Search results for: split shift

 A split shift is defined in the California IWC Wage Orders as:

…a work schedule, which is interrupted by non-paid non-working periods established by the employer, other than bona fide rest or meal periods.

See Cal. Code Regs., tit. 8, § 11040, subd. 2(Q). If the employee works two shifts separated by more than a rest or meal period, they are entitled to receive one hour’s of pay at the minimum wage rate in addition to the minimum wage for that work day. See Cal. Code Regs., tit. 8, §11040, subd. 4(C). Any additional amounts over minimum wage paid to the employee can be used to offset the split shift pay due to an employee. For example, say an employee earns $10 per hour. She works 10:00 a.m. to 1:00 p.m., and then again from 3:00 p.m. to 8:00 p.m. This is a total of eight hours worked for the day, and she is entitled to a split shift payment of one hour at $8 (minimum wage). However, because she earned $16 over minimum wage ($2 above minimum wage x 8 hours = $16) for the eight hours of work, this amount can be used to offset the amount owed for the split shift pay. Therefore there is nothing owed to the employee in this example.  

A court clarified some aspects of split shift pay last year in the case Securitas Security Services USA, Inc. v. Superior Court. In that case, the plaintiffs were security guards that worked the graveyard shift. Securitas designated its workday as beginning at midnight and ending the following midnight. This resulted in the guards working shifts that started on one day, and then ended on the next working day. Plaintiffs argued that they were entitled to split shift pay because their shift ended in the morning, and then they were required to start a new shift several hours later in that same day. The Court ruled against the Plaintiffs and held that employees are not entitled to split shift pay when they work uninterrupted overnight shifts. In this case, there was no “split” in the shift. The court explained:

A "split shift" occurs only when an employee’s designated working hours are interrupted by one or more unpaid, nonworking periods established by the employer that are not bona fide rest or meal periods. The fact that a single continuous shift happens to begin during one "workday" and end in another does not result in a "split shift."

However, the case left open the question of how long between shifts would constitute a split shift. For example, can an employee take a two hour lunch period without obligating the employer to pay the split shift pay? Until courts clarify this issue, conservative employers limit the meal periods to one hour.

It is critical for California employers to properly calculate the regular rate of pay for an employee in order to pay the appropriate overtime pay and for premium pay for missed meal and rest breaks.  Here are five issues employers must be aware of regarding calculating an employee’s regular rate of pay:

1. Employers must pay the “regular rate of pay” as calculated for overtime purposes when paying premium pay for missed meal and rest breaks.

As we previously reported, the California Supreme Court in Ferra v. Loews Hollywood Hotel, LLC held that the “regular rate of compensation” owed as premium wages for missed meal and rest breaks, must be calculated just as the “regular rate of pay” is calculated for overtime purposes.  While the case discussed generally what must be included in the “regular rate of pay” calculations, there are many nuances to this calculation.

 2. What compensation must be included in calculating employee’s regular rate of pay?

The DIR defines regular rate of pay as “the compensation an employee normally earns for the work they perform.  The regular rate of pay includes a number of different kinds of renumeration, such as hourly earnings, salary, piecework earning, and commissions.  In no case may the regular rate of pay be less than the applicable minimum wage.”

The Court in Ferra held that the “regular rate of pay” for missed meal breaks, just like the calculation of overtime pay, “must account for not only hourly wages but also other nondiscretionary payments for work performed by the employee.”  The Court explained that, “We use the term ‘nondiscretionary payments’ to mean payments for an employee’s work that are owed ‘pursuant to [a] prior contract, agreement, or promise,’ not ‘determined at the sole discretion of the employer.’”

3. Examples of payments that must be calculated into the regular rate of pay.

In determining the regular rate of pay, employers must include the employee’s base hourly rate plus any amounts for:

  • Shift differentials (such as premiums to work on weekends or holidays)
  • Attendance bonuses, such as those earned for weekend work is a form of incentive pay
  • Piece rate earnings
  • Commissions
  • Nondiscretionary pay and bonuses. The DIR explains, “A nondiscretionary bonus is included in determining the regular rate of pay for computing overtime when the bonus is compensation for hours worked, production or proficiency, or as an incentive to remain employed by the same employer.”

4. Examples of payments that are not included when calculating the employee’s regular rate of pay.

Unlike the nondiscretionary items listed above, an employee’s regular rate of pay does not increase for any of the following payments made to them:

  • Discretionary payments made to employees, such as gifts or bonuses that are not tied to the employee’s production, hours worked, or by formula for certain benchmarks.
  • Reimbursements for business expenses
  • Certain pay owed as required by the Labor Code, such as premium pay for missed meal and rest breaks, reporting time pay, call back pay, split shift pay.
  • Because tips are voluntarily left by customers to employees, tips do not increase an employee’s regular rate of pay for overtime calculations and premium pay.  However, if an employer implements mandatory service charges and shares these service charges with employees, the service charges must be considered wages for overtime and tax purposes.  Therefore, the employee’s regular rate of pay for overtime purposes and in calculating premium pay will be higher when mandatory service charges are distributed to the employees.

5. Employers must be aware of the proper calculation methods in determining the regular rate of pay.

Employers must carefully follow the different calculation methods to determine the employee’s regular rate of pay.  For example, the DIR sets forth how employers are to calculate the regular rate of pay for non-exempt salary employees, employee’s paid by the piece or commission, and that employers are to use a “weighted average” method for employees paid two or more rates during the workweek.  Employers must also be careful in how to calculate the regular rate of pay for nondiscretionary flat sum bonuses paid to employees.  The calculations are complex, and employers need to review the appropriate calculation method to ensure the calculation is done properly.

Are there are any “predictive scheduling” requirements under California law?  Can California employers change schedules for employees without notice?  These are some of the questions I’ve dealt with lately about scheduling requirements in California.  This Friday’s Five reviews five issues California employers should understand about regulations pertaining to setting and changing schedules under California law:

1. There are no predictive scheduling requirements statewide in California

While not a requirement across California, other states and local cities within California have passed scheduling mandates that require employers to set schedules for employees well in advance, and if the employer changes the schedules within a certain time frame the employer must pay a penalty for the change.  See our prior post about Los Angeles’ Fair Work Week Ordinance that requires predictive scheduling for certain retail employers in the City of Los Angeles. 

There has been proposed legislation on a state-wide basis for predictive scheduling, but as of 2023, none of these bills have passed.  For example, in 2016, California’s legislature drafted SB 878 that proposed to require retail establishments, grocery stores, and restaurants to set employees schedules 28 days in advance, and impose penalties on the employer if the schedule is modified by the employer.  This law, and others proposed since 2016 have not become law.  Nearly every year the California legislature debates some type of predictive scheduling requirement.  With that said, California law still sets certain limits regarding scheduling employees as explained below.

2. Reporting time pay

California law requires an employer to pay “reporting time pay” under the applicable Wage Order.  This requires that when an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee’s regular rate of pay, which cannot not be less than the minimum wage.

In addition, if an employee is required to report to work a second time in any one workday and is furnished less than two hours of work on the second reporting, he or she must be paid for two hours at his or her regular rate of pay.

Employers must remember, when an employee is scheduled to work, the minimum two-hour pay requirement applies only if the employee is furnished work for less than half the scheduled time.

3. Reporting time pay: meetings and calls into work

There has been significant litigation over reporting time pay that is owed when employees are called in for meetings.  If an employee is called in on a day in which he is not scheduled, the employee is entitled to at least two hours of pay, and potentially up to four hours if the employee normally works 8 hours or more per day. See Price v. Starbucks.

However, if the employer schedules the employee to come into work for two hours or less, and the employee works at least one half of the scheduled shift, the employer is only required to pay for the actual time worked and no reporting time is owed.  See my prior post on Aleman v. AirTouch for a more detailed discussion.

The court in Ward v. Tilly’s, Inc. was presented the issue of what does “report for work” mean?  The phrase is used in Wage Order 7 to trigger reporting time pay obligations, and is not defined in the Wage Orders.  In Ward, the plaintiff was required to contact the employer two hours before the start of her on-call shifts to determine if she was required to come into work for that shift.  Plaintiff argued that being required to call her employer two hours before a potential shift to see if she was required to work that day should be considered reporting to work, which triggers the employer’s obligation to pay reporting time pay.  Given these facts, the court agreed with the employee, and held that requiring employees to call into work two hours prior to their scheduled shift to see if they were needed at work trigger reporting time pay.

4. Split Shifts

A split shift is defined in the California IWC Wage Orders as:

…a work schedule, which is interrupted by non-paid non-working periods established by the employer, other than bona fide rest or meal periods.

See Cal. Code Regs., tit. 8, § 11040, subd. 2(Q). If the employee works two shifts separated by more than a rest or meal period, they are entitled to receive one hour’s of pay at state minimum wage, or the local minimum wage if it is higher, in addition to the minimum wage for that work day. See Cal. Code Regs., tit. 8, §11040, subd. 4(C). Any additional amounts over minimum wage paid to the employee can be used to offset the split shift pay due to an employee. For example, say an employee earns $10 per hour. She works 10:00 a.m. to 1:00 p.m., and then again from 3:00 p.m. to 8:00 p.m. This is a total of eight hours worked for the day, and she is entitled to a split shift payment of one hour of pay at the minimum wage rate.  Assume, for this example, that the applicable minimum wage is $8 per hour.  Therefore, because the employee earned $16 over minimum wage ($2 above minimum wage x 8 hours = $16) for the eight hours of work, this amount can be used to offset the amount owed for the split shift pay. As a result, there is nothing owed to the employee in this example. 

5. On-Call Pay

If the employee is under the control of the employer, even if the employees are traveling to a work site or even sleeping, the employer may have to pay them for being on-call.  For example, the California Supreme Court held that security guards who were required to reside in a trailer provided by the employer at construction worksites would still need to be paid for the time they slept while on-call.  In that case, during weekdays the guards were on patrol for eight hours, on call for eight hours, and off duty for eight hours.  On weekends, the guards were on patrol for 16 hours and on call for eight hours.  The Court held that the employer was not permitted to exclude the time guards spent sleeping from the compensable hours worked in 24-hour shifts.  See Mendiola v. CPS Security Solutions, Inc.

Likewise, in Morillion v. Royal Packing Co., the California Supreme Court held that, “we conclude the time agricultural employees are required to spend traveling on their employer’s buses is compensable under Wage Order No. 14-80 because they are ‘subject to the control of an employer’ and do not also have to be ‘suffered or permitted to work’ during this travel period.”  Generally, travel time is considered compensable work hours where the employer requires its employees to meet at a designated place and use the employer’s designated transportation to and from the work site.

Do employers need to have a computerized timekeeping system to comply with their requirements under California law?  Surprisingly (or maybe not so – depending on your views on how slow the law is in adapting to technological advances), the Labor Code does not address this issue right on point.  Yet, there are some governing principles employers can review in making the decision on what practices are best for their business. This Friday’s Five covers five key obligations employers should consider when setting up time keeping systems:

1. Are employers required to use a particular type of timekeeping system?

California law does not require the use of any electronic type of timekeeping system or time clocks.  Employers may elect to use paper and pen in recording an employee’s time.  As explained below, the records should be “indelible,” meaning that the time entries cannot be erased, removed, or changed.  However, even with just a handful of employees, many employers find it more efficient to use an electronic timekeeping system.  Moving towards an electronic time keeping system can reduce mistakes in the recording and calculation of time worked, make it easier to track changes, and could make a review of the time entries easier should there ever be a challenge by the employee about their pay.  Most timekeeping software today will also help monitor meal break compliance and will automatically flag any violations for a manager’s review.

2.  Can time records be kept electronically?

California Wage Orders require that employers maintain the employees time records “in the English language and in ink or other indelible form.”

The Division of Labor Standards Enforcement (“DLSE”) issued an Opinion Letter on July 20, 1995 stating that “storage of records by electronic means meets the requirements of California law if the records are (1) retrievable in the State of California, and (2) may be printed in an indelible format upon request of either the employee or the Division.”

The DLSE issued another Opinion Letter on November 10, 1998 advising employers that the electronic time record data could be maintained outside of the State of California “as long as a hard copy of the records was maintained at a central location within California.”  While the DLSE’s opinion letters are not binding legal precedent, they are given pervasive authority in court.  Thus, employers need to be careful about relying too heavily on these opinions.  In addition, these two Opinion Letters contradict each other.  As set forth below, the Wage Orders require time records “shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.”  Therefore, employers should consider maintaining a copy of employee time records, either electronically or on paper, within the State of California.

Similar language is also found in Labor Code section 226 pertaining to the information required to be provided to employees on pay stubs:

The deductions made from payments of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement or a record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.

On July 6, 2006, the DLSE issued an Opinion Letter permitting employers to issue electronic pay stubs to employees if certain requirements were met.  The DLSE stated:

The Division in recent years has sought to harmonize the “detachable part of the check” provision and the “accurate itemized statement in writing” provision of Labor Code section 226(a) by allowing for electronic wage statements so long as each employee retains the right to elect to receive a written paper stub or record and that those who are provided with electronic wage statements retain the ability to easily access the information and convert the electronic statements into hard copies at no expense to the employee.

The DLSE approves electronic wage statements if the employer incorporates the following features:

  1. An employee may elect to receive paper wage statements at any time;
  2. The wage statements will contain all information required under Labor Code section 226(a) and will be available on a secure website no later than pay day;
  3. Access to the website will be controlled by unique employee identification numbers and confidential personal identification numbers (PINs).  The website will be protected by a firewall and is expected to be available at all times, with the exception of downtime caused by system errors or maintenance requirements;
  4. Employees will be able to access their records through their own personal computers or by company-provided computers.  Computer terminals will be available to all employees for accessing these records at work.
  5. Employees will be able to print copies of their electronic wage statements at work on printers that are in close proximity to the computer or computer terminal.  There will be no charge to the employee for accessing their records or printing them out.  Employees may also access their records over the Internet and save it electronically and/or print it on their own printer.
  6. Wage statements will be maintained electronically for at least three years and will continue to be available to active employees for that entire time.  Former employees will be provided paper copies at no charge upon request.

This same analysis would likely apply to the time records employers are required to maintain under California law.  However, employers need to approach this issue with advice from counsel, as there are no clear court decisions that have approved of the DLSE’s position.

3.  Length of time electronic records should be kept

The records must be kept for at least three years.  Labor Code section 1174(d). However, employers should also note that the statute of limitations for many wage and hour class actions in California can extend back to four years under Business and Professions Code section 17200. Therefore, employers should consider keeping wage statements and other documentation required to defend against claims going back the previous four years.

4. Time records must record more than just start and stop times for the day

The Wage Orders require that California employers keep “[t]ime records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.”  IWC Wage Order 5-2001(7)(a)(3).

Additionally, Labor Code section 1174 requires employers to keep time records showing the hours worked daily and the wages paid, number of piece-rate units earned by, and the applicable piece rate paid.

5. Records must be maintained in California

These records must be maintained in the state or at the “plants or establishments at which employees are employed.”  Labor Code section 1174(d).

The Wage Orders likewise require that employers keep records “at the place of employment or at a central location within the State of California.” As mentioned above, if employers have electronic records, a copy of the electronic data should be maintained within the state just as a precaution.

Employers need to ensure that the data being saved is the actual time records of the employees and can be reproduced in format that is accurate and easy to read, should the records ever be requested or needed to defend litigation.

As employers and employees adapt to the new realities of working from home on a permanent or modified basis, employers need to be aware of the employment law issues that arise with such arrangements.  This Friday’s Five covers five items employers should review for employees working from home:

1. Confidentiality and security.

Employers are able to monitor company owned equipment and internet services at the office.  However, with employees working remotely, employers lose this control, and employees likely do not have the same sophistication when setting up security for technology.  Employers should review the need to provide training to employees about the use of public Wi-Fi, updating passwords, the use of password security management software, and other best practices.  It is also recommended to remind employees to be aware of their surroundings when discussing confidential company information – such as on phone calls in public areas.

2. Employee privacy.

Employers can generally monitor employees’ use of company provided internet at the office, employers have less rights to monitor employees while they are working from home.  The employer’s ability to monitor employees away from the office can create some issues (especially when there is no clear distinction of when the employee is on or off duty – as discussed below).  Employers should review their policies to ensure that any monitoring does not violate employee’s privacy rights and sets for a clear policy of what the employer is monitoring.  A critical aspect of the review is the company’s policies about what is being monitored, ensuring that there is a need for the monitoring, and ensuring that the monitoring does not capture data or information that the employee has a reasonable expectation of privacy.

3. Clear designation of working hours.

The Wage Orders require that California employers keep “[t]ime records showing when the employee begins and ends each work period.  Meal periods, split shift intervals and total daily hours worked shall also be recorded.”  IWC Wage Order 5-2001(7)(a)(3).

Additionally, Labor Code section 1174 requires employers to keep time records showing the hours worked daily and the wages paid, number of piece-rate units earned by, and the applicable piece rate paid.

Employers need to ensure employees have a clear method for tracking their time worked at home to meet these obligations.  In addition, employers should consider setting designated work hours, so that employees are clear on when they are expected to be responsive to work-related requests and to minimize the need for overtime work.

4. Expense reimbursement.

As explained on this blog before, California Labor Code section 2802 requires employers to pay for necessary business expenses incurred by employees, and this would include expenses for working at home, such as for computers, printers, internet usage, and other items, such as paper for printing if required by the employer.  However, as the LA Times reported, some plaintiffs are alleging that not only should employers have to pay for their printers and computers, but also for missed revenue the employee could have received for renting out their home office.  I’m a bit skeptical about whether missed rental revenue is recoverable under the Labor Code, as missed rent would be difficult to prove.

5. Minimum wage, paid sick leave, and other local requirements based on where the employee’s home is located.

Employers need to be careful about varying minimum wage and paid sick leave requirements for employees who are working from home.  The employee’s home may be located in a different jurisdiction than the employer’s workplace, and it could require the employer to pay the employee at a different minimum wage rate or provide additional paid sick leave.

Many of the local and county ordinances set forth when the city or county law will cover an employee who works within its jurisdiction.  For example:

  • Santa Monica:  Law applies to any employee working a minimum of two hours within Santa Monica in a given week (even if employer is located outside of Santa Monica).
  • City of Los Angeles: “An employee is an individual who performs at least two hours of work in a particular week within the City of Los Angeles….”
  • County of Los Angeles: “Anyone who works at least two hours in a one-week period within the unincorporated areas of Los Angeles County is entitled to the County minimum wage for the hours worked in the unincorporated area of the County.”
  • Pasadena: Applies to employees who perform at least two hours of work in Pasadena.

Employers need to review the various jurisdictions in which the employees are located when working from home to ensure the employees are provided the required minimum wage and paid sick leave that may be triggered based on where the employee is performing their work.

Do employers need to have a computerized timekeeping system to comply with their requirements under California law?  With technological advances, it is hard to remember that just 10 years ago these questions were on top of everyone’s mind, but today it is sometimes assumed that it must be legal to keep these records electronically.  However, these inquiries raise good questions about employers’ obligations under the Labor Code to create and maintain time records.  Surprisingly (or maybe not so – depending on your views on how slow the law is in adapting to technological advances), the Labor Code does not address this issue right on point.  Yet, there are some governing principles employers can review in making the decision on what practices are best for their business. This Friday’s Five covers five key obligations employers should consider when setting up time keeping systems:

1. Are employers required to use a particular type of timekeeping system?

California law does not require the use of any electronic type of timekeeping system or time clocks.  Employers may elect to use paper and pen in recording an employee’s time.  As explained below, the records should be “indelible,” meaning that the time entries cannot be erased, removed, or changed.  However, even with just a handful of employees, many employers find it more efficient to use an electronic timekeeping system.  Moving towards an electronic time keeping system can reduce mistakes in the recording and calculation of time worked, make it easier to track changes, and could make a review of the time entries easier should there ever be a challenge by the employee about their pay.  Most timekeeping software today will also help monitor meal break compliance and will automatically flag any violations for a manager’s review.

2.  Can time records be kept electronically?

California Wage Orders require that employers maintain the employees time records “in the English language and in ink or other indelible form.”

The Division of Labor Standards Enforcement (“DLSE”) issued an Opinion Letter on July 20, 1995 stating that “storage of records by electronic means meets the requirements of California law if the records are (1) retrievable in the State of California, and (2) may be printed in an indelible format upon request of either the employee or the Division.”

The DLSE issued another Opinion Letter on November 10, 1998 advising employers that the electronic time record data could be maintained outside of the State of California “as long as a hard copy of the records was maintained at a central location within California.”  While the DLSE’s opinion letters are not binding legal precedent, they are given pervasive authority in court.  Thus, employers need to be careful about relying too heavily on these opinions.  In addition, these two Opinion Letters contradict each other.  As set forth below, the Wage Orders require time records “shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.”  Therefore, employers should consider maintaining a copy of employee time records, either electronically or on paper, within the State of California.

Similar language is also found in Labor Code section 226 pertaining to the information required to be provided to employees on pay stubs:

The deductions made from payments of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement or a record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.

On July 6, 2006, the DLSE issued an Opinion Letter permitting employers to issue electronic pay stubs to employees if certain requirements were met.  The DLSE stated:

The Division in recent years has sought to harmonize the “detachable part of the check” provision and the “accurate itemized statement in writing” provision of Labor Code section 226(a) by allowing for electronic wage statements so long as each employee retains the right to elect to receive a written paper stub or record and that those who are provided with electronic wage statements retain the ability to easily access the information and convert the electronic statements into hard copies at no expense to the employee.

The DLSE approves electronic wage statements if the employer incorporates the following features:

  1. An employee may elect to receive paper wage statements at any time;
  2. The wage statements will contain all information required under Labor Code section 226(a) and will be available on a secure website no later than pay day;
  3. Access to the website will be controlled by unique employee identification numbers and confidential personal identification numbers (PINs).  The website will be protected by a firewall and is expected to be available at all times, with the exception of downtime caused by system errors or maintenance requirements;
  4. Employees will be able to access their records through their own personal computers or by company-provided computers.  Computer terminals will be available to all employees for accessing these records at work.
  5. Employees will be able to print copies of their electronic wage statements at work on printers that are in close proximity to the computer or computer terminal.  There will be no charge to the employee for accessing their records or printing them out.  Employees may also access their records over the Internet and save it electronically and/or print it on their own printer.
  6. Wage statements will be maintained electronically for at least three years and will continue to be available to active employees for that entire time.  Former employees will be provided paper copies at no charge upon request.

This same analysis would likely apply to the time records employers are required to maintain under California law.  However, employers need to approach this issue with advice from counsel, as there are no clear court decisions that have approved of the DLSE’s position.

3.  Length of time electronic records should be kept

Employers should also note that the statute of limitations for many wage and hour class actions in California can extend back to four years under Business and Professions Code section 17200; and, therefore should consider keeping wage statements and other documentation required to defend against claims going back the previous four years.

4. Items time records must report (be careful, it is more than just start and stop times)

The Wage Orders require that California employers keep “[t]ime records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.”  IWC Wage Order 5-2001(7)(a)(3).

Additionally, Labor Code section 1174 requires employers to keep time records showing the hours worked daily and the wages paid, number of piece-rate units earned by, and the applicable piece rate paid.

5. Records must be maintained in California

These records must be maintained in the state or at the “plants or establishments at which employees are employed.”  The records must be kept for at least three years.  Labor Code section 1174(d).

The Wage Orders likewise require that employers keep records “at the place of employment or at a central location within the State of California.” As mentioned above, if employers have electronic records, a copy of the electronic data should be maintained within the state just as a precaution.

As mentioned above, the statute of limitations for wage claims can extend back to four years, so employers generally keep the records for four years.  Employers need to ensure that the data being saved is the actual time records of the employees and can be reproduced in format that is accurate and easy to read, should the records ever be requested or needed to defend litigation.

I’ve been working with several clients recently in reviewing various timekeeping and payroll systems and am amazed about the limited capability for some of the software being offered to employers.  With employees’ access to computers, point of sale systems, tablets and other technology, timekeeping should be a seamless function within a company in 2021, but surprisingly software companies often over promise on what they can deliver.  Below are five key functions that timekeeping software need to provide to California employers in 2021:

1. Timekeeping software must maintain records in an “indelible” form.

California Wage Orders require that employers maintain the employees time records “in the English language and in ink or other indelible form.”  “Indelible” means that the time entries cannot be erased, removed, or changed.

The Division of Labor Standards Enforcement (“DLSE”) issued an Opinion Letter on July 20, 1995 stating that “storage of records by electronic means meets the requirements of California law if the records are (1) retrievable in the State of California, and (2) may be printed in an indelible format upon request of either the employee or the Division.”

However, the DLSE issued another Opinion Letter on November 10, 1998 advising employers that the electronic time record data could be maintained outside of the State of California “as long as a hard copy of the records was maintained at a central location within California.”  As these two Opinion Letters contradict each other, employers could also look to the Wage Orders.  The Wage Orders require that time records “shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.”

Therefore, employers should consider maintaining a copy of employee time records, either electronically or on paper, within the State of California.

2. Must record required information – especially information about meal breaks.

California Wage Orders require employers keep “[t]ime records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.”  IWC Wage Order 5-2001(7)(a)(3).

Additionally, Labor Code section 1174 requires employers to keep time records showing the hours worked daily and the wages paid, number of piece-rate units earned by, and the applicable piece rate paid.

It is essential that timekeeping software record the information required by the Labor Code.

3. Meal break attestations should be recorded electronically.

The California supreme court in Donohue v. AMN Services LLC (2021) explained that if an employer’s records do not show a compliant meal break was taken by the employee, it may be possible for the employer to use electronic attestations at the time an employee does not take a full meal break, a late meal break, or misses a break in order to ensure accurate tracking.

In Donohue, the employer’s timekeeping system provided a drop-down menu that prompted the employee to choose one of three options:

  1. “I was provided an opportunity to take a 30 min break before the end of my 5th hour of work but chose not to”;
  2. “I was provided an opportunity to take a 30 min break before the end of my 5th hour of work but chose to take a shorter/later break”;
  3. “I was not provided an opportunity to take a 30 min break before the end of my 5th hour of work.”

The employee was required to choose an option by the end of the pay period, and if the employee selected item #3, they were paid a premium wage for the missed break. The court recognized that this attestation by the employee would be enough to track meal break violations or to establish that the employee was provided a meal break but voluntarily chose to continue to work.

The use of electronic attestations by employers in California to defend against meal and rest breaks is critical.  Attestations shift the burden of proof back to the plaintiff to establish that they did not have an opportunity to take a meal or rest break, even if the time records show that they did not clock out for a compliant meal break.  The timekeeping software should require employees to complete the attestation before clocking out at the end of their shift.

4. Timekeeping software must record edits to time entries.

Timekeeping software needs to record when an employee’s time entry was changed.  It should record who made the change, when the change was made, why the change was made, and what exactly was changed.  The software should be able to print a report of all of the changes made, and should be sortable by time period, employee, and the manager who made the change.  The software should also be able to generate a report for select employees on a batch basis.  This is necessary in wage and hour litigation when a sampling of employee data is sometimes required to be disclosed to opposing counsel.

Being able to access this information quickly and efficiently is critical to defend against wage claims.  For example, a few years ago we defended a claim where an employee alleged that a manager edited time punches in an electronic timekeeping system to reflect less time.  However, upon review of the time entries, and the edits, the net effect of the manager’s changes resulted in an increase in the time the employee worked because the employee forgot to clock in at the beginning of the shift on a regular basis.

5. Retain back-up copies in a usable format that the employer can access, even if the employer is no longer a client of the software provider.

The statute of limitations for many wage and hour class actions in California is four years under Business and Professions Code section 17200 (this is one year longer than under the Wage Orders mentioned above), and employers should consider keeping wage statements and other wage and hour records for four years.  Just as critically important, this data needs to be saved in a manner that is easily accessible and usable.  Records for thousands of employees maintained on paper printouts held in a storage unit are not easily accessible, and create huge costs when these paper records need to be reviewed and potentially relied upon in litigation.  Digital time records that are stored in a common format, such as a data file that is compatible with Excel, save a huge amount of time and costs when needed in litigation, and can ultimately be an advantage in litigation.

It is critical for California employers to properly calculate the regular rate of pay for an employee in order to pay the appropriate overtime pay and for premium pay for missed meal and rest breaks.  Here are five issues employers must be aware of regarding calculating an employee’s regular rate of pay:

1. Employers must pay the “regular rate of pay” as calculated for overtime purposes when paying premium pay for missed meal and rest breaks.

As we previously reported, the California Supreme Court in Ferra v. Loews Hollywood Hotel, LLC held that the “regular rate of compensation” owed as premium wages for missed meal and rest breaks, must be calculated just as the “regular rate of pay” is calculated for overtime purposes.  While the case discussed generally what must be included in the “regular rate of pay” calculations, there are many nuances to this calculation.

 2. What compensation must be included in calculating employee’s regular rate of pay?

The DIR defines regular rate of pay as “the compensation an employee normally earns for the work they perform.  The regular rate of pay includes a number of different kinds of renumeration, such as hourly earnings, salary, piecework earning, and commissions.  In no case may the regular rate of pay be less than the applicable minimum wage.”

The Court in Ferra held that the “regular rate of pay” for missed meal breaks, just like the calculation of overtime pay, “must account for not only hourly wages but also other nondiscretionary payments for work performed by the employee.”  The Court explained that, “We use the term ‘nondiscretionary payments’ to mean payments for an employee’s work that are owed ‘pursuant to [a] prior contract, agreement, or promise,’ not ‘determined at the sole discretion of the employer.’”

3. Examples of payments that must be calculated into the regular rate of pay.

In determining the regular rate of pay, employers must include the employee’s base hourly rate plus any amounts for:

  • Shift differentials (such as premiums to work on weekends or holidays)
  • Attendance bonuses, such as those earned for weekend work is a form of incentive pay
  • Piece rate earnings
  • Commissions
  • Nondiscretionary pay and bonuses. The DIR explains, “A nondiscretionary bonus is included in determining the regular rate of pay for computing overtime when the bonus is compensation for hours worked, production or proficiency, or as an incentive to remain employed by the same employer.”

4. Examples of payments that are not included when calculating the employee’s regular rate of pay.

Unlike the nondiscretionary items listed above, an employee’s regular rate of pay does not increase for any of the following payments made to them:

  • Discretionary payments made to employees, such as gifts or bonuses that are not tied to the employee’s production, hours worked, or by formula for certain benchmarks.
  • Reimbursements for business expenses
  • Certain pay owed as required by the Labor Code, such as premium pay for missed meal and rest breaks, reporting time pay, call back pay, split shift pay.
  • Because tips are voluntarily left by customers to employees, tips do not increase an employee’s regular rate of pay for overtime calculations and premium pay.  However, if an employer implements mandatory service charges and shares these service charges with employees, the service charges must be considered wages for overtime and tax purposes.  Therefore, the employee’s regular rate of pay for overtime purposes and in calculating premium pay will be higher when mandatory service charges are distributed to the employees.

5. Employers must be aware of the proper calculation methods in determining the regular rate of pay.

Employers must carefully follow the different calculation methods to determine the employee’s regular rate of pay.  For example, the DIR sets forth how employers are to calculate the regular rate of pay for non-exempt salary employees, employee’s paid by the piece or commission, and that employers are to use a “weighted average” method for employees paid two or more rates during the workweek.  Employers must also be careful in how to calculate the regular rate of pay for nondiscretionary flat sum bonuses paid to employees.  The calculations are complex, and employers need to review the appropriate calculation method to ensure the calculation is done properly.

California employers have many obligations under the Labor Code to create and maintain time records.  However, the Labor Code does not address many specific issues about time keeping systems and employers moving to electronic records.  While employers have not yet started to use the blockchain to record employee’s time and report pay information to employees, there are questions about how employers should be maintaining electronic records.  This Friday’s Five covers five key obligations employers should consider for electronic time keeping systems and employee pay stubs under California law:

1.  Are employers required to use a particular type of timekeeping system?

California law does not require the use of any electronic type of timekeeping system or time clocks.  Employers may elect to use paper and pen in recording an employee’s time.  As explained below, the records should be “indelible,” meaning that the time entries cannot be erased, removed, or changed.  However, even with just a handful of employees, many employers find it more efficient to use an electronic timekeeping system.  Moving towards an electronic time keeping system can reduce mistakes in the recording and calculation of time worked, make it easier to track changes, and could make a review of the time entries easier should there ever be a challenge by the employee about their pay.  Most timekeeping software today will also help monitor meal break compliance and will automatically flag any violations for a manager’s review.

2.  Can time records be kept electronically?

 California Wage Orders require that employers maintain the employees time records “in the English language and in ink or other indelible form.”

The Division of Labor Standards Enforcement (“DLSE”) issued an Opinion Letter on July 20, 1995 stating that “storage of records by electronic means meets the requirements of California law if the records are (1) retrievable in the State of California, and (2) may be printed in an indelible format upon request of either the employee or the Division.”

However, the DLSE issued another Opinion Letter on November 10, 1998 advising employers that the electronic time record data could be maintained outside of the State of California “as long as a hard copy of the records was maintained at a central location within California.”  As these two Opinion Letters contradict each other, employers could also look to the Wage Orders.  The Wage Orders require that time records “shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.”  Therefore, employers should consider maintaining a copy of employee time records, either electronically or on paper, within the State of California.

3.  Electronic Pay Stubs

Similar language is also found in Labor Code section 226 pertaining to the information required to be provided to employees on pay stubs:

The deductions made from payments of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement or a record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.

On July 6, 2006, the DLSE issued an Opinion Letter permitting employers to issue electronic pay stubs to employees if certain requirements were met.  The DLSE stated:

The Division in recent years has sought to harmonize the “detachable part of the check” provision and the “accurate itemized statement in writing” provision of Labor Code section 226(a) by allowing for electronic wage statements so long as each employee retains the right to elect to receive a written paper stub or record and that those who are provided with electronic wage statements retain the ability to easily access the information and convert the electronic statements into hard copies at no expense to the employee.

The DLSE approves electronic wage statements if the employer incorporates the following features:

  1. An employee may elect to receive paper wage statements at any time;
  2. The wage statements will contain all information required under Labor Code section 226(a) and will be available on a secure website no later than pay day;
  3. Access to the website will be controlled by unique employee identification numbers and confidential personal identification numbers (PINs).  The website will be protected by a firewall and is expected to be available at all times, with the exception of downtime caused by system errors or maintenance requirements;
  4. Employees will be able to access their records through their own personal computers or by company-provided computers.  Computer terminals will be available to all employees for accessing these records at work.
  5. Employees will be able to print copies of their electronic wage statements at work on printers that are in close proximity to the computer or computer terminal.  There will be no charge to the employee for accessing their records or printing them out.  Employees may also access their records over the Internet and save it electronically and/or print it on their own printer.
  6. Wage statements will be maintained electronically for at least three years and will continue to be available to active employees for that entire time.  Former employees will be provided paper copies at no charge upon request.

This same analysis would likely apply to the time records employers are required to maintain under California law.  However, employers need to approach this issue with advice from counsel, as there are no clear court decisions that have approved of the DLSE’s position.

4.  Items time records must report (be careful, it is more than just start and stop times)

The Wage Orders require that California employers keep “[t]ime records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.”  IWC Wage Order 5-2001(7)(a)(3).

Additionally, Labor Code section 1174 requires employers to keep time records showing the hours worked daily and the wages paid, number of piece-rate units earned by, and the applicable piece rate paid.

5. Records must be maintained “in California”

These records must be maintained in the state or at the “plants or establishments at which employees are employed.”  The records must be kept for at least three years.  Labor Code section 1174(d).

The Wage Orders likewise require that employers keep records “at the place of employment or at a central location within the State of California.” As mentioned above, if employers have electronic records, a copy of the electronic data should be maintained within the state just as a precaution.

Employers should also note that the statute of limitations for many wage and hour class actions in California can extend back to four years under Business and Professions Code section 17200; and, therefore should consider keeping wage statements and other documentation required to defend against claims going back the previous four years.  Finally, employers need to ensure that the data being saved is the actual time records of the employees, and can be reproduced in format that is accurate and easy to read, should the records ever be requested or needed to defend litigation.

Effective January 1, 2015, Labor Code section 2810.3 expanded California employer’s liability beyond its own employees, and made certain employers jointly liable for wage and hour violations committed by “labor contractors,” such as staffing agencies.  Here are five items California employers must understand about this joint employer liability:

1. Labor Code section 2810.3.

Effective January 1, 2015, Labor Code section 2810.3 expanded the liability of “client employers” that obtain workers through temporary agencies or other labor contractors.  The law requires that the client employer who obtains the workers through the agency must share in the liability for any wage and workers compensation issues.  The law also provides that a client employer cannot shift all of the liability for wage and workers’ compensation violations.

2. Labor Code section 2810.3 excludes employers based on size.

Labor Code section 2810.3 states that “client employer” does not include any of the following companies based on size:

(i) A business entity with a workforce of fewer than 25 workers, including those hired directly by the client employer and those obtained from, or provided by, any labor contractor.

(ii) A business entity with five or fewer workers supplied by a labor contractor or labor contractors to the client employer at any given time.

3. Companies contracting for services need to ensure the subcontractors follow all applicable wage and hour laws and pay the employees properly.

With the joint liability created by Labor Code section 2810.3, companies contracting for labor at their establishments need to take steps to ensure that the contractors are following wage and hour laws.  This may entail reviewing the contractor’s pay practices.  The hiring company should also ensure that there are some assets or potential insurance that would be available should indemnity be required.

4. California Labor Commissioner held Cheesecake Factory liable for $4.57 million for wage and hour violations under Labor Code section 2810.3.

Cheesecake Factory restaurants in Southern California were cited for $4.57 million for wage and hour violations and penalties by the Labor Commissioner in June, 2018.  The citation was based on alleged wage violations for employees of contractors hired by Cheesecake Factory, not its own employees.  The investigation focused on the janitorial subcontractors who performed work at the restaurants.  The Labor Commissioner found that the janitorial employees were not paid for all minimum wage, overtime, not provided meal and rest breaks, and not paid for split shifts.

The subcontractor janitorial company was Americlean Janitorial Services Corp., a Minneapolis company doing business as Allied National Services, Inc. The workers were managed by a San Diego-based company, Magic Touch Commercial Cleaning.  The Labor Commissioner alleged that the workers had to work additional hours when asked to complete tasks or wait for approval of their work by the Cheesecake Factory managers.

5. Consider indemnity agreements with staffing agencies and labor contractors.

Labor Code section 2810.3 provides that the client employer can seek indemnity from the labor contractor for violations.  The hiring company should consider negotiating an indemnity provision in the contact with the labor contractor to protect itself should any wage and hour liability that arises.