It is great to own your own business. Being the boss comes with a lot of perks. It also comes with a lot of federal and state laws with which you must comply. If you violate a California state employment law, you could pay a hefty fine, have your business closed down, or have to defend yourself in a lawsuit.
As an employer, you are expected to know the law and follow it. A basic understanding of the law relevant to hiring employees in California can save you money, time, and stress. The laws are comprehensive, but here is a simple overview that may help both new and established employers learn the basics.
Employee or Independent Contractor
Employers must classify those who work for them as an employee or independent contractor. If someone who does work for a business is truly an independent contractor, employers do not have to pay payroll taxes, minimum wage, or overtime; do not have to comply with certain meal or rest break requirements for employees; and do not even have to cover independent contractors under the employer’s workers’ compensation plan.
The downside is that employers are often accused of wrongfully classifying employees as independent contractors in order to avoid complying with laws covering employees. If there is litigation concerning the status of a person whom the employer classified as an independent contractor, but the court finds the person was really an employee, the employer can face stiff penalties.
There is no employee definition found in any California statute, but from court decisions, one of the major determinations is whether or not the employer has the “right of control” over the worker. If so, the person is an employee. In order to determine if the employer has the right of control, the following factors are relevant:
- Does the employer instruct the person on how they are to do their job and supervise how it is done? Independent contractors do their job according to their industry without employer supervision.
- Can the worker be fired or quit at any time? Independent contractors work according to an independent contractor agreement and cannot be terminated unless they breach the contract.
- Is the work that is being performed a necessary part of running the business? For example, a salesperson in a retail store is an employee because selling is what the business does. If someone comes just to fix the plumbing, the plumber is an independent contractor because his or her job is not part of the daily business routine.
- Does the individual performing the job have a separate business where he or she performs similar jobs for other businesses?
- Is the person paid by the hour or by the job?
No one factor is determinative. If the employer pays the person with a Form 1099 instead of a W-2, or has a contract identifying the person who is performing the work as an independent contractor, these are only factors to be considered and neither is determinative of the worker’s status.
Maintaining an Employee File
The law requires employers to keep a number of items in the employee’s employment file. This includes tax forms, verification of eligibility to work, benefits forms, withholding agreements, and any other agreement made between the employer and employee, like a non-compete agreement or an arbitration agreement. Any performance evaluation, whether good or bad, must also be included in the employee file.
Wages and Overtime Pay
There are a number of laws, both state and federal, that determine the wages that employers must pay their employees.
- California Equal Pay Act – Under the California Equal Pay Act, employers must pay employees who are doing the same work the same pay unless there is a bona fide reason for disparate wages. Employees are allowed to ask their coworkers what their wages are. If an employee makes a complaint that the employer has violated this Act, the employer may not retaliate in any way against that employee.
- Minimum wage – With just a few exceptions, in 2017, employers with a maximum of 25 employees must pay a minimum wage of $10.00 an hour. Those who employ 26 or more employees must pay $10.50. The minimum wage will increase by $0.50 an hour every year until 2023, when it will be $15.00 an hour no matter how many employees an employer has on the payroll.
- Tips – Tips received by service employees, such as waitresses, belong to the worker, not the employer. Under California law, which is different than federal law, the employer must still pay minimum wage and cannot use the tips to deduct from the wages paid. Waitresses may be required to share their tips and gratuities with other service workers, like busboys or bartenders, but not with anyone in a supervisory or managerial position.
- Deductions – Under California law, there are only three types of deductions an employer can make from the regular pay: 1) when the deduction is required under state or federal law, 2) when the deduction is pursuant to a written document by the employee to cover certain benefits like medical insurance or pension contributions, or 3) when a deduction to cover health insurance and other benefits is pursuant to a collective bargaining agreement. Employers may not deduct for, or require employees to purchase, a uniform. If uniforms are required, the employer must pay for them.
- Paydays – Generally, employees must be paid twice a month. The pay dates must be posted in the workplace. There are provisions for paying weekly, bimonthly, or semi-monthly. Overtime pay must be paid at the next regularly scheduled payday. As with almost all rules, there are exceptions depending on the nature of the employment. When a worker is fired, all pay currently due must be paid at that time. This includes payment for any accrued vacation time.
- Rest periods – Employers must provide a minimum of a 10-minute paid rest period for every four hours worked “or major fraction thereof.” There is an exception for some industries, such as construction, mining, and performance artists, when a break would interrupt the flow of the work. Then, the breaks must still be given, but not necessarily in the middle of a four-hour work period. If a nursing mother desires to pump milk during her break that is fine. If she takes more than the 10 minutes, that is allowable, but the extra time is not paid for by the employer. Employers who fail to provide the minimum 10-minute rest period must pay the employee an amount equal to one hour of work for every day that the rest period was not provided. There is no legal provision for employees to refuse the rest periods so they can leave work early. Also, employers may require employees to stay on the premises during their breaks. Using the toilet facilities at other times during the workday does not count as the 10-minute break period.
- Meal periods – Employees who work at least five hours a day must be provided a 30-minute lunch break. If the entire work day is only six hours, the employer and employee may enter into a written agreement to waive the meal period. If an employee works more than 10 hours a day, a second 30-minute meal period must be provided. If workers are required to eat their meal on the premises, a suitable place for eating must be provided. There are quite a few exceptions to this rule depending on hours worked and the industry within which the worker is employed.
- Vacations – Contrary to what seems to be a popular belief, employers in California are not required to provide workers with either paid or unpaid vacation time. If employers choose to provide vacation pay, there are some rules they must follow. Many collective bargaining agreements impose an obligation on employers to provide paid vacations. The most common way for vacation to accrue, although not a legal requirement, is that five days are accrued every six months. At the end of the first year of employment, an employee would then be entitled to 10 days of vacation pay. If employees do not take their vacation time, they can be paid for the days at the end of the year. When employees are terminated, they must be paid for any accrued vacation time.
- Sick leave – With only a few exceptions, employees who work for at least 30 hours in one year accrue paid sick leave at the rate of one hour for every 30 hours worked. The sick leave is paid at the same rate of pay the employee earns for a day worked. An employer may opt to provide three days of paid sick leave at the beginning of every year. Employees may take a partial day of sick leave to attend a doctor’s appointment or have medical tests done. Also, employees may accrue more than three days of sick leave, but employers may cap the amount of sick leave earned to six days. Employees who quit or are terminated are not entitled to be paid for unused sick leave. Of course, there are exceptions to the law and, if a collective bargaining agreement provides for more paid sick leave, that agreement must be honored by the employer. In general, employers can provide more sick leave than what is required under the law, but they cannot provide less.
- Weekends and holidays – In California, employers are not required to close their business on any particular holiday, nor are they required to pay employees extra pay for working on a holiday unless the work means the employee will be working overtime. Then, the overtime law clicks in. The same is true for work done on Saturdays and Sundays. These days are treated like any other workday and do not require any special premium pay. Working on those days only requires extra pay if it means the employee is working overtime.
- Overtime pay – The overtime pay requirements are complicated. Basically, unless an employee is exempt from the rule, overtime must be paid to workers who work more than 12 hours in one day or more than 40 hours in one workweek. The major exception to this rule is where workers routinely work three 12-hour shifts or four 10-hour shifts in one week. Other exceptions apply, and the calculation of overtime pay is generally one-and-a-half times the worker's regular rate of pay. The regular rate of pay must be at least minimum wage.
All employers are required to carry workers’ compensation insurance even if their only employees are family members. The purpose of this insurance is that if workers are injured on the job, they can collect for their medical expenses and lost wages without having to prove that the employer was negligent. In turn, employers may not assert that the worker’s own negligence was the cause of the injury.
The penalty for not having this insurance is steep. If the Labor Board discovers an employer does not have it, it will issue a citation and shut down the business. No employees will be allowed to work until the employer proves he or she has purchased the insurance. In addition, a penalty of $1,500 is assessed for every employee that was working at the time the Labor Board issued its citation for failing to have the insurance.
How LegalNature Can Help You with Your Legal Form Needs
Complying with so many rules and regulations is daunting. It can be simplified for employers who use LegalNature for their legal forms. Business owners who are employers can create their own legal documents with step-by-step guidance that will help with organization and compliance.
Table of content