Unique Employment and Labor Laws for California Employees
Many employers are located in other states, but have employees who work in California. Legal requirements in California prevail over other state laws and, in some cases, supersede federal laws. California regulations are enforced by six different state regulatory agencies. In comparison, other states are usually subject to only two or three. If you have California employees, get the HR assistance you need from CEA!
As opposed to the Federal minimum wage of $7.25 per hour, effective Jan. 1, 2022, California’s minimum wage is $14.00 per hour for employers with 25 or fewer employees and $15.00 per hour for employers with 26 or more employees (in 2023 we max out at $15.00/ hour for all employers). These minimum wages also impact the minimum salary that must be paid for executive, administrative, and professional employees to be exempt to avoid misclassification problems. (Two times the applicable state minimum wage multiplied by 2080 hours.)
Throughout the state, there are many city wages and living wages that supersede California’s state minimum wage laws. See the “Minimum Wage Inc. Local & PSL” Fact Sheet, which is also available under HR Forms, Category: Scheduling, Pay.
Wage Theft Protection Act—Required Notice
Employers are required to inform each employee of their rights by providing specific information in writing to employees upon hire and to other employees upon request. The Labor Commissioner has developed a form that an employer may elect to use to comply with these provisions.
California Labor Code section 2810.5 requires employers to give newly hired nonexempt employees a notice disclosing the rate of pay, regular payday, employer name and address, and information regarding paid sick leave as applicable to that employee. Employers must also notify employees within seven days of any changes to this information. While employers are not required to use the form provided by the Labor Commissioner, it is strongly recommended that you use the form prepared by the Labor Commissioner available on its website in multiple languages.
Timely Payment of Wages, Including Final Pay
Timely wage payment rules are very strict in California. For each late paycheck, California’s Labor Code allows the recovery of up to $200, plus 25% of the amount unlawfully withheld, per employee, per payroll period.
Employees who are involuntary discharged (fired or laid off) must be paid all of their unpaid wages, including accrued but unused vacation or paid time off, at their time of discharge. This rule applies to all employees, including those who are released after completing a specific job assignment, even if the assignment is as short as one day as well as remote employees.
Employees who voluntarily end their employment must receive their final paycheck on their last day of employment if they gave at least 72 hours of notice. If an employee walks off the job, the employer has 72 hours (clock hours regardless of whether your business is open for operation) to make the final paycheck available to the employee.
Failure to meet these payment rules can result in a penalty of up to 30 days of pay at the employee’s regular daily rate if the employee files a claim with the Labor Commissioner.
Pay Stub Rules
With each paycheck, an employee must receive, or be provided no-cost access to, a written itemized statement (pay stub or other written documentation) with 11 separate items, such as:
• The inclusive dates of the pay period
• Name of the employee and social security number (only the last four digits)
• Name and address of the employer
• All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee
Employers must also show how many days of mandatory paid sick leave employees have available on the pay stub, or on a document issued the same day as the paycheck. If an employer provides unlimited paid sick leave or unlimited paid time off, the employer may indicate "unlimited" on the pay stub or other document provided to the employee the same day as payment of wages.
Failure to include all required information with each paycheck can result in penalties of $100 per employee, per violation, up to a maximum of $4,000 per employee. The risk and potential impact: Penalties up to $4,000, per employee.
California law also requires employers to keep a copy of all payroll records showing the daily hours worked and the wages paid to its employees for at least three years, at the place of employment or at a central location within the State of California. Failure to allow a current or former employee access to payroll records can result in a $750 penalty for each violation.
Common payroll deductions made by employers in other states are often unlawful in California. Examples of unlawful deductions include those taken for: uniforms, lost safety equipment, broken supplies and other business losses resulting from the employee’s simple negligence. Penalties for employers are up to $200, plus 25% of the amount unlawfully withheld, per employee, per payroll period.
Meal and Rest Periods
California has employee-friendly break and lunch requirements for all nonexempt employees not heard of in other states and not required by federal law.
The timing and duration of breaks (rest) and meal (lunch) periods are very specific in California. If they are not provided as required, employers must self impose a penalty, payable to the employee, equal to one hour of the employees’ regular rate of pay. These penalty payments are considered wages and employees may recover penalties for up to four years. If the employer fails to pay the penalty on the payday for the period in which the violation occurred, employees may seek additional penalties including liquidated damages for each payday that was “underpaid.”
Properly classifying a worker as an employee or an independent contractor is an important task—failure to properly classify can lead to liability for missed meal and rest periods, overtime and other wage and hour claims and penalties. California has moved away from the “Right to Control” test most commonly used to determine if someone is an employee or an independent contractor, which focused on the hiring entity’s ability to control how the work was performed.
Instead, the California Supreme Court and the State Legislature has found that a hiring entity, in order to prove that an independent contractor is not an employee, must establish each of the three factors embodied in the ABC test—namely, that the worker:
A. Is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
B. Performs work that is outside the usual course of the hiring entity’s business; and
C. Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
This is a tough standard, and many California employers will need to take a look at any independent contractors they currently use to see if they meet the ABC test—especially take a close look at factor “B.” There are also exceptions and legal challenges to this rule, so proceed with caution when hiring independent contractors.
Alternative Workweek Scheduling
In California, employers may create Alternative Work Weeks which allow their employees to work a daily schedule in excess of an eight-hour workday and avoid overtime penalties. However, implementing an alternative workweek schedule requires strict adherence to state guidelines. Among other things, a secret ballot vote must be passed by two-thirds of the unit that would be affected by the alternative workweek schedule. Failure to follow the correct procedures when adopting an alternative workweek can invalidate the alternative workweek schedule and result in penalties of up to four years of unpaid overtime pay, interest penalties and attorney fees.
Overtime Pay Rates
California’s hourly overtime laws are much more employee-friendly than other states. Not paying overtime correctly can lead to huge penalties for employers.
California employees are entitled to time-and-a-half (1.5 times their regular rate of pay) after working eight hours in a workday or more than 40 hours in a workweek, and double overtime pay after working 12 hours in a workday. In addition, California has a 7th day overtime premium on the 7th consecutive day worked in a workweek. Many of these “employee-friendly” overtime laws contrast with those in other states and federal laws that only require overtime to be paid after 40 hours have been worked in a workweek.
Misclassification of Employees
Incorrectly classifying an employee as “exempt” from overtime and meal and rest break requirements can result in up to four years of back overtime pay, plus interest and penalties.
When analyzing overtime exemptions, federal law and most state laws focus on the tasks of the job and ask whether the “primary” duty is of an exempt nature. California instead uses two primary tests to determine whether someone is an exempt employee. First employers must ensure the employee spends more than 50% of his or her time performing “exempt” duties which must include a significant amount of independent judgment. Second, they must use a salary test to ensure the employee earns at least two times the state minimum wage.
Out of State Employees Working in California
Since a 2011 court decision, employees based outside of California who work in California for full days or weeks must be paid overtime based on California legal requirements while they are working in California. More recent decisions have further clarified these rules for out of state workers, so be sure you know what applies to your out of state employees working temporarily in California.
Wages for Employees in the Computer Industry
Computer software employees in 2022 must earn at least $50 per hour, or $8,679.16 per month, or $104,149.81 per year to be exempt from California’s overtime laws. This salary is adjusted annually according to the consumer price index.
Wages for Physicians and Surgeons
California annually adjusts the overtime exemption “salary test” for licensed physicians and surgeons. The 2022 minimum hourly rate of pay for licensed physicians and surgeons to qualify as exempt is $91.07.
Employers who believe their employees may qualify for any of the exemption categories need to review the requirements on the exemption worksheets to ensure employees meet both the duties and the salary test.
Leave of Absence Laws
While most states have two or three required employee leaves of absence, California employers must provide over 20 leaves of absence to employees. Some unique examples of California Leave Laws include:
California Healthy Families Act—Paid Sick Leave Law
ALL employers, both public and private, are required to provide paid sick leave to all of their employees, with a few exceptions. Several cities have also developed their own paid sick leave requirements that are in excess of the State’s required plan. This comes with many compliance issues including:
• Carryover and accrual requirements
• Posting requirements
• Record-keeping requirements
Crime Victims Leave—Required Notice
Employers are required to inform each employee of their rights by providing specific information in a notice prepared by the Labor Commissioner, available in English and Spanish, to new employees upon hire and to other employees upon request.
When it comes to earned and accrued vacation, California does not allow “Use-It-Or-Lose-It” policies. Employers are allowed to put a reasonable “cap” or “cash-out” policy in place. Vacation pay is considered “wages” under California law; therefore, all accrued unpaid days must be paid out to an employee when the employment relationship ends. A final paycheck that does not include all vacation hours can result in waiting time penalties of up to 30 days of “late pay.”
Harassment Prevention Training
Employers with 5 or more employees, must provide one (1) hour of harassment prevention training to all employees and a total of two (2) hours of harassment prevention training for all supervisors every two (2) years. The definition of a supervisor is broad and includes anyone with the authority to direct the work of others.
If you hire temporary or seasonal employees, the training for temporary employees must be completed within thirty (30) days or 100 hours of hire. Temporary workers employed by a temporary agency must be trained by the temporary agency, not the client.
California also places many restrictions on employers when it comes to the hiring process. For example, employers are generally not allowed to inquire about an applicant’s criminal record prior to a conditional offer of employment. Even after a conditional offer is extended, employers must follow specific procedures before denying an applicant the position based on their criminal history. California law also prohibits employers from seeking salary history information or relying on that information in the hiring process.
Employees in California also have certain privacy rights under the California Constitution. Employers should also exercise caution in using social media as a hiring tool. California law prohibits employers from asking applicants (or employees) for their personal e-mail or social media passwords.
Managers in the State of California can be held personally responsible for allowing harassment in the workplace to continue to occur after the harassment has been reported. Managers can also be held responsible for dangerous work environments. Any employer or manager who has actual knowledge of a concealed danger and fails to notify the affected employees and appropriate state agency can be fined or imprisoned or both.
California employers cannot prevent former employees from working for competitors. Non-compete agreements in California are generally not valid. California courts view non-compete agreements as “against public policy” (against the public good). Most other states will enforce such covenants when they are reasonable. California employers may enforce reasonable confidentiality, intellectual property assignment, non-solicitation and non-disclosure agreements.
WARN Act—Layoffs and Business Closures
The federal Worker Adjustment and Retraining Notification Act (WARN) requires companies employing a certain number of employees to provide written notice prior to any mass layoffs or plant closings to specified entities. Employers can be liable for back pay, penalties up to $500 a day for each day of violation for a maximum of 60 days, and liable for the cost of any medical expenses incurred by employees that would have been covered under an employee benefit plan for the period of the violation. California’s version of the WARN Act is broader in scope and affects more employers than the federal version.
California is a unique state when it comes to labor and employment laws. In addition, many cities and counties throughout the state have their own requirements providing different or additional benefits to employees. Human Resource professionals in other states who are responsible for California employees can get the HR assistance they need from CEA's HR experts.