks regularly when the laws change or when new laws are added.  Handbooks should include information on the employer’s pay practices, such as listing the pay periods and paydays.  Handbooks should also include the employer’s policies concerning meal and rest breaks and employee reimbursements.  All written policies must conform to California’s laws.  Employers should consider maintaining handbooks in other languages for employees whose primary language is not English.  Employers should also require employees to sign handbook acknowledgments at the start of employment and anytime the handbook is updated and maintain these acknowledgments in the employees’ personnel files.

10. Conduct Audits Periodically or as Needed

Employers should consider conducting periodic audits of their wage and hour practices by an attorney or an expert in the field.  If the audits highlight violations, the employer should take immediate steps to correct the issues.  Further, the employer should consider compensating employees for any deficiencies in pay.  Employers should conduct audits as needed, such as auditing wage and hour records for terminated employees prior to their termination to ensure terminated employees are fully compensated. 

For more information contact:

Matthew Wallin

mwallin@gibbsgiden.com

(424) 317-4423

Matthew Wallin is a senior associate in the Los Angeles office where he practices labor and employment law.  He has extensive experience defending private business and public entities in litigation and advising clients on labor compliance issues.  

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