The role of HR with regard to California’s overtime payment laws is to meet the following broad objectives:
- To be cognizant of jurisdictional issues that will determine whether California law, federal law or the law of some other state will control on a particular issue.
- To thoroughly understand federal overtime law requirements.
- For California HR professionals to understand California law well enough to make decisions and take responsibility for them. See, California Compliance Digest (PDF).
- For all HR professionals to understand the law well enough to know when to seek advice from California wage-and-hour experts.
- To effectively communicate California overtime pay requirements to management and employees.
HR’s role in California overtime pay compliance also involves six distinct functions:
- Correctly classifying workers as exempt, nonexempt, independent contractor, intern, full time, part time or other applicable classification in accordance with California’s wage orders.
- Understanding what “work” means and paying workers appropriately as salary, hourly, piece rate, flat rate or other basis.
- Correctly calculating the amount earned as regular rate, overtime and other compensation such as bonus and commissions.
- Paying employees the proper amount of overtime due, when it is due and in the manner it is due.
- Keeping complete and accurate timekeeping records as required by California law.
Overview of FLSA Overtime
Succinctly stated, the federal Fair Labor Standards Act (FLSA) requires payment of overtime to employees who work more than 40 hours in a single workweek, unless exempt. The FLSA also requires payment of a minimum wage. The precise legal and regulatory definitions of these words are key to compliance.
For foundational information about the FLSA, see:
A basic principle of the FLSA is that it does not override more generous state laws. When state employment protections on similar rights are greater than what the FLSA provides, the state laws may supersede federal law. In other words, employers should usually comply with the law (federal or state) that is the most generous to the employee on any particular wage-and-hour issue. Employers should consult legal counsel before making decisions as to whether state or federal protections apply on any given issue.
Comparison of California Law and Federal Overtime Law
Against the framework of the FLSA overtime law, HR professionals with employees in California must compare the California framework. Employers must then abide by the California law so long as it does not thwart the FLSA. This means being more generous to employees in California than is required under federal law with some exceptions. See, California Labor Code.
Multiplicity of laws and wage orders
Typically, a state has a single wage-and-hour overtime payment statute and a single wage-and-hour order or regulation implementing that statute. California has numerous laws and regulations and, currently, 17 wage orders applicable to different industries or occupations. A good starting point for understanding California overtime payment laws is the website of the state’s Industrial Welfare Commission (IWC).
The IWC divides its wage orders according to industries and occupations. The wage orders are:
- Manufacturing (PDF).
- Personal services (PDF).
- Canning, freezing and preserving (PDF).
- Professional, technical, clerical, mechanical and similar occupations (PDF).
- Public housekeeping (PDF).
- Laundry, linen supply, dry cleaning and dyeing (PDF).
- Mercantile (PDF).
- Handling products after harvest (PDF).
- Transportation (PDF).
- Amusement and recreation (PDF).
- Broadcasting (PDF).
- Motion picture (PDF).
- Preparing agricultural products for market, on the farm (PDF).
- Agricultural occupations (PDF).
- Household occupations (PDF).
- Certain on-site occupations in construction, drilling, logging and mining industries (PDF).
- Miscellaneous employees (PDF).
The “industry” orders are numbers 1 through 3 and 5 through 13. The “occupation” orders are numbers 4 and 14 through 17. Employers in California must determine where a particular employee falls within the regulatory scheme at the outset of any wage-and-hour analysis. If an employer is covered by an industry order, then the industry order takes precedence over an occupation order. See, Industrial Welfare Commission (IWC) and Which IWC Order? (PDF).
Key areas of difference
Several important terms come up in wage-and-hour issues. The significance of statutes and regulations is usually driven by the definitions of the words used, so understanding the definitions under all applicable laws is essential. Do not assume that words used in the statutes, regulations and wage orders mean the same as in common usage. Typically, definitions are set out near the beginning of the statute or regulation and apply consistently throughout.
California law regarding wages and the payment of overtime is found generally at California Labor Code §200-243, §510 and §1171-1206. California administrative regulations can be found at 8 California Code Reg. §11000 et. seq. as well as in the wage orders listed above. The California Division of Labor Standards Enforcement (DLSE) occasionally releases interpretative bulletins that address specific fact situations. The wage orders are presumed by the California courts to be reasonable and lawful until a party demonstrates otherwise. The interpretative bulletins constitute mere opinions rather than substantive law. Courts vary to the extent and deference given to the DLSE opinion letters. See, Harris Feeding Co. v. Department of Industrial Relations, 224 Cal. App. 3d 464, 273 Cal. Rptr. 598 (5th Dist. 1990).
There is a hierarchy of issues to address when considering a wage-and-hour issue in California:
- Does federal law preempt California law on the point?
- Is the position exempt from wage and hour requirements under both federal and California law?
- Do any federal or state exemptions apply to the particular industry or occupation?
- Were hours worked authorized and recorded (keeping in mind that merely suffering the employee working can constitute authorization)?
- Was the failure to pay overtime willful or a good faith mistake?
Employer. The foundational concept of “employer” is defined differently under California law than under federal law—at least under one of the IWC Orders. There is no single definition of employer as of this writing that can be reliably applied under all IWC Orders. As stated in the California Supreme Court case Martinez v. Combs, 49 Cal. 4th 35 (2010): “An examination of the wage orders’ language, history and place in the context of California wage law, moreover, makes clear that those orders do not incorporate the federal definition of employment.”1
The California concept of employer differs from FLSA law because the California concept preceded the FLSA. The California Supreme Court stated in this case:
As we have explained, the IWC has used the phrase “suffer or permit” in wage orders to define the employment relation since 1916, borrowing the phrase from the common, well-understood wording of contemporary child labor laws. . . . Not until 1938 did Congress enact the FLSA, defining the term “employ” with similar language . . . and not until 1961 did the United States Supreme Court engraft onto the language of the FLSA the nonstatutory “economic reality” test for employment.2
As is customary with judicial opinions, the California Supreme Court did not go on to delineate all differences in the definitions that may exist but confined itself to the facts of the case before it under Wage Order 14. In 16 other wage orders in California, the definition of such a basic concept as employer could depend on the particular industry or occupation at issue.
Accordingly, California employers must take note that even something as basic as the definition of employer is probably broader under California law as it compares to the FLSA. California employers should pay particular attention to the wage order(s) that cover their industry and the occupation(s) at issue. Moreover, California employers should retain qualified California employment law attorneys to address many issues that may seem simple under the FLSA.
Employers that try to circumvent California’s complex overtime payment laws by merely designating workers as independent contractors take a significant risk. Effective January 1, 2012, California Labor Code §226.8 sets forth harsh penalties for employers that willfully misclassify workers as independent contractors. An employer can be subject to fines up to $25,000 per violation if the state finds that the employer committed a pattern or practice of misclassification. Consequently, misclassifying employees can be costly. Employers should consult legal counsel and be cautious when classifying workers as independent contractors. See, Independent contractors: How do I know if an individual is considered an employee or independent contractor in California? and Attorney Counts Down Top 10 Ways to Violate California’s Wage-Hour Laws.
Exempt and nonexempt. These are key terms under California law, just as they are under the FLSA. See, Overtime: Exemptions: What is the difference between California overtime exemption requirements and federal overtime exemption requirements?
Under federal law, several categories of workers may be eligible for an exemption from certain provisions of wage-and-hour laws, including:
- Administrative personnel.
- Certain professionals.
- Outside salespersons.
- Employees of amusement or recreational establishments.
- Farmers and fishers.
- Newspaper workers.
- News announcers.
- Delivery drivers and taxi drivers.
- Motion picture theater employees.
- Persons performing services in foreign countries.
The above list is not exhaustive. Employers should consult with legal counsel to determine whether specific employees are exempt from any provisions of federal wage and hour requirements. Most other workers are protected both by federal law and by state law such as California’s multiplicity of wage orders.
Exempt workers are paid to get the job done, not to work a set number of hours. Employers should not treat exempt workers like hourly employees—intensively monitoring and recording their comings and goings and checking whether they are working. Exempt positions are not supposed to provide a mechanism to evade overtime laws while still treating exempt employees as though they were nonexempt in terms of closely monitored working conditions. Thus, employers may not simply designate any employee as exempt. Exempt employees typically must meet a legal standard to be classified as such, which could include meeting a duties test and a salary test. See, FLSA: Exemption Test Questionnaire.
California covers the same general areas of exemption as does the FLSA, but divides the areas somewhat differently, places additional requirements on some of the exemptions and also has several unique exemptions. See, Exceptions to the General Overtime Law.
In California, white-collar exemptions (executive, administrative and professional) have both salary and duty criteria that differ from those under the FLSA. The salary component is tied to California’s minimum wage, so whenever the minimum wage goes up, employers must verify that employees classified as exempt are still exempt. The California state minimum wage will increase in 2014 and 2016. California exemptions are discussed in greater detail in “California Overtime Exemptions” below.
Workweek and workday. Key to the FLSA is the definition of a workweek. However, California overtime law also depends on the definition of a workday. A workday is a consecutive 24-hour period that is consistent throughout the year. If the employer fails to define its own workweek, the California Labor Commissioner will use the default of Sunday through Saturday, with the workday lasting from 12:01 a.m. to midnight. Under certain circumstances, California allows employers to establish a workweek different from the typical workweek of five eight-hour days of work. See, DLSE—Glossary and Summary of Interim Wage Order—2000.
Work. The definition of work is another area in which California law diverges from law under the FLSA and the law of most states. What constitutes work is a very fact-specific determination. It is not always clear under the FLSA what is and is not work. This determination becomes even more complicated when one must consider whether a California definition of work trumps the federal definition of work in a particular context.
California law on working hours is contained in Labor Code §500-558 and §1171-1206, as well as in the many wage orders described above. The definitions of work and working hours interact with the provisions regarding payment of minimum wages and overtime wages. California regulations regarding working hours can be found at 8 Cal. Code Reg. §11000 et. seq.
Unless otherwise expressly agreed to by parties to a contract, eight hours of labor constitutes a day of work. In California it is the level of the employer’s control over employees that is critical, rather than the mere fact that the employer requires the employee to perform certain activities. See, Morillion v. Royal Packing Co., 22 Cal. 4th 575, 94 Cal. Rptr. 2d 3, 995 P.2d 139 (2000).
“Hours worked” under California law is defined as hours in which a worker is “subject to the control of the employer.”3
The rules become even more complex under California law.
Consider, for example, the narrow question of whether, under the FLSA, putting on a uniform or protective clothing or washing hands to be prepared to do work constitutes work. Section 3(o) of the FLSA provides that time spent “changing clothes or washing at the beginning or end of each workday” is excluded from compensable time under the FLSA if the time is excluded from compensable time pursuant to “the express terms or by custom or practice” under a collective bargaining agreement.4 In 2010 the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) issued a multipage interpretation of this single definition in the FLSA. See, Administrator’s Interpretation No. 2010-2.
The WHD’s interpretation included the following: “Since 2002, courts have aptly noted the vastly divergent definitions of ‘clothes’ that appear in a single dictionary, in different editions of a dictionary, and in different publishers’ dictionaries.”5 The WHD Administrator concluded that “clothes changing covered by § 203(o) may be a principal activity” for which compensation is owed as “work.”6 Thus, compliance with the FLSA is a very fact-specific process that involves applying words in ways that are not apparent from reading whatever dictionary is on the shelf, but requires an understanding of legislative history and judicial precedent in the particular jurisdiction.
Definitions of work become even more complex under California law, where the definition is dependent in part on California’s many fact-specific wage orders. In 1994 the DLSE issued an opinion letter addressing two narrow questions of what constitutes work under California wage-and-hour law. The opinion letter compared and contrasted the definition of hours worked between the FLSA and California. (Keep in mind that “hours worked” is just one of many operative terms in the federal and California wage-and-hour laws.) The letter pointed out that the FLSA contains no definition of hours worked and that the U.S. DOL relies on definitions first set out in a Supreme Court opinion of 1944 that was expanded in a 1946 Supreme Court opinion. Later the DOL attempted to clarify the FLSA definition by saying in 29 C.F.R. §778.223 that “[a]s a general rule the term ‘hours worked’ will include: (a) All time during which an employee is required to be on duty or to be on the employer’s premises or at a prescribed workplace and (b) all time during which an employee is suffered or permitted to work whether or not he is required to do so.”7
The DLSE opinion stated the definition used by the California Industrial Welfare Commission: “‘Hours worked’ means the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.”8 The DLSE then concluded, “There is a substantial difference between the definition of hours worked adopted by the IWC and that used by the Department of Labor for enforcement of the FLSA. Under California law it is only necessary that the worker be subject to the ‘control of the employer’ in order to be entitled to compensation.”9
Comp time and makeup time. California allows for comp time based on a specific procedure and also has a distinct procedure called “makeup time,” which the FLSA does not. See, for example, Labor Code §513. See also, In California, is make-up time allowed without incurring overtime when that time takes an employee beyond eight hours of work in a day?
Compare that law to U.S. DOL regulations on time off under the FLSA. See, “FLSA compensatory time” and “FLSA compensatory time off”.
For a brief discussion of these circumstances, see, Managing Workplace Flexibility in California.
Interns. California also has Opinion Letter dated April 7, 2010, on the conditions under which the DLSE deems an intern not entitled to wages and therefore, ultimately exempt from the state’s overtime pay requirements. California’s position is very similar to the U.S. DOL’s position under the FLSA, despite having fewer discrete points to consider. See, Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act.
Minimum wage. There is also the definition of minimum wage to consider. Although there are some exceptions, almost all employees in California must be paid the higher minimum wage as required by state law. Effective January 1, 2008, the minimum wage in California is $8 per hour. On July 1, 2014, the California state minimum wage will increase to $9 and, in July 2016, will increase to $10. There is an exception for learners, regardless of age, who may be paid not less than 85 percent of the minimum wage rounded to the nearest nickel during their first 160 hours of employment in occupations in which they have no previous similar or related experience. There is also an exception for sheepherders. These two exceptions illustrate the importance of placing each individual employee in California in the right category at the outset of any wage-and-hour analysis. For federal resources on this topic, see, Minimum wage: Is the minimum wage in San Francisco different than the California state minimum wage?
Tips. In California, tips left on the table or on a credit card charge are deemed property of the employee; the employer is obligated to turn that money over to the employee. An employer can impose a mandatory tip pool among restaurant employees, but a supervisor who acts as the agent of the employer cannot share in those tips. Employers may not use an employee’s tips as a credit toward the employer’s obligations to pay minimum wage. See, Tips and gratuities.
For federal resources on this topic, see, Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA) as well as other toolkits referenced at the beginning of this article.
California Overtime Exemptions
As with the FLSA, California recognizes several exemptions from overtime requirements. The exemptions are similar to, but not identical to, their federal counterparts. See, IWC Wage Order 4-2001.
Salary is a key concept under both the FLSA and California law. To meet the white-collar exemptions (executive, administrative and professional) standard for a salaried employee in California, the worker must receive two times the California state minimum wage, and this amount may not be reduced for poor performance or lack of productivity. See, Fact Sheet #17G: Salary Basis Requirement and the Part 541 Exemptions Under the Fair Labor Standards Act (FLSA) (PDF).
Another critical difference regarding the white-collar exemptions (executive, administrative and professional) between federal FLSA and California is that California has a 50 percent rule. The term “primarily engaged in” in California means that more than one-half of the employee’s work time must be spent engaged in exempt work. This meaning differs substantially from the federal test, which simply requires that the “primary duty” of the employee falls within the exempt duties. In California, the question to ask is not if the position engages in exempt duties, but rather if the position engages in exempt duties more than 50 percent of the time each week.
A California employee qualifies for the executive exemption
Has duties and responsibilities involving the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision thereof.
- Customarily and regularly exercises discretion and independent judgment.
- Regularly directs the work of two or more employees.
- Has the authority to hire/terminate and advance/promote employees, or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight.
- Earns a monthly salary equal to at least two times the state minimum wage for full-time employment (i.e., 40 hours/week).
- Is primarily engaged in duties that meet the test of the exemption.
The administrative exemption is the one that most often snags employers both under the FLSA and California law. Employees claimed exempt under the administrative exemption are usually female employees—a reason to be especially cautious about deeming a particular position eligible for the administrative exemption. Case law is replete with employers unsuccessfully claiming the administrative exemption for secretaries, file clerks, bookkeepers, paralegals and project managers. A California employee qualifies for the administrative exemption if the employee meets all of the following requirements:
- Primarily performs either (a) office or nonmanual work directly related to management policies or the general business operations of the organization; or (b) functions in the administration of a school system, or educational establishment or institution, or of a department or subdivision thereof, in work directly related to the academic instruction or training carried on therein.
- Customarily and regularly exercises discretion and independent judgment.
- Regularly and directly assists a proprietor, or an employee employed in a bona fide executive or administrative capacity.
- Performs, under only general supervision, work along specialized or technical lines requiring special training, experience or knowledge.
- Executes, under only general supervision, special assignments and tasks.
- Is primarily engaged in duties that meet the test for the exemption.
- Has obtained special training, experience or knowledge.
- Earns a monthly salary equal to two times the California minimum wage for full-time employment.
A California employee qualifies for the professional exemption if the employee meets one of the following requirements:
- Has a license or certification by the state of California and works primarily in the practice of law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting.
- “Is primarily engaged in an occupation commonly recognized as a learned or artistic profession. ‘Learned or artistic profession’ means an employee who is primarily engaged in the performance of:
a. Work requiring knowledge of an advance type in a field or science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education and from an apprenticeship, and from training in the performance of routine mental, manual, or physical processes, or work that is an essential part of or necessarily incident to any of the above work; or
b. Work that is original and creative in character in a recognized field of artistic endeavor (as opposed to work which can be produced by a person endowed with general manual or intellectual ability and training), and the result of which depends primarily on the invention, imagination, or talent of the employee or work that is an essential part of or necessarily incident to any of the above work; and
c.Whose work is predominantly intellectual and varied in character (as opposed to routine mental, manual, mechanical, or physical work) and is of such character that the output produced or the result accomplished cannot be standardized in relation to a given period of time.”10
- Customarily and regularly exercises discretion and independent judgment.
- Earns a monthly salary equal to at least two times the state minimum wage for full-time employment.
Computer software occupations exemption
California’s computer professional exemption is significantly different from the FLSA’s exemption. To qualify as exempt under California law, an employee must receive pay at a rate of at least $49.90 per hour or the annualized full-time equivalent of that rate, $83,132.93 and meet all the following criteria:
a. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications.
b.The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to, user or system design specifications.
c.The documentation, testing, creation or modification of computer programs related to the design of software or hardware for computer operating systems.
The Director’s Office of Policy, Research and Legislation (OPRL) is required to adjust both the hourly pay rate and the salary level on October 1 of each year to be effective on January 1 of the following year by an amount equal to the percentage increase in the California Consumer Price Index for Urban Wage Earners and Clerical Workers (PDF).
Outside sales exemption
Federal law has an overtime exemption for outside sales. The key term here is “outside,” which may not include an established home office because the home office may be deemed part of the employer’s place of business. The gist of the exemption is the employee making sales “on the road.” A California employee qualifies for the outside sales exemption if the employee meets the following criteria:
Is primarily engaged in sales.
- Customarily and regularly spends more than 50 percent of working time away from the employer’s place of business.
- Sells tangible or intangible products or obtains orders or contracts for products, services or use of facilities.
This exemption correlates to the “hunter” model of sales, in which extensive time may be expended traveling and bringing back a few “big kills.” See, Designing Compensation Systems for Sales Professionals.
Commissioned salespersons exemption
Federal law has an exemption for commissioned sales persons employed at a “retail or service” establishment under Section 7(i). California maintains a similar but different commission exemption for employers subject to Wage Orders 4 and 7. No other wage order other than 4 or 7 has such an exemption. A California employee qualifies for the commissioned salesperson exemption if the employee meets the following criteria:
Is primarily engaged in sales.
- Has earnings exceeding 1.5 times the California minimum wage.
- Has more than 50 percent of his or her earnings representing commissions.
- Is covered by Wage Orders 4 or 7.
- Spends more than 50 percent of working time away from the employer’s place of business.
In 2012, the case of Muldrow v. Surrex Corp., 202 Cal. App. 4th 1232, a California court broadly interpreted the term “primarily engaged.” Consequently, an employee may still be primarily engaged in sales when performing activities that are related to sales activities, but not actual selling. The decision is on review before the California Supreme Court. However, employers should consult with legal counsel before determining whether employees meet the standard for any exemption.
See, Recruiter Qualified Under Calif. Commissioned Salesperson Exemption, Not Entitled to Overtime and Commissions: Does the state of California have specific rules regarding the payment of commissions as a form of compensation?
California Law on Alternative Workweeks
A fundamental principle of FLSA overtime law is that each workweek must stand on its own. (Exceptions exist for police, firefighters, and hospital and nursing home employees.) Under the FLSA a workweek is generally defined as seven consecutive 24-hour days. Typically, employers require their employees to work five consecutive days of eight hours each (with meal breaks). See, Workweek.
However, some industries require 24/7 manufacturing or customer service. Also, some employees desire greater flexibility than provided by this model. Again, California has been a leader in developing laws to address both sets of needs.
To satisfy the needs of recruits and employees while still keeping labor costs at a reasonable and predictable level—and thereby remaining competitive—California employers have availed themselves of California Labor Code §511, which allows them to define alternative workweeks and workdays under certain conditions. An employer is allowed to change its defined workweek or workday if the change is intended (at the time) to be permanent. It is not necessary for all classes of employees to have the same workweek or workday. However, employees on public works and those in agricultural occupations subject to IWC Order 14 are not eligible for alternative workweeks. Certain employers with collective bargaining agreements are not subject to all of the requirements of the California regulations concerning alternative workweeks.
Alternative workweeks and workdays provide an opportunity for employers to fine-tune their defined work schedules. Alternative work schedules should be grounded primarily in the needs of the job being done and in the desires of the workers; the opportunity to avoid paying overtime should not be the goal, but rather a possible ancillary benefit to the employer. See, Alternative Workweeks: What are the rules for alternative workweek schedules in California?
Generally, overtime pay is required in California whenever an employee works more than eight hours in a workday (or in excess of an established alternative workweek) or more than 40 hours in a workweek or during the first eight hours during the seventh consecutive day worked in the same workweek. Employees earn double time if they work more than 12 hours in a day or more than eight hours on the seventh consecutive day worked in the workweek. It is possible under a properly established alternative workweek for an employee to work more than eight hours a day and still be compensated—without overtime—at the regular rate of pay for the extra hours.
In the 17 wage orders, there are different alternative workweek rules. The following is a general discussion of rules that may apply to a legitimate alternative workweek program under California law, with several noted exceptions:
- The alternative workweek may not require more than 10 hours of work per day.
- The alternative workweek may not require more than 40 hours of work in a workweek.
- Overtime between 10 and 12 hours worked above the alternative workweek must be paid at the overtime rate of 1.5 times the regular rate of pay.
- Overtime beyond 12 hours above the alternative workweek must be paid at two times the regular rate of pay.
- Any time worked up to eight hours on days worked beyond the regularly scheduled days must be paid at the overtime rate of 1.5 times the regular rate of pay.
- Any time worked in excess of eight hours on days worked beyond the regularly scheduled days must be paid at a rate of two times the regular rate of pay.
- Certain health care workers are subject to different rules for alternative workweeks.
- An employer cannot reduce an employee’s regular rate of pay as the result of employees’ establishing or rejecting an alternative workweek program.
- Employees must approve any alternative workweek election through a secret ballot election. Before implementing an alternative workweek, an employer must meet specific requirements of proposing it to the defined unit—the employee group—and of explaining the effects of the alternative workweek schedule regarding wages, benefits and hours. The employer must provide a written disclosure with a sample ballot and wait 14 days prior to conducting the election. Employees must approve the schedule by a two-thirds vote. The employer then must report the results to the state and wait 30 days before implementation. If the implementation is not handled correctly, the employer may be drawn into complex and unanticipated legal proceedings and ultimately be held liable for overtime under a completely different workweek calculation.
Employers should proceed with caution in implementing alternative workweeks. For a detailed discussion of how to accomplish this process in a legally compliant manner, see, Managing Workplace Flexibility in California.
Wage Payment Obligations
Overtime wages must be paid no later than the payday for the next regular payroll period following the payroll period in which the overtime wages were earned. An employer is in compliance with Labor Code §226(a) relating to total hours worked by the employee if the overtime hours are recorded as a correction on the itemized statement for the next regular pay period and the statement includes the dates of the pay period for which the correction is being made. See, Labor Code §204(b)(2).
An employee who is discharged must be paid all wages, including overtime, and accrued but unused vacation or paid time off, immediately at the time of termination. Upon resignation, if an employee provides 72 hours’ notice, the employee must receive his or her final check on his or her final day of work. If the employee does not provide 72 hours’ notice, the employer has 72 hours to give the employee his or her final check. See, Labor Code §201 and §227.3 and Paydays, pay periods, and final wages.
California law also mandates a pay stub with payment of wages that contains certain information. The pay stub must be issued to the employee with each pay check. See, Pay stub for an employee paid on an hourly wage (PDF).
California Labor Code §226 requires each pay stub to include the following information for the corresponding pay period:
- The gross wages earned.
- The total hours worked by the employee except for exempt employees paid solely in salary.
- Number of piece rate units earned and all applicable piece rates, if paid by piece rate.
- All deductions.
- Net wages earned.
- Inclusive dates of the period for which the employee is being paid.
- The employee’s name and only the last four digits of the employee’s Social Security number.
- The name and address of the employer.
- All applicable hourly rates during the pay period.
Effective July 1, 2013, temporary services employers must also include the rate of pay and total hours worked for each temporary services assignment worked by the employee.
Employers must retain a copy of each pay stub for at least three years.
California Record-Keeping Requirements
California law requires employers to keep accurate wage-and-hour records as follows:
- Detailing when nonexempt employees begin and end each work period, meal period and split-shift intervals, with total hours worked each day. Relying on work schedules posted in advance is not sufficient; actual hours worked must be recorded. See, Calif. Decision Limits ‘Reporting-Time’ Pay and Clarifies ‘Split-Shift’ Premium.
- Recording names, addresses, occupation/job titles and the last four digits of Social Security numbers of all employees, plus the date of birth of employees who are minors.
- Recording applicable rate of pay, total hours worked in a pay period and total wages paid in each pay period. For employees compensated on a piece rate scheme, this includes the applicable piece rates and the number of piece rate units earned.
- Maintaining required records for at least three years at a central location within California or at the locations where employees work.
- Maintaining records as required by the federal Family and Medical Leave Act.
- Making records available for inspection by employees upon reasonable request.
See, California Labor Code §1174.
Requests to Inspect or Obtain Copies of Employment Records
Employees have the right to inspect records pertaining to their employment, or to obtain a copy of the same. Labor Code §226(c) provides that an employer must allow current and former employees to inspect or copy the employee’s employment records within 21 calendar days from the date the employee submits a request in writing.
Employers should also note that employees may request a copy of their personnel files in writing. Employers must provide a copy of an employee’s personnel file within 30 days of receiving a written request by the employee. See, Personnel files and records.
Enforcement of California Overtime Laws
California’s counterpart to the DOL is the Division of Labor Standards Enforcement (DLSE). California’s Industrial Welfare Commission wage orders (IWC Orders) are the counterpart to DOL regulations. As seen repeatedly above, California gives employees a lot of clout.
California has a multilayered scheme to enforce its wage and hour laws. The Private Attorneys General Act of 2004 empowers employees to act as private attorneys general on their own behalf and on behalf of other current and former employees to seek civil penalties for California Labor Code violations. A successful employee acting as a private attorney general receives 25 percent of the civil penalty awarded and collected, plus reasonable attorney fees and court costs.
The DLSE has seven units charged with different aspects of enforcement:
- Wage Claim Adjudication. This unit holds informal conferences to resolve wage disputes and conducts administrative hearings if voluntary agreements cannot be reached.
- Bureau of Field Enforcement (BOFE). BOFE’s jurisdiction covers workers’ compensation insurance, child labor, cash pay, unlicensed contractors, IWC wage orders and group wage claims.
- Retaliation Complaint Unit. The unit investigates complaints of discriminatory retaliation on the basis of wage-and-hour and other Labor Code violations.
- Public Works Unit. The unit investigates and enforces application of prevailing wage rates for public works construction projects.
- Labor Enforcement Task Force (LETF). The LETF is a partnership of state and federal agencies that collaborate to target businesses engaging in the underground economy, historically abusing workers in garment manufacturing, janitorial, agriculture, car wash, construction, race track and restaurant industries.
- Licensing and Registration Unit. This unit issues licenses, registrations or certifications applicable to: o Farm labor contractors.
o Talent agents.
o Organizations involved in door-to-door sales.
o Industrial homeworkers.
o Garment manufacturers.
o Studio teachers.
o Employees with a disability and sheltered workshop.
o Labor contractor licensees.
- Legal Unit. This area presents civil cases alleging violation of the California labor laws at both the trial and appellate levels.
Federal law and California law require employers to communicate legal rights to employees by means of posters and, in some instances, text in employee handbooks. Employers must post both federal and California current minimum wage requirements, numerous other posters, and the applicable California wage orders in an area commonly frequented by employees to ensure that employees can easily read the postings during the workday. Copies of the required postings are available from the California Department of Industrial Relations (see, Industrial Welfare Commission wage orders). Posters and notices must be updated on a yearly basis. See, SHRM State Law Chart: Workplace Posting (PDF).
Wage Theft Prevention Act
California’s Wage Theft Prevention Act (WTPA) took effect January 1, 2012. See, How much notice must an employer in California provide employees prior to making changes to a pay date or pay period?
California Labor Code §2810.5 requires employers to give new nonexempt employees at the time of hire, and in certain circumstances current, nonexempt employees, a particularized notice about their wages and other employment-related information. The following specific items must be included in the notice:
- The rate(s) of pay, whether by unit of time, salary or piece. This includes applicable overtime rates as well.
- Any allowances claimed as part of the minimum wage, including meal or lodging allowances.
- The designated regular payday.
- The employer’s name, as well as any “doing business as” names.
- The physical address of the employer’s main office or principal place of business and mailing address.
- The employer’s telephone number.
- Any other information specified by the Labor Commissioner.
If the above information changes during employment, the employer must notify the nonexempt employees within seven days or on his or her next itemized wage statement, if possible. The Labor Commissioner has created a template notice that satisfies the requirements of §2810.5.
The wage notice requirement affects most of the more than eight million California employees who are entitled to receive overtime. See, Hiring practices: Notices: What notices or forms must employers provide to new hires in California? and California’s New Wage Disclosure Notice and Wage Theft Prevention Act of 2011.
California’s Wage Theft Prevention Act (WTPA) took effect January 1, 2012. See, How much notice must an employer in California provide employees prior to making changes to a pay date or pay period?
The WTPA and accompanying regulations provide for, among other things:
- Which employees must receive a wage notice.
- What information the wage notice must contain.
- Timing of the notice.
- The level of detail required in the notice.
- A template that is approved for giving the notice in English (the California Labor Commissioner will provide template wage notices in Spanish, Chinese, Korean, Vietnamese and Tagalog as they are completed by the agency).
According to the California Labor Commissioner’s FAQs, the wage notice may be given electronically. To do so, there must be “a system where the worker can acknowledge the receipt of the notice and print out a copy of the notice.”11 The Labor Commissioner’s FAQs provide practical advice about how to address an employee who refuses to sign the wage notice. In such a case, the employer should note the employee’s refusal on the employer’s notice and provide a copy of that notice to the employee. The Labor Commissioner’s form notice states that “the employee’s signature on this notice merely constitutes acknowledgment of receipt.”12 This statement helps avoid creating a contractual obligation on the part of the employer. An employer that wishes to obtain an employee’s assent to a credit against the minimum wage must do so through a separate agreement with the employee.
Templates and Tools
Agencies and organizations
Laws and regulations
1 Martinez v. Combs, 49 Cal.4th 35 (2010). Retrieved from http://caselaw.lp.findlaw.com/data2/californiastatecases/s121552.pdf
3 Division of Labor Standards Enforcement. (2006). The 2002 update of the DLSE enforcement policies and interpretations manual (revised). Retrieved from http://www.dir.ca.gov/dlse/DLSEManual/dlse_enfcmanual.pdf
4 U.S. Department of Labor, Wage and Hour Division. (2010). Administrator’s interpretation No. 2010-2. Retrieved from http://www.dol.gov/WHD/opinion/adminIntrprtn/FLSA/2010/FLSAAI2010_2.htm
7 California Department of Industrial Relations, Division of Labor Standards Enforcement. (1994, February 3). Letter regarding compensable time. Retrieved from http://www.dir.ca.gov/dlse/opinions/1994-02-03-3.pdf
10 California Division of Labor Standards Enforcement. (n.d.). Glossary: Professional exemption. Retrieved from http://www.dir.ca.gov/dlse/Glossary.asp?Button1=P
11 California Department of Industrial Relations, Division of Labor Standards Enforcement. (2012). Frequently asked questions (FAQ): Wage Theft Protection Act of 2011—notice to employees. Retrieved from http://www.dir.ca.gov/dlse/FAQs-NoticeToEmployee.html
12 California Department of Industrial Relations, Division of Labor Standards Enforcement. Notice to employee: Labor code section 2810.5. (2012).Retrieved from http://www.dir.ca.gov/dlse/LC_2810.5_Notice.pdf
Acknowledgement— This article was prepared for SHRM Online by Gene R. Thornton, J.D., PHR. Mr. Thornton is a practicing employment law attorney and freelance writer based in Colorado Springs, Colo., and a regular contributor to SHRM Online content. He is the co-author of Employment Termination Source Book: A Collection of Practical Samples (SHRM, 2006). In addition to relying on his own professional expertise and research, the author has incorporated existing SHRM Online content in developing this treatment.
Publication Note—These guidelines were thoroughly revised in October 2013. SHRM staff will update them periodically as new features and conventions are developed. For the most recent developments, see the California Resources Page. Notify SHRM of broken links or concerns about the content by e-mailing firstname.lastname@example.org