We Have Employees in California. Now What?

Businesses that expand into California need to know that employment policies that work in other states won't necessarily work there, particularly when it comes to wage and hour practices.

As in other states, employers can't simply follow the Fair Labor Standards Act (FLSA) and refer to only federal law in their handbook, explained Brenda Kasper, an attorney with Kasper Frank in Carlsbad. But they can't ignore federal law and focus solely on California law either, she said.

Employers must comply with all the federal, state and local laws that apply to their workforce, Kasper explained at the California State Council of the Society for Human Resource Management's 2017 California State Legislative and HR Conference on April 20 in Sacramento.

She noted that many cities have their own wage and hour laws, too—Los Angeles, San Diego and San Francisco, for example, have set their own minimum wages at a higher rate than those at the federal and state level. When laws conflict, employers need to apply the one that's most favorable to the employees.

[SHRM members-only toolkit: Complying with California Wage Payment and Hours of Work Laws]

In addition to having complex employment laws, California also has some of the most aggressive plaintiffs' attorneys in the country, Kasper said, and employees tend to know what they are entitled to under state law. Many California employees have been a part of an employment class action in the past, and they might be waiting to see if their new employer knows the law.

That's why it's so important for businesses with employees in California to make sure their handbooks, policies and practices are up to par.

Although there are many differences between federal and California law, one area that gets especially complicated is wage and hour law. Here are some of the distinctions employers should note.

Nonexempt Employees

Properly compensating employees who are entitled to overtime pay in California requires more than just paying time-and-a-half for hours worked beyond 40 a week. They also must receive 1.5 times their regular rate if they work more than eight hours a day.

This doesn't mean employers have to pay both daily and weekly overtime for the same hours. The overtime premium only has to be paid once on those hours that both exceed eight in a day and 40 in a week, Kasper explained.

The differences between California and the federal overtime law don't stop there. Nonexempt employees in the state must be paid double time for working more than 12 hours a day and for working more than eight hours on the seventh consecutive workday of the week.

Employers also need to be aware of any local minimum-wage ordinances that apply to their workforce and figure out how to compensate employees who work in several locations with different wage laws.

One solution might be to pay everyone the highest applicable minimum wage, Kasper said, though she acknowledged that this practice may not go over well with the finance department.

California nonexempt workers are also entitled to up to two 30-minute unpaid meal periods per day—depending on the length of their shift—and a 10-minute rest break for every four hours of work or "major fraction thereof."

Kasper said employers shouldn't ignore the "major fraction thereof" language and should specifically define what that means in their meal and rest period policy.

Reporting-time pay is an area employers often overlook, she said. If a worker is sent home after working less than half the usual workday, the employee must be paid for at least two hours and no more than four hours of work.

Employers need to pay attention to this rule when they terminate workers during their shift or when they have on-call employees, Kasper said.

Additionally, employees need to receive itemized, written wage statements at the time they receive their paychecks.

Exempt Employees

California law also differs from federal law when it comes to classifying workers who are exempt from overtime pay under the administrative, executive and professional exemptions. The state not only has a higher salary threshold for exempt employees, but it also has two different standards.

Employers with 25 or fewer employees must pay exempt employees at least $41,600 per year, and employers with more workers must pay at least $43,680. These rates are scheduled to rise incrementally over the next few years.

Kasper suggested that HR professionals share the planned minimum-wage and salary threshold increases with their finance department.

Unlike the federal exempt salary threshold—which is currently $23,660—California's is double the state's minimum wage, based on a 40-hour workweek. So when the state minimum wage rises on Jan. 1, 2018, to $11 per hour for employers with at least 26 workers, the exempt salary threshold will rise to $45,760.

Kasper noted that even though some cities have their own minimum wage, the exempt salary threshold is tied to the statewide minimum wage, not the local rates.

Additionally, federal law has certain exceptions for highly compensated workers (earning at least $100,000 per year), but California law does not. 

Whether an employee is exempt or nonexempt, there are also state-specific requirements for final paychecks, payroll deductions, vacation-time payouts and commission plans.

"In California, tiny little mistakes can cost a ton of money," Kasper cautions. That's why businesses need to keep up with all the nuances in the state's wage and hour laws. 

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