California Payroll Best Practices
Published January 6, 2020
New worker rights legislation is passing across the country and around the world, and it is important for employers and contingent workforce providers to keep abreast of changing responsibilities and obligations. For example, California has extensive regulations regarding employee payroll processes, payroll reporting, rest breaks, and meal breaks that differ from requirements in other states. Under California Labor Code Section 2810.5, employers who do not abide by these new regulations can face stiff government penalties and increased financial liabilities to employees not administered properly.
By partnering with an Employee of Record (EOR) and payroll services firm, it can simplify the HR processes involved in administering and paying W-2 employees and independent contractors in California, especially if you are juggling the requirements of employees across multiple states. Here are just a few of the important things for you to consider when hiring employees in California, but you should always consult and ensure compliance with the official labor code in every state you employ workers.
Employment Term Notification
Under the Wage Theft Prevention Act, employers must provide all new employees with written notice of their employment rights, including, but not limited to, pay rates, overtime pay rates, pay day schedule, sick leave, workers’ compensation rights, and your full employer name and address. It is often best practices to have your employee sign an acknowledgement form that legally recognizes their receipt of the information prior to first assignment. A compliance partner can automate this process with your new hires through email, so you can clearly identify new hires that are in compliance and ready to start work.
California requires all hourly employees to perform all work on-the-clock and requires the employer to provide a timekeeping method through a web portal, time sheet, punch clock, or some other method. Employees must accurately record start and end times as well as meal breaks, and managers are responsible for approving weekly records and recognizing inconsistencies.
California Labor Code Section 510 requires employers to pay overtime at 1.5 times an employee’s regular rate if the employee works more than eight hours in a day or 40 hours in a week. Employees must be paid at two times their regular rate if working more than 12 hours in a day. Additionally, if an employee works for a seventh consecutive day, they must receive 1.5 times their rate for the first eight hours, and two times their rate for any overtime. Timekeeping software administered by a knowledgeable HR services partner will automatically calculate payroll and keep a record of ongoing compliance for your organization.
California employees are entitled to a 10-minute paid rest break for every four hours worked. During this break, employees should be relieved of all duties and permitted to leave the premises. Additionally, employers must provide a 30-minute, unpaid, off-duty meal break per five hours worked. Even if your employees say they don’t need a break or aren’t hungry, managers must encourage them to take breaks as required. Workers assigned to shifts less than six hours can sign a meal waiver form to skip their designated meal break and remain on the clock. A professional tracking system or software administered by a trusted HR services partner can help managers keep track of paid and unpaid breaks to ensure your workforce remains in compliance. Employers are required by law to pay penalties for every rest or meal break violation, so it is important for all parties to understand the requirements, communicate them clearly, and establish ongoing processes to remain in compliance from the very first shift.
Final Pay Requirements
California has some of the most stringent legislation protecting and entitling workers to final pay in the event of termination. Employees who are fired, discharged, or laid-off, must be paid up through the day of their termination. It is wise for employers to have an employee’s final paycheck processed and ready to distribute prior to communicating termination. Employees who resign with at least 72-hours’ notice are entitled to their final paycheck on their last day of employment. Employees who resign with no notice must be paid within 72 hours of resignation. The employer is subject to a daily penalty equaling the employee’s daily rate of pay for up to 30 days after termination. In California, running payroll every few weeks will not meet these changing requirements, and it is suggested to adopt more sophisticated methods of tracking and issuing payment.
In order to protect the rights of workers, California does not permit deductions from an employee’s paycheck unless it is under government-mandated circumstances, such as tax withholdings, garnishments, court orders, or health benefit plans (when authorized). Some deductions that may be permitted in other states but are not permitted in California include costs for pre-employment or required medical examinations, overpaid wages, or required work tools and uniforms. It is important to consult someone who is experienced in California employment law to determine which deductions required as part of your employment processes are permitted in California.
These additional regulations are some of many taking effect or on the legislative table across all major marketplaces in the world. Doing business in California can be profitable, but only if you avoid some of the costly compliance penalties associated with your workforce.
Click here to learn more about California Payroll Best Practices.