Wage and Hour Compliance
The practice of adhering to federal, state, and local laws governing employee pay, work hours, and related employment conditions.
What Is Wage and Hour Compliance?
Wage and hour compliance refers to an employer's adherence to laws that regulate employee compensation, working time, and related employment conditions. In California, these laws are among the most protective in the nation, covering minimum wage, overtime pay, meal and rest breaks, pay statements, and timekeeping requirements.
For California employers, maintaining wage and hour compliance is essential to avoid costly lawsuits, regulatory penalties, and reputational damage. Wage and hour claims are the most common type of employment litigation in California, with class actions and PAGA claims posing significant financial risk.
California Wage and Hour Framework
California wage and hour law comes from multiple sources that employers must navigate:
Sources of Law
| Source | Examples |
|---|---|
| Federal law | Fair Labor Standards Act (FLSA) |
| State law | California Labor Code, Industrial Welfare Commission (IWC) Wage Orders |
| Local ordinances | City/county minimum wage, paid sick leave, predictive scheduling |
| Court decisions | Interpretive case law |
| Agency guidance | DLSE opinion letters, enforcement policies |
When laws conflict, California employers must follow whichever law provides greater protection to employees.
Core Wage and Hour Requirements
Minimum Wage
California's minimum wage requirements include:
| Requirement | Details |
|---|---|
| State minimum | $16.00/hour (2024) |
| Local minimums | Many cities require higher rates |
| Industry rates | Fast food ($20/hour), healthcare (varies) |
| Application | Applies to all hours worked |
Employers must pay the highest applicable minimum wage based on:
- State law
- Local minimum wage ordinances
- Industry-specific requirements
Overtime Pay
California's overtime rules exceed federal requirements:
| Overtime Type | Rate | Trigger |
|---|---|---|
| Daily overtime | 1.5x | Hours 8-12 in a workday |
| Double time | 2x | Hours over 12 in a workday |
| Weekly overtime | 1.5x | Hours over 40 in a workweek |
| 7th day (first 8 hours) | 1.5x | Working all 7 days in workweek |
| 7th day (over 8 hours) | 2x | Hours over 8 on 7th day |
Overtime must be calculated using the regular rate of pay, which includes:
- Base hourly rate
- Non-discretionary bonuses
- Shift differentials
- Piece-rate earnings
- Commissions
Meal Periods
California employers must provide meal breaks:
| Requirement | Details |
|---|---|
| First meal period | 30 minutes before 5th hour of work |
| Second meal period | 30 minutes before 10th hour of work |
| Waiver allowed | First break if shift is 6 hours or less |
| Second waiver | If total hours do not exceed 12 and first break taken |
| Duty-free | Employee relieved of all duties |
| Premium pay | One hour at regular rate if not provided |
Rest Periods
California employers must provide rest breaks:
| Requirement | Details |
|---|---|
| Duration | 10 minutes per 4 hours worked |
| Timing | Middle of each work period when practicable |
| Paid time | Rest breaks are paid work time |
| Premium pay | One hour at regular rate if not provided |
Pay Statements
California requires detailed wage statements showing:
| Required Element | Description |
|---|---|
| Gross wages earned | Total compensation before deductions |
| Total hours worked | For non-exempt employees |
| Number of piece-rate units | If applicable |
| All deductions | Itemized list |
| Net wages earned | Take-home pay |
| Inclusive dates | Pay period covered |
| Employee name and ID | Last four digits of SSN or employee ID |
| Employer name and address | Legal entity information |
| All hourly rates | Each rate and hours at each rate |
Timekeeping
Accurate time records are essential for compliance:
- Record all hours worked
- Capture actual start and end times
- Document meal period start and end times
- Maintain records for at least 3 years (4 years recommended)
- Ensure records are accessible for inspection
Employee Classification
Proper classification is foundational to wage and hour compliance:
Exempt vs. Non-Exempt
Overtime exemption requires meeting:
| Test | California Requirements |
|---|---|
| Salary basis | Minimum $66,560/year (2024) |
| Salary level | At least 2x state minimum wage |
| Duties test | Executive, administrative, or professional duties |
| Discretion | Independent judgment on significant matters |
| Time spent | More than 50% on exempt duties |
Independent Contractor vs. Employee
California's ABC test presumes workers are employees unless the employer proves:
- (A) Worker is free from control and direction
- (B) Work is outside the usual course of business
- (C) Worker has an independent business in that trade
Common Compliance Pitfalls
Overtime Violations
| Violation | Issue |
|---|---|
| Ignoring daily overtime | Federal law has no daily overtime, but California does |
| Incorrect regular rate | Failing to include all compensation |
| Unauthorized overtime | Must pay for all hours worked, even if unapproved |
| Averaging hours | Cannot average hours across weeks |
| Comp time | Private employers cannot substitute time off for overtime pay |
Meal and Rest Break Violations
| Violation | Issue |
|---|---|
| Auto-deduct practices | Deducting meal time without verification |
| On-duty meals | Improper use without valid agreement |
| Working through breaks | Allowing or requiring work during breaks |
| Rounding abuse | Rounding that consistently favors employer |
| Missed break tracking | No system to capture and pay premiums |
Pay Statement Violations
| Violation | Issue |
|---|---|
| Missing information | Any required element missing |
| Incorrect rates | Wrong hourly rate or overtime rate shown |
| Illegible statements | Cannot be read or understood |
| Late delivery | Not provided on payday |
| Aggregate hours | Not showing hours worked at each rate |
Classification Violations
| Violation | Issue |
|---|---|
| Salary basis test | Paying exempt employees hourly |
| Duties test failure | Job duties don't match exemption claimed |
| 50% rule | Spending less than half time on exempt duties |
| Improper deductions | Docking exempt employee pay improperly |
| Contractor misclassification | Treating employees as independent contractors |
Penalties for Non-Compliance
California imposes significant penalties for wage and hour violations:
Civil Penalties
| Violation Type | Penalty |
|---|---|
| Minimum wage | $100-$250 per employee per pay period |
| Overtime | Unpaid wages plus liquidated damages |
| Meal/rest breaks | One hour pay per day per missed break |
| Pay statements | $50-$100 per employee per pay period, up to $4,000 |
| Final pay | Up to 30 days waiting time penalty |
PAGA Penalties
The Private Attorneys General Act allows employees to pursue penalties on behalf of the state:
| Violation | Penalty |
|---|---|
| Initial violation | $100 per employee per pay period |
| Subsequent violations | $200 per employee per pay period |
| Distribution | 25% to employee(s), 75% to state |
Class Action Exposure
Systematic violations can result in class action lawsuits:
- Back pay for all affected employees
- Liquidated damages (often equal to unpaid wages)
- Penalties under PAGA
- Interest at 10% per year
- Plaintiff's attorney's fees and costs
Building a Compliance Program
Essential Components
-
Written Policies
- Develop clear written policies on all wage and hour topics
- Include in employee handbook
- Train employees and supervisors
- Enforce consistently
-
Time and Attendance Systems
- Use electronic timekeeping with accurate capture
- Require meal period clock-out/clock-in
- Implement approval workflows for edits
- Generate exception reports
-
Payroll Processes
- Calculate overtime correctly
- Include all compensation in regular rate
- Apply proper rounding rules
- Issue compliant pay statements
-
Training Programs
- Train supervisors on meal and rest break policies
- Educate managers on overtime rules
- Explain timekeeping requirements to employees
- Update training when laws change
-
Audit and Monitoring
- Conduct regular workplace audits
- Review timekeeping data for patterns
- Investigate complaints promptly
- Correct issues immediately
Compliance Checklist
Use this compliance checklist for regular reviews:
Pay Practices
- Minimum wage met for all hours
- Overtime calculated correctly
- Regular rate includes all required compensation
- Final pay delivered timely
Meal and Rest Breaks
- Meal breaks provided and documented
- Rest breaks provided
- Premium pay for missed breaks
- Waiver agreements where applicable
Documentation
- Time records maintained
- Pay statements complete
- Classification documentation current
- Policies signed and acknowledged
Workplace Compliance
- Labor law posters current
- Policies distributed
- Training completed
- Audits scheduled
Technology Solutions
Modern workforce management systems support wage and hour compliance by:
| Function | Compliance Benefit |
|---|---|
| Automated timekeeping | Accurate capture of all hours worked |
| Scheduling controls | Prevent overtime and missed breaks |
| Real-time monitoring | Alert managers to approaching thresholds |
| Meal break verification | Document that breaks were taken |
| Pay statement generation | Ensure all required elements included |
| Report generation | Support audits and investigations |
| Attestation capture | Document employee acknowledgments |
| Integration | Sync with payroll for accurate payment |
Staying Current
California wage and hour laws change frequently. Stay informed through:
- California DIR website and email updates
- Employment law seminars and webinars
- Legal counsel updates
- HR association resources
- Professional publications
Annual policy reviews and regular training updates ensure your compliance program remains effective as laws evolve.
Wage and hour compliance is not just about avoiding penalties—it reflects your commitment to treating employees fairly and building a sustainable business.
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