Understanding and complying with basic wage and hour guidelines should be of the utmost importance to a company. Keeping up with changing labor law requirements can be daunting. Not understanding the basic laws can have dire consequences.
The following information is intended to provide insight into the most basic labor requirements with focus on California requirements.
Each facet of compliance from employee classification, overtime compensation, and meal and rest period requirements can create a domino effect of legal issues if not properly applied.
Employee Classification (Exempt vs. Non-Exempt)
The area of employee classification and the regulations surrounding continue to present challenges to employers.
The requirements involving the classification of an hourly, non-exempt employee is fairly simple. Hours tracked with compensation paid at or above the current minimum wage. Overtime hours paid accordingly and the applicable rest and meal periods provided. More discussion on that to come.
The classification of an employee as exempt is not so simple and getting it wrong can be costly. Misclassification can result in claims filed with the Labor Commissioner for unpaid wages in the form of overtime compensation, missed meal period penalties and more.
The following is a general overview of the exempt classification:
Exempt Determination Guide
California employers face tougher requirements as the state’s exemption requirements create more restrictions than federal law. California’s Industrial Wage Orders have requirements that often exceed federal standards adopted by the U.S. Department of Labor.
- Executive – the executive exemption usually covers managerial employees.
- Administrative – many employees involved in administrative work do not qualify.
- Professional – three categories; licensed, learned and artistic.
- Computer – high skill level, intellectual or creative work.
- Outside Sales – regularly works more than 50% outside of office.
Each category has duty requirements that are unique to the job.
Duties Are the Key
What determines the classification of an employee? Titles are irrelevant to the determination of whether an employee is exempt or non-exempt. It is the actual duties of the employee that determines that fact. An exempt employee must regularly exercise discretion and independent judgment.
Discretion and independent judgment involve comparing and evaluating possible courses of conduct, and acting or making a decision after considering various options. An employee with discretion and independent judgment must either:
- Have the power to make independent choice free from immediate supervision and with respect to matters of significance; or
- Be able to make a recommendation for action subject to the final authority of a superior, as long as the employee has sufficient authority for the recommendations to affect matters of consequence to the business or its customers.
An exempt employee is primarily engaged in “exempt type” duties. If he/she is engaged in other than “exempt type” duties more than 50% of the time, that employee should not be exempt.
Minimum Salary Requirements
The level of compensation is not the qualifying factor for an exempt status. However, if the position does qualify as one of the exempt categories, in most cases a minimum salary requirement must be met.
Best to review the employee’s duties periodically to ensure that the exempt classification continually applies. When in doubt seek assistance.
Basic Overtime Requirements
For almost all non-exempt private sector California employees who are not covered by collective bargaining agreements, overtime pay is based primarily on the number of hours worked in a day. You must also account for weekly totals when calculating overtime.
Daily Overtime — California Law
Non-exempt California employees earn overtime pay based on hours worked in each workday, regardless of whether more than 40 hours are worked in the workweek. Daily overtime pay requirements are as follows:
- You must provide 1.5 times the employee’s regular rate of pay for:
- All hours worked beyond eight in a single workday
- The first eight hours worked on the seventh consecutive day worked in a single workweek
- You must pay double the employee’s regular rate of pay for both:
- All hours worked beyond 12 in a single workday
- The hours worked beyond eight on the seventh consecutive day worked in a single workweek
Weekly Overtime (California and Federal Law)
Employers are required to pay employees 1.5 times the employee’s regular rate of pay for all hours worked beyond 40 straight-time hours in a workweek.
Only hours worked at straight-time apply to the weekly 40-hour limit. This prevents “pyramiding” of overtime, where an employee earns overtime on top of overtime already paid. For instance, an employee who works five, 11-hour days and has been paid three hours of overtime for each day where he/she worked more than eight hours is not entitled to additional weekly overtime.
On the other hand if the employee worked six, eight-hour days, which would not require daily overtime, he/she is entitled to weekly overtime for working over 40 hours in a workweek.
Seventh Day of the Workweek
The definition of “workweek” is extremely important when calculating overtime under the “seventh-day” rule. The seventh-day rule applies only on the last day of your defined seven-day workweek. It does not apply when an employee works seven consecutive days that are spread out between two workweeks, such as when an employee works the last three days of one workweek and then the first four days of the next workweek.
The seventh consecutive day worked in a workweek is paid differently than the first six days. On the seventh consecutive day worked in a single workweek you must pay an employee:
- Time and one-half the regular pay rate for the first eight hours worked.
- Double the regular pay rate for all hours worked beyond eight.
How you define your seven-day workweek will impact your obligation to pay overtime.
Meal & Rest Period Overview
In Brinker Restaurant Corp. v. Superior Court (a benchmark case), the California Supreme Court set forth specific guidelines relating to meal breaks. The court clarified that an employer’s obligation is to “provide” the meal break, but not “ensure” that the employee does no work.
According to the court in Brinker, the employer satisfies its legal obligation to provide an off-duty meal period to its employees if it:
- Relieves its employees of all duty
- Relinquishes control over their activities
- Permits them a reasonable opportunity to take an uninterrupted, 30-minute break
- Does not impede or discourage them from doing so
A meal break can be unpaid only if all of the above conditions are met.
The duty to provide a meal break is an affirmative duty on the part of the employer that must meet the above requirements; it is more than simply making the meal break available. How these requirements are satisfied may “vary from industry to industry.”
Employers are not required to ensure that no work is done during a properly provided meal period. The employer is required to relinquish control over the employee’s time.
Timing of Meal Breaks
The timing for meal periods was also discussed by the court in Brinker:
- The first meal break must be provided “no later than the end of the employee’s fifth hour of work.”
- The second meal break must be provided “no later than the end of an employee’s 10th hour of work.”
Employers are often confused as to exactly what “the end of the employee’s fifth hour of work” means and exactly when the meal period must be provided.
The most prudent approach is to err on the side of caution and provide a meal break that begins no later than 4 hours and 59 minutes into the employee’s shift. Example: if an employee begins an eight-hour shift at 8 a.m., he/she must start the meal period by 12:59 p.m., and for an eight-hour shift beginning at 9 a.m., the meal period should start no later than 1:59 p.m.
The second meal period must be provided no later than the end of the employee’s 10th hour of work. Note that if an employee has already taken a half-hour first meal break, the 10th hour of work will start 10.5 hours into the shift.
If an employee takes a meal break early in a shift and then works more than five hours after the meal break, a second meal break is not required unless the employee works more than 10 hours that day.
Recording Meal Breaks
Important that employers keep a record of start and end clock times for each meal period. It is not enough to simply show that a half hour meal break was taken during the day. The timecard must reflect the actual clock times for the start and end of the meal period.
Your company policy and timekeeping records should reflect and demonstrate an uninterrupted, 30-minute meal period was provided no later than four hours and 59 minutes into a non-exempt employee’s shift.
Employees should be required to accurately report all time worked. It is a good practice to have employees sign their time records and verify that they have reported all time worked and that they understand that off-the-clock work is not permitted.
- In order to avoid liability for overtime or other legal obligations, it is a good practice to set a policy of no “off-the-clock” work. This can be referred to in your meal and rest break policy and also in a separate timekeeping policy.
Employees should also be required to record the start and end time of meal periods. Timekeeping records should reflect that the meal period was provided to the employee by the correct time, regardless of whether the employee voluntarily chose to perform work during the meal period. If the meal break was provided but the employee voluntarily performed work, the employee must be paid for the time worked but premium pay will not be owed. Payroll records should reflect this information.
Meal periods during which operations cease are not required to be recorded on a timecard.
If an employee misses a meal period for any reason, the employer should have a process in place to document the reason for the missed meal period. This will allow you to account for the time for payroll purposes and also to monitor why the employee is missing meal periods:
- Is a supervisor discouraging or disallowing them?
- Is the employee voluntarily choosing to work during a provided meal period? If so, what is your process to address it to avoid incurring additional pay obligations?
Employees should be instructed to inform management if they are discouraged or impeded from taking a meal break by their supervisor or anyone else. Employees should not be required to report this only to their direct supervisor, as it may be the supervisor who is discouraging them from taking the break.
Employers should consider regularly auditing timekeeping records to see if there is a pattern of missed meal periods.
Meal Break Waivers Allowed
- The employee may waive his or her meal period if the day’s work will be completed in no more than six hours, provided you and the employee mutually consent to the waiver.
- An employee can waive the second meal break only if all of the following conditions are met:
- The total hours worked on that workday are not more than 12
- You and the employee mutually consent
- The first meal break of the workday was not waived6
It is a best practice to have each waiver in writing, but it is not required.
On-Duty Meal Breaks
Employees can take on-duty meal breaks in certain limited circumstances. An on-duty meal break must meet all of the following conditions:
- Is permitted only when the nature of the work prevents an employee from being relieved of all duty
- Must be agreed to in writing by you and the employee
- Must be paid
- Can be revoked at any time in writing by the employee, except under Wage Order 14
- If the meal break does not clearly meet all of these conditions, it will not be a lawful on-duty meal break, and the employer will owe one hour of premium pay.
Take caution in implementing. A legally compliant “on-duty meal break” is not a waiver of an employee’s meal break and the time worked must be paid. If employees take a valid, legally compliant on-duty first meal break, they can still waive their second meal break and you will not be liable for the additional hour of pay for a missed meal break.
Must Be Allowed to Leave
If you require employees to remain on the premises, you may be obligated to pay premium pay (an exception may exist for the health care industry).
In most situations, the courts and Labor Commissioner are likely to rule that wages are owed any time the employee is under your control. This applies not only to meal breaks, but also to education and training sessions, travel time required (other than an employee’s normal commute), preparation (changing and clean-up time), and other similar time that you might not consider time worked.
Meetings or Trainings During Lunch Breaks
It is common for employers to hold meetings or training for employees during meal breaks. This is not advisable. Even if you give your employees a meal during the training, this is still considered working time for which an employee must be paid. In addition to paying for the time spent in the meeting or training, you will owe an additional one hour’s pay for each nonexempt employee who is denied a meal break.
If you hold a meeting during the normal lunch break time, you can avoid the penalty if you allow employees an off-duty meal break of at least 30 minutes before the meeting. This 30-minute meal period must start no later than 4 hours and 59 minutes into the employees’ shift.
Employers must authorize and permit paid rest periods for all nonexempt employees whose total daily work time is at least 3.5 hours. These mandatory rest breaks must be offered at the rate of 10 “net” minutes for every four hours worked, or “major fraction thereof.”
The California Supreme Court in Brinker confirmed that anything more than two hours is considered to be a “major fraction” of four hours. In a typical eight-hour workday, an employee is entitled to receive at least two 10-minute rest breaks.
Employers should generally provide rest breaks in the middle of each work period. Deviations from this general scheduling may be permissible in certain circumstances.
Providing the Rest Break
An employer may not require an employee “to work” during a rest break. During required rest breaks, employers must:
- Provide an uninterrupted break;
- “Relieve their employees of all duties;” and
- “Relinquish any control over how employees spend their break time.”
Leaving the Premises
In reviewing a case, The California Supreme Court stated that the employer must relinquish control of the employee during the rest break. As examples, the court noted that the employee should be free to:
- Take a brief walk of five minutes out and five minutes back; or
- Complete a phone call to arrange for child care.
In other words, the employee must be able to use the 10-minute break time as they want.
Timing of Rest Breaks
As a general rule, the rest break should be in the middle of the four-hour work period. In addition, rest breaks should not be combined.
In an eight hour shift, one rest break should fall on either side of the meal break.
Employers are given some latitude and may “deviate from that preferred course where practical considerations render it infeasible.”
A departure from the general rule is allowed only if the departure can meet this two-prong test:
- The departure will not unduly affect employee welfare; and
- The departure is tailored to alleviate a material burden that would be imposed on the employer by implementing the preferred schedule.
A departure from the preferred schedule that is “merely advantageous” to the employer will not meet the above test. Instead, the employer must show that providing the rest break in the middle of each work period imposes a material burden and that a departure from the norm is necessary to alleviate that burden.
- Employers should be cautious about departing from the general rule to provide rest breaks in the middle of each work period and should consult with counsel if practical considerations unique to their industry appear to warrant a departure from the general rule.
Rest breaks should not be combined or added to the meal breaks. The best practice, is to have rest breaks in the middle of each work period and, thus, not combine breaks even at the employee’s request.
Rest breaks should not be used to allow an employee to come in 10 minutes late or leave 10 minutes early.
For each workday you fail to authorize and permit an employee to take one or more required rest breaks, you owe the employee one additional hour of pay at his/her regular rate of compensation. This must be paid no later than the next paycheck.
The areas previously discussed are just a small part of the overall complexities of having employees and remaining compliant with changing requirements. Feeling confident in having the “basics” in place will go a long way towards that goal.
Important that you periodically check your policies with your current practice to make sure they align.
If in doubt, seek assistance. Doing so can prevent costly mistakes.