Employers of 100 or more employees to report to the California Civil Rights Department pay and hours-worked data by establishment, pay band, job category, sex, race, and ethnicity.  For 2023, the pay data reports are due by May 10.  This requirement applies to employers even if they are based outside of California, but have one employee (or even one employee hired through a labor contractor such as an staffing agency) working in California or assigned to an establishment in California.   

In Senate Bill 973, passed in 2020, the California Legislature found that “[d]espite significant progress made in California in recent years to strengthen California’s equal pay laws, the gender pay gap persists, resulting in billions of dollars in lost wages for women each year in California. …Although there are legitimate and lawful reasons for paying some employees more than others, pay discrimination continues to exist, is often ‘hidden from sight,’ and can be the result of unconscious biases or historic inequities.”

By requiring large employers to report pay data annually the Legislature sought to encourage these employers to self-assess pay disparities along gendered, racial, and ethnic lines in their workforce and to promote voluntary compliance with equal pay and anti-discrimination laws.

In addition, Senate Bill 973 authorized CRD to enforce the Equal Pay Act (Labor Code section 1197.5), which prohibits unjustified pay disparities. Moreover, the Fair Employment and Housing Act (Gov. Code § 12940 et seq.), already enforced by CRD, prohibits pay discrimination. The CRD states that the Employers’ pay data reports allow CRD to identify wage patterns and allow for effective enforcement of equal pay or anti-discrimination laws, when appropriate.

In 2022, the Legislature passed Senate Bill 1162 to enhance the California pay data reporting law in many aspects.  For example, for the first time in 2023, private employers with 100 or more workers hired through labor contractors in the prior calendar year to report pay data for these workers and requiring more information about the employer’s workforce, such as median and mean wage information. 

1. SB 1162, passed in 2022 changed a few aspects of the prior pay data reporting requirements.

New deadline of the second Wednesday of May each year (May 10, 2023) (previously deadline was March 31).

Requires additional information: median and mean hourly rate for each combination of race, ethnicity, and sex within each job category.

Requires employers with 100 or more employees hired through contractors to submit a separate report for these employees.

Requires employers with multiple establishments to submit a report for each establishment.

2. Employers who must report.

Under Government Code section 12999(a)(1), a private employer that has 100 or more employees (anywhere as long as it has one employee in California) are required to submit a pay data report to the Civil Rights Division (CRD).  An employee is “an individual on an employer’s payroll, including a part-time individual, and for whom the employer is required to withhold federal social security taxes from that individual’s wages.” Gov. Code § 12999(k)(1).

3. Determining if an employer has 100 or more employees.

An employer has the requisite number of employees if the employer either employed 100 or more employees in the Snapshot Period or regularly employed 100 or more employees during the Reporting Year. “Regularly employed 100 or more employees during the Reporting Year” means employed 100 or more individuals on a regular basis during the Reporting Year. “Regular basis” refers to the nature of a business that is recurring, rather than constant. See Cal. Code Regs., tit. 2, §§ 11008(d)(1) & 11008(d)(1)(A).

The Snapshot Period is a single pay period between October 1 and December 31 of the Reporting Year.  For the 2023, the Reporting Year is 2022.  Employers may choose the single pay period between October 1 and December 31. The Snapshot period is used to identify the employees to be reported on in the pay data report. The employee does not have to be paid during the Snapshot period – it only matters whether the employee was employed during the Snapshot Period.

Employees located inside and outside of California are counted when determining whether an employer has 100 or more employees. See Cal. Code Regs., tit. 2, § 11008(d)(1)(C).

An employer with no employees in California during the Reporting Year is not required to file a pay data report.

Part-time employees, including those who work partial days and fewer than each day of the work week, are counted the same as full-time employees. 

Employees on paid for unpaid leave, including the California Family Rights Act (CFRA) leave, pregnancy leave, disciplinary suspension, or any other employer-approved leave of absence, must be counted.

Employers must include all employees assigned to California establishments and/or working within California.

4. Must include remote workers outside of California, but “assigned” to an establishment in California.

The CRD sets forth that remote workers outside of California “assigned” to an establishment in California must be included in the employee pay data report.  The CDR provides the following example: If an employer has a single establishment in Riverside, California with 500 employees working from that location, the employer would submit a report covering all 500 employees. If 25 of these employees were working remotely (in California or beyond), the employer’s report would still cover all 500 employees.

5. When a Labor Contractor Employee Report must be filed.

Companies are required to file a separate Labor Contractor Employee Report if it had 100 or more workers hired through labor contractors in the prior calendar year anywhere with at least one worker based in California. 

“Labor contractor” – is defined as “an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business.” 

The CRD set forth the following example: In 2022, GHI Company had 200 payroll employees and 100 workers hired through labor contractors, all in California. GHI Company is required to submit a Payroll Employee Report covering its 200 payroll employees and, separately, a Labor Contractor Employee Report covering the 100 labor contractor employees.

The Civil Rights Department California Pay Data Reporting website is here.

The CRD’s FAQs about the Pay Data Report is here.

With summer right around the corner, many businesses are looking to hire from local high schools. Whether you are hiring minors as seasonal or full-time employees, there are key laws that employers should be familiar with. The Fair Labor Standards Act (FLSA), California Labor Code, California Wage Orders, and California Education Code regulate child labor.  

Who is a minor?  

Anyone under the age of 18 who is required to attend school and anyone under the age of six is considered a minor. 

What is a work permit and who needs one?  

All minors who have not graduated high school or been awarded a certificate of proficiency, must have a valid work permit. This is true even if it is summer or the minor is only hired seasonally. The first thing an employer should do when they hire a minor is ensure that they have a valid work permit. The minor obtains a work permit through their school and provides it to their employer. It is important to remember that work permits expire five days into the opening of the following school year and a permit still needs to be obtained even if it is summer. The permit should be maintained in the minors personnel file and needs to be obtained before the minor does any work for the employer.  

Key documents: 

Statement Of Intent To Employ A Minor And Request For A Work Permit–Certificate Of Age CDW Form B1-1: https://www.dir.ca.gov/dlse/dlseformB1-1.pdf  

Permit To Employ And Work CDE Form B1-4: https://www.dir.ca.gov/dlse/dlseformB1-4.pdf  

What hours can a minor work? 

The number of hours and time a minor can work depends on whether school is in session and the minors age. Generally, minors must have completed 7th grade to work while school is in session. Minors who are enrolled in remote or hybrid schools are still subject to the requirements below.  

Ages 16 and 17: 

Exception: if the minor is enrolled in work experience or cooperative vocational program approved by the California Department of Education, they can work until 12:30am any day and can work up to 8 hours on a school day  

If school in session, they can work up to 4 hours on school days and 8 hours on a non-school day and on days before non-school days. If school is not in session, they can work up to 8 hours a total. They can work up to 48 hours per week and can work between the hours of 5am and 10pm. On evenings before non-school days, they may work until 12:30am.  

 Ages 14 and 15:  

Exception: if the minor is enrolled in work experience or cooperative vocational program approved by the California Department of Education, they can work during school hours and up to 23 hours per week.  

If school is in session, they can work up to 3 hours on school days and 8 hours on a non-school day. They can work up to 18 hours per week and can work between the hours of 7am and 7pm. Between June 1 and Labor Day, they can work until 9pm.  

Ages 12 and 13:  

They can only work during school holidays and weekends – never on school days. They can work up to 8 hours per day, and up to 40 hours per week. Like 14- and 15-year-olds, they can work between the hours of 7am and 7pm, and between June 1 and Labor Day, they can work until 9pm. 

What duties can minors perform?  

Job restrictions vary by industry and age of the minor. Generally, minors cannot work in any occupation that is considered hazardous.  

Some examples include: 

  • 14- and 15-year-olds may only perform cooking duties in plain sight of customers and when it is not their sole duty  
  • Minors under 16 may not work in the baking industry  
  • Minors cannot use power-driven meat processing machines and certain baking machines  
  • Minors cannot work at a business whose main purpose is to sell alcoholic beverages for use on the premises (this includes all jobs, not just serving alcohol) 
  • Minors may bus tables in a bona fide public eating establishment where alcohol is served  
  • Minors may only sell alcoholic beverages for off-site compensation or lottery tickets if they are constantly supervised by a someone 21 years old or older 

What wage and hour obligations do I have to minors? 

Employers must pay minors at least the applicable minimum wage. In addition, minors that are non-exempt workers must be provided with legally compliant meal and rest breaks, overtime wages, and workers compensation protection. If the minor is a high school graduate, they must be paid equal to adults.  

Penalties for violating child labor laws  

Violation of child labor laws carry both civil and criminal penalties. Civil penalties range from $500 to $10,000 per minor employed per violation. Criminal violations are misdemeanors and are punishable by imprisonment for up to 6 months and/or fines up to $10,000.  

The Labor Commissioner has published a booklet containing detailed information about child labor laws and requirements: https://www.dir.ca.gov/dlse/ChildLaborLawPamphlet.pdf  

In Ready, Fire, Aim, an excellent book for entrepreneurs, Michael Masterson sets out a compelling reason why nearly everyone in the workplace needs a mentor (and why everyone should also be a mentor).  Masterson explains, “The big problem everyone has when beginning a new business is ignorance.  New entrepreneurs don’t know how the business should work – where to go for customers, how much to charge for the product, how many customers are needed for the business to become profitable, and so on.”  The solution, Masterson explains, is learning.  This can be done through two ways: (1) attending seminars, taking programs, and reading books, and (2) by speaking with people who have dealt with the issues and getting firsthand advice from them.  

Masterson’s book is written for entrepreneurs and business owners, but the advice easily carries over to employees and supervisors.  Here are five tips Masterson provides for how to effectively be mentored and the benefits for companies in establishing a mentoring system:

1. Do no be afraid to ask questions, even obvious questions.

People need to overcome the fear that asking questions shows weakness.  As Masterson explains, even bosses have a vested interest in (or should have) sharing knowledge and answering questions for those working for them.  Now, I would add that those seeking advice need to do their work and think through problems first, and then approach a mentor for the advice.  Do not use the mentor as a crutch for avoiding doing the hard work and learning through dealing with difficult problems. 

2. Have multiple mentors and maintain the relationship by being appreciative.

It is critical to have advice from people who have different experiences and different perspectives.  The more diverse your input from mentors, the more data points you have to rely upon for a well educated decision.  Don’t forget to show appreciation to your mentors as well – send a bottle of wine or a gift card for a nice dinner with a personal note. 

3. Ask people of all ages and skill levels.

Masterson describes this as asking “up, down, and sideways.”  For business owners, great advice and input should be sought from employees and anyone else who might have something to add.  Generally, it is most helpful to have advice from people who have been through the experience already, but keep the inputs open and seek advice from multiple people. 

4. Make your own decisions and take responsibility for them.

If the decision works, give your mentors credit for the well-founded advice they provided to you to help make it successful.  If the decision does not work, accept the loss as yours. 

5. Everyone should be a mentor (and organizations need to encourage mentoring).

There are multiple positive benefits for mentoring others as well, such as: helping others less fortunate, helping the next generation, developing meaningful relationships with others beyond a superficial transactional basis.  Masterson cites a study by psychology professor Lillian Eby which found that 74 percent of mentors believed that mentoring others had a positive impact on their jobs.  The study also found that the organization that implemented the mentor program reported increased productivity, lowered stress levels, and increased job performance. 

On April 1, 2023, the City of Los Angeles’ Fair Work Week Ordinance (“FWWO”) becomes effective and regulates retail businesses with employees working in the City.  The FWWO states that there are over 140,000 workers in the retail sector in the “Los Angeles economy.”  The ordinance sets out that “unpredictability of work schedules endemic in the retail industry creates many socioeconomic burdens on worker of large retail establishments.”  The ordinance is effective on April 1, 2023, there is a 180-day grace period for employers to comply, then on September 28, 2023, the City will fully enforce the ordinance and its fines. On the state level, there have been similar proposed bills for all employers (not just the retail industry), but of them have passed.  This article reviews the five key issues retail employers must understand about the newly enacted City of Los Angeles ordinance:

1. Employers and employees covered under the ordinance

The ordinance applies to all employers who:

  1. Have 300 or more employees globally;
  2. Are identified as a retail business or establishment in the North American Industry Classification System (NAISCS) within the retail trade categories and subcategories 44 through 45; and
  3. Directly, indirectly or through an agent (including through a temporary or staffing agency) exercise control over the wages, hours, or working conditions of any employee. 

The ordinance applies to any employee who performs at least two hours of work within the City of Los Angeles and who qualifies as an employee under Labor Code section 1197 and the wage orders. 

2. Good faith estimate of schedule before hiring

Employers covered under the FWWO are required to provide new employees a “written good faith estimate of the Employee’s Work Schedule” before hiring the employee.  Employers must notify new employees of their rights under the ordinance, or alternatively, provide the new employee with a copy of the poster required by Section 185.10 of the ordinance (as of March 24, 2023, the City has yet to publish this poster).  Employers are also required to provide a written good faith estimate of the employee’s work schedule within 10 days of an employee’s request. 

The good faith estimate is not a contractual offer, but the employer “must have a documented, legitimate business reason, unknown at the time the good faith Work Schedule estimate was provided to the Employee, to substantiate the deviation.” 

A work schedule is defined as “the hours, days, and times, including On-Call Shifts, when the Employer requires an Employee to work or to be on-call to work.” 

3. Predictable pay

Under the ordinance, retail sector employers are required to provide employees with written notice of the work schedule at least 14 calendar days before the start of the work period.  If the employer changes the schedule within the 14 calendar days, the employee has a right to decline any hours that were not included in the initial work schedule.

If the employee voluntarily consents to work the changed hours, the consent must be in writing.  In addition, the employer must pay the employee “predictability pay” as set forth in this chart:

Employer-initiated ChangePredictability Pay
Increase in hours that exceeds 15 minutesOne (1) hour at the Employee’s regular rate of pay
Change to the date, time, or location (but no change in hours)One (1) hour at the Employee’s regular rate of pay for each change
Reduction of hours by at least 15 minutesHours not worked at one-half the Employee’s regular rate of pay
On-call shift, when the employer does not call the employee to perform workHours not worked at one-half the Employee’s regular rate of pay

This “predictability pay” is not required under the following exceptions:

  • the employee makes the schedule change request;
  • if an employee accepts a schedule change initiated by the employer due to an absence of another employee or unanticipated customer need (but the employer must communicate that acceptance of the hours is voluntary and the employee has a right to decline);
  • if the employee accepted the hours posted by the employer before hiring another employee to perform the work;
  • if the employee’s hours are reduced as a result of the employee’s violation of law or the employer’s lawful policies and procedures;
  • if the employer’s operations are compromised pursuant to law or force majeure; or
  • if the extra hours worked require the payment of overtime premium.

4. Other requirements under the FWWO

In addition to predicable schedules, the FWWO requires many other items, such as:

  • Employees have the right to request preference for certain hours, times, or locations of work.
  • Additional work hours must be offered to current employees before hiring new employees.
  • Employers may not require employees to find coverage for their shift if unable to work for reasons protected by law.
  • Employers may not schedule an employee to work a shift that starts less than 10 hours from the employee’s last shift without the employee’s written consent. Employers must pay a premium of time and a half for each shift that is not separated by at least 10 hours.
  • Employers must maintain records for at least three years of the work schedules, written offers and responses for additional work hours, written correspondence about work schedule changes, good faith estimates of work schedules, and “any other records that may be required to comply with the FWWO.
  • Notice and posting of employee rights under the ordinance.

5. Penalties and ability to cure violations

The City of Los Angeles can recover penalties up to $500 per violation per employee.  Employees and their representatives can also obtain certain relief under the ordinance under a private right of action that permits employees to file claims for violation of the ordinance.  However, employers are provided a cure period of 15 days from receipt of a written notice to cure, to take action to correct violations prior to an employee or their representative filing a complaint with the City or a civil action. 

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.

Effective January 1, 2023, employers with 15 or more employees are required to include the pay scale for the position in any job posting.  SB 1162 amends Labor Code section 432.3 to add this obligation, among other items.  As a reminder, Labor Code section 432.3, effective since January 1, 2018, prohibits California employers from asking applicants about prior salary history.  Section 432.3 already required employers to provide applicants a pay scale upon reasonable request.  We are receiving a lot of questions about the new requirements effective in 2023.  This Friday’s Five (sorry I could not fit the requirements into five issues today) highlights some of the law’s key provisions that apply to all employers, and additional provisions that apply to employers with 15 or more employees:

All Employers:

  • Starting on January 1, 2018, Labor Code section 432.3 prohibits California employers from relying on salary history information of an applicant in determining whether to make an offer to the applicant, and in determining the pay to offer.  As discussed below, Labor Code section 432.3 has been amended each year and employers need to comply with the most current version which is effective January 1, 2023. 
  • However, employers are permitted to ask an applicant about their salary expectations for the position (as long as they do not ask what the applicant has earned in the past).  Employees may voluntarily disclose how much they were paid at previous positions, but employers are prohibited from relying on prior salary information to justify a pay difference between employees of the opposite sex or different races or ethnicities, who are performing substantially similar work. 
  • Rather, Labor Code section 432.3 requires that employers provide a pay scale for a position upon “reasonable request” to an applicant applying for employment.  “Pay scale” is defined to mean a salary or hourly wage range. A more specific definition of “pay scale” is provided below. The prior version of this Labor Code section defined “reasonable request” as a request made after an applicant has completed an initial interview with the employer. However, this was removed effective January 1, 2023, and therefore employers must provide this information to any job applicants regardless of whether they have interviewed or not. 
  • Labor Code section 432.3 requires all employers to provide an employee with the pay scale for their current position upon request. 
  • An employer shall maintain records of a job title and wage rate history for each employee for the duration of the employment plus for three years after the end of the employment in order for the Labor Commissioner to determine if there is a pattern of wage discrepancy. These records shall be open to inspection by the Labor Commissioner.  Failure to maintain these records creates a rebuttable presumption in favor of the employee’s claim. 
  • The Labor Commissioner has jurisdiction to enforce Labor Code section 432.3 with penalties ranging from $100 to $10,000 per violation.  However, for a first offense, no penalty shall be issued if the employer updates all job postings for open positions to comply with the law.
  • Remember, employers cannot prohibit employees from discussing or disclosing their wages, or for refusing to agree not to disclose their wages under Labor Code sections 232(a) and (b). In addition, employers cannot require that an employee refrain from disclosing information about the employer’s working conditions, or require an employee to sign an agreement that restricts the employee from discussing their working conditions under Labor Code section 232.5.

Employers with 15 or more employees:

  • An employer with 15 or more employees shall include the pay scale for a position in any job posting.
  • The Labor Commissioner FAQs explains that Labor Code section 432.3 “defines ‘pay scale’ to mean the salary or hourly wage range the employer reasonably expects to pay for a position. An employer who intends to pay a set hourly amount or a set piece rate amount, and not a pay range, may provide that set hourly rate or set piece rate.”  The FAQs provide that “[a] legally compliant job posting only requires the ‘salary or hourly wage range that the employer reasonably expects to pay for the position.’” The FAQs also explain that other compensation “or tangible benefits provided in addition to a salary or hourly wage are not required to be posted.”  However, if the hourly or salary wage includes piece rate or commission, then the posting must include this range as well. 
  • The law does not define “job posting.”  This has left many questions for employers on whether a help wanted sign, or a banner indicating the establishment is hiring, must also include the pay scale. 
  • An employer with 15 or more employees that engages a third party to announce, post, publish, or otherwise make known a job posting shall provide the pay scale to the third party. The third party shall include the pay scale in the job posting.
  • The Labor Commissioner interprets the law to require that “the pay scale must be included within the job posting if the position may ever be filled in California, either in-person or remotely.”

As California employers already know, noncompliance with the numerous employment regulations can result in serious legal consequences, monetary penalties, and damage to an organization’s reputation. One of the most effective ways for employers to ensure compliance with employment laws is by using checklists. Checklists are useful tools that can help employers keep track of their compliance obligations and reduce the risk.  It has been established that checklists reduce accidents when used by pilots and doctors, there is no reason why common employment law matters should not have checklists to work from.  This Friday’s Five covers five reasons why employers should use checklists for employment law compliance, and some recommendations for checklists:

1. Ensuring consistency and standardization

Checklists help employers ensure that all their employees are treated equally and fairly by applying the same standards and policies across the board. By creating a standard checklist for disciplinary actions, employers can be sure that all employees receive the same treatment and that no one is inadvertently left out or given preferential treatment.

2. Reducing risk of noncompliance

California employment law can be complex and confusing, with numerous regulations and requirements to keep track of. By using checklists, employers can systematically ensure that they are complying with all the relevant regulations and avoid the risk of noncompliance. Checklists also help employers stay up-to-date with changes to employment laws, which can be especially important when operating in multiple states or across various local city and county requirements across California. 

Some topics we generally recommend employers develop checklists for include:

  1. new hires and on boarding employees
  2. records and retention policies
  3. wage and hour issues
  4. meal and rest break issues
  5. end of employment issues
  6. employee training requirements

3. Improving communication and collaboration

Checklists can be shared among different departments, facilitating communication and collaboration across the organization. This can help ensure that all managers are aware of compliance requirements and can work together to ensure compliance. By involving multiple departments in the compliance process, employers can increase the likelihood of catching any compliance issues before they become serious problems.

4. Supporting audits and investigations

Employers who use checklists for employment law compliance are better prepared for audits and investigations. Checklists can help employers quickly and easily gather the information needed to respond to inquiries and requests from government agencies, such as the California Labor Commissioner, Department of Labor, or the Equal Employment Opportunity Commission. By having all the necessary information in one place, employers can minimize the disruption and stress of an audit or investigation.

5. Demonstrating good faith efforts

Finally, using checklists for employment law compliance can demonstrate an employer’s good faith efforts to comply with regulations. This can be especially important in the event of a legal dispute or investigation. By showing that they have taken reasonable steps to comply with the law, employers can potentially mitigate the consequences of potential penalties.

By implementing a standard checklist for employment law compliance, employers can save time, reduce costs, and protect the organization from legal and financial consequences.  Looking for some example outlines of audits, feel free to email me, I would be happy to share an example template to help start the process.

California law starts from a presumption that all employees are non-exempt employees, meaning that they are not exempt from the Labor Code requirements, such as overtime pay, meal and rest breaks, and minimum wage. Exempt employees are designated as such because they are “exempt” from certain wage and hour requirements due to their duties and pay. However, the employer bears the burden when classifying an employee as exempt, and simply providing a title to an employee does not make them exempt.

This week, the U.S. Supreme Court issued a decision in Helix Energy Solutions Group, Inc. v. Hewitt that examined the issue of the “salary basis” test under federal law.  As explained below, because California does look to federal law when interpreting its wage and hour laws, the decision needs to be understood by California employers and is a good reminder of the heightened requirements California employers have to meet the exemption requirements under California law. 

1. Overview of federal and California white-collar exemptions

The Fair Labor Standards Act (FLSA) exempts employees employed as in an executive, administrative, or professional capacity (these exemptions are often referred to as the white-collar exemptions).  The Department of Labor issued regulations that set forth the requirements for employees to meet these exemptions, generally looking to (1) the employee’s duties, (2) how much the employee is paid, and (3) how the employee is paid, such as by salary, wage, commission, or bonus.

Likewise, California law recognizes certain exempt categories (including the executive, administrative, and professional) of employees for purposes of overtime and other wage and hour requirements.  California Labor Code section 515 and California’s Wage Orders set forth the requirements for exempt employees in California.  It is important to note that while California and federal law are similar in some regards, and sometimes California looks to federal law when interpreting its own laws, there are significant differences that employers must be aware of for any exempt analysis under California law. 

2. California looks to federal law when interpreting its Wage Orders

The federal Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et seq.) applies a “salary basis test” to determine whether employees who are classified by their employers as “salaried,” and therefore exempt from minimum wage and overtime requirements, are in fact properly subject to exemption. California state law must meet or exceed standards adopted under federal law, and California follows the federal salary basis test to a substantial degree. See Kettenring v. Los Angeles United School Dist. (2008). 

In Negri v. Koning & Associates, a California Court of Appeals explained that the “Division of Labor Standards Enforcement (DLSE) construes the IWC wage order to incorporate the federal salary-basis test for purposes of demining whether an employee is exempt or nonexempt.” (referring to DLSE Opinion Letter No. 2002.03.01 (Mar. 1, 2002).  The Court in Negri acknowledged that while the DLSE opinion letters are not controlling, they are instructive on the wage orders, and therefore look to federal law on the definition of “salary.” 

3. Salary basis test under the FLSA

At issue in Helix Energy Solutions Group, Inc. v. Hewitt, was whether the employee was paid on a salary basis.  Plaintiff worked as a “tool-pusher” for Helix Energy Solutions Group on an offshore oil rig.  He would work 12 hours a day, seven days a week, for a 28-day “hitch.”  Then he would have 28 days off.  Helix paid plaintiff on a daily-rate basis, which started at $963 per day and increased to $1,341 per day, which amounted to more than $200,000 on an annual basis.  Plaintiff claimed that because he was paid on a daily basis, he did not meet the salary basis requirement to be exempt, and therefore should be paid for his overtime. 

Federal regulations provide that “An employee will be considered to be paid on a ‘salary basis’ … if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. … [A]n exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.” (29 C.F.R. § 541.602(a).)

The U.S. Supreme Court held that plaintiff was not paid on a salary basis.  The Court explained, “A daily-rate worker’s weekly pay is always a function of how many days he has labored.  It can be calculated only by counting those days once the week is over – not, [as the regulations require], by ignoring that number and paying a predetermined amount.”  The Court noted that the definition of “salary” refers to “fixed compensation regularly paid, as by the year, quarter, month or week,” which is distinguishable from “wages” for “[p]ay given for labor’ at ‘short stated intervals.’” (citing Webster’s New International Dictionary).

4. Salary basis test under CA Law

The California Court of Appeals in Negri v. Koning & Associates examined the same issue as reviewed in Helix, but under California law.  The case was decided in 2013, and reviewed the issue of whether an insurance claims adjuster who was paid $29 per hour with no minimum guarantee qualified as an exempt employee under California law. 

As the Court in Negri explained, “Exemptions from the overtime pay requirement are proper only where ‘the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.’ (Lab. Code, § 515, subd. (a).)”  The Wage Orders also govern, and the Court explained that while they do not define salary, the term “salary” “is generally understood to be a fixed rate of pay as distinguished from an hourly wage.” The Court held that because defendant stipulated that it never paid plaintiff a guaranteed salary and that if plaintiff worked fewer claims he made less money, therefore “plaintiff was not paid ‘a predetermined amount’ that ‘was not subject to reduction based upon the quantity of work performed.’”  Since plaintiff was not paid a salary, defendant did not prove that he qualified as an administrative exempt employee under the Wage Orders. 

5. Rational for the salary basis test

The Court explained in Helix, that the overtime laws were “designed both to ‘compensate [employees] for the burden’ of working extra-long hours and to increase overall employment by incentivizing employers to widen their ‘distribution of available work. Employees therefore are not ‘deprived of the benefits of the [overtime compensation] simply because they are well paid.”  The salary basis test “create a compensation system functioning much like a true salary – a steady stream of pay, which the employer cannot much vary and the employee may thus rely on week after week.” 

The Court also explained that Helix could comply with the salary-basis requirement in two ways:

  1. Add to plaintiff’s per-day rate a weekly guarantee that satisfied the requirements; or
  2. Could convert plaintiff’s compensation into a straight weekly salary for time spent on the rig.

Remember, the salary basis test is only one aspect of the federal and California exemption test.  Employers still must show that the employee earned the required salary level and meets the duties test in order to qualify for the applicable exemption.  More information about common exemptions under California law and the requirements to meet the exemptions can be read here.

One last note for wage and hour practitioners: Justice Kavanaugh raised an interesting point in his dissenting opinion about whether the Department of Labor’s regulations that set out the salary basis and level requirements could be challenged in the future as being inconsistent with the FLSA.  He noted that the FLSA statute only “focuses on whether the employee performs executive duties, not how much an employee is paid or how an employee is paid” and may not survive a challenge.  He notes, “But I am hard-pressed to understand why it would matter for assessing executive status whether an employee is paid by salary, wage, commission, bonus, or some combination thereof.” 

California law presumes that all employees are non-exempt employees, meaning that they are not exempt from the Labor Code requirements, such as overtime pay, meal and rest breaks, and minimum wage. Exempt employees are designated as such because they are “exempt” from certain wage and hour requirements due to their duties and pay. However, the employer bears the burden when classifying an employee as exempt, and simply providing a title to an employee does not make them exempt. The employee must meet very specific requirements for each applicable exemption, and if the requirements are not met the employer must comply with all wage and hour requirements – such as overtime pay, etc…. It is also important to note that some exemptions only exempt the employee from specific Labor Code provisions (for example, the inside sales exemption only exempts the employee from overtime pay requirements, but the employer is still required to provide meal and rest breaks).

Looking to learn more about exempt employee classifications?  My firm is hosting a webinar on Wednesday, February 28, 2023 at 10 a.m. PT: Understanding Exempt v. Non-Exempt Classifications Under California Law.  Registration is here.

Below is a review of some common exemptions that arise in a workplace under California law and the requirements to meet each one:

1. Executive/managerial exemption
In order to meet the executive (managerial) exemption, the employee must meet all of the following requirements:

  1. Employee’s duties and responsibilities involve the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision of the enterprise;
  2. Employee customarily and regularly directs the work of two or more other employees;
  3. Employee has the authority to hire or fire other 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 or other employees is given particular weight;
  4. Employee customarily and regularly exercises discretion and independent judgment in performing his or her duties;
  5. Is “primarily engaged” in duties that meet the test of the exemption;
  6. Earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.  With the increase to the California minimum wage, effective January 1, 2023, the minimum annual salary to meet the exemption increases to $64,480 ($5,373.34 per month).

The term “primarily engaged in” means that more than one-half of the employee’s work time must be spent engaged in exempt work and differs substantially from the federal test which simply requires that the “primary duty” of the employee falls within the exempt duties. Therefore, to qualify for this exemption, the employee must spend more than 50% of their work time on exempt duties.

2. Administrative exemption
To meet the administrative exemption, an employee must meet all of the following requirements:

  1. Employee spends more than one-half of their work time performing office or non-manual work directly related to management policies or general business operations for the employer or the employer’s customers;
  2. Employee “customarily and regularly” exercises discretion and independent judgment in carrying out job duties as to matters significant to the employer’s business;
  3. Performs his or her job only under general supervision and works along specialized or technical lines requiring special training, experience, or knowledge; and
  4. Is paid a salary equivalent to no less than two times the state minimum wage. With the increase to the California minimum wage, effective January 1, 2023, the minimum annual salary to meet the exemption increases to $64,480 ($5,373.34 per month).

3. Computer professional exemption
To be an exempt computer professional, the employee must meet the following requirements:

1. The employee is primarily engaged in work that is intellectual or creative and requires the exercise of discretion and independent judgment.

“Primarily” is defined as requiring more than 50% of the employee’s work time be spent on these types of duties.

2. The employee is primarily engaged in duties that consist of one or more of the following:

  • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications.
  • 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.
  • The documentation, testing, creation, or modification of computer programs is related to the design of software or hardware for computer operating systems.

3. The employee is highly skilled and is proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering.

4. The employee’s hourly rate of pay, or annual salary if paid on salaried basis, meets a minimum threshold amount set by California’s Division of Labor Statistics and Research (DLSR). Effective January 1, 2023, a computer software employee’s minimum hourly rate of pay exemption from $50.00 to $53.80, the minimum monthly salary exemption from $8,679.16 to $9,338.78, and the minimum annual salary exemption from $104,149.81 to $112,065.20.

4. Commissioned inside sales exemption
To qualify as an exempt commissioned inside sales employee, an employee must meet the following requirements:

  1. Employee’s earnings must exceed one and one-half times the California minimum wage; and
  2. More than half of the employee’s compensation must be commissions.

Employers must note that this exemption is only for the overtime requirement, and other wage and hour requirements such as minimum wage, meal and rest breaks, time recording requirements still must be met.

5. Outside salesperson exemption
To qualify as an exempt outside salesperson the employee must:

  1. Be at least 18 years old;
  2. Must customarily and regularly work more than 50% their work time away from the employer’s place of business; and
  3. Must be engaged in selling tangible items or obtaining orders or contracts for products, services, or use of facilities.

There are many exemptions, and many nuances to each exemption, so employers should perform this analysis very carefully and receive advice from an experienced attorney or HR professional when classifying employees as exempt.  Hope you can join us on February 28, 2023 for our webinar discussing this topic in more detail. 

There is a lot to report on a state and on the Los Angeles local level as we start February 2023.  This Friday’s Five covers updates on Cal/OSHA ETS, and LA City and County supplemental paid sick leave updates and newly announced minimum wages:

1. Los Angeles City COVID-19 supplemental paid Sick leave (SPSL) expires February 15

Los Angeles City COVID-19 Supplemental Paid Sick Leave set to expire on February 15, 2023. The Los Angeles City’s website provides the following:

“As a result of Mayor Garcetti and the City Council’s actions to end the COVID-19 Emergency Declaration on February 1, 2023, Mayor Garcetti’s Public Order regarding Supplemental Paid Sick Leave will expire two weeks after February 1, 2023.”

More information can be found on the City’s website here.

2. Los Angeles County’s COVID-19 emergency declaration remains in place, with no clear indication of when it will be lifted

Unlike the City, Los Angeles County has not lifted its COVID-19 emergency declaration, and employers with employees in the County still must comply with the County’s SPSL requirement.  For more information about the County’s SPSL requirements, see our prior article here.

When will the County lift its emergency?  There is no indication, and Los Angeles County Public Health Director Barbara Ferrer told the LA Times recently, “We’re not lobbying to extend the emergencies. What we are doing is taking a hard look at what protections are offered by the emergency declarations and, if things go away, what would be put in place to mitigate any unanticipated or unintended consequences.”

3. Cal/OSHA Emergency Temporary Standards (ETS) expired, and is replaced with COVID—19 Prevention Non-Emergency Regulations

On the state level, on Friday, February 3, Cal/OSHA’s COVID—19 Prevention Non-Emergency Regulations became effective replacing the Emergency Temporary Standards.  These regulations replace the Emergency Temporary Standards.  One of the biggest changes is the elimination of “exclusion pay” for employees who cannot work for certain COVID-related reasons.  The new regulations remain effective for two years, except for the record keeping requirements that will remain in effect for three years.  Cal/OSHA’s website setting forth updated fact sheets, FAQs, and an updated COVID-19 model written program is available here.

The new non-emergency regulations can be found here.

4. Los Angeles City Minimum Wage Increase Announced: $16.78 on July 1, 2023

On February 1, 2023, the City of Los Angeles announced that its minimum wage will increase to $16.78/hour on July 1, 2023. More information and the required updated poster is available on the City’s website.

5.  Los Angeles County Minimum Wage Increased Announced: $16.90 on July 1, 2023

County of Los Angeles maintains its own minimum wage, and the county recently announced that as of July 1, 2023, its minimum wage will increase to $16.90/hour. The County’s website with more information and updated workplace posters is available here.

Employers with employees in Los Angeles City and County need to start planning for the increased minimum wage now.  Learn more about key items employers need to consider for compliance with the state and local minimum wage requirements for California in our article here.