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Protecting Your Company in Response to
Changes in Wage and Hour Law
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| Here is what you need to know (and will find detailed below) about the significant developments in wage and hour law:
Here is more detail:
(1) California Minimum Wage is Increased; What That Means for You. California’s minimum wage will increase to $16.00 per hour effective January 1, 2024. Many local cities and counties have their own higher minimum wage rates, some of which will increase as of the new year (while others increase in July 2024). The higher of the applicable rates must be paid.
Why this matters? In addition to potentially needing to raise the rates of your non-exempt employees,
- The minimum salary requirements for exempt employees will increase to $5,546.67/month ($66,560/year) (remember, these positions also need to satisfy a "duties" test!);
- For employees required to provide their own hand tools, their hourly rate increases from $31 to $32;
- For the Inside Sales Exemption, the minimum salary requirement will increase to a minimum of $23.25 per hour (remember there are other requirements as well!);
- Split Shift Premium, Meal and Rest Period Premiums, Non-Productive Time, Paid Sick Leave + are Impacted: For split shifts, hourly employees who earn below a certain rate must be paid one hour at state or local minimum wage, whichever is higher. For meal and rest period premiums, non-productive time and for sick leave, math needs to be at least the new $.
(2) Percentage Bonuses Now Can be Calculated Using the Federal (FLSA) Method Without Having to Factor Them Into the Regular Rate of Pay. Previously, there was a question as to whether in California an employer could use the federal Fair Labor Standards Act’s (“FLSA's”) percentage bonus calculation method (rather than factoring the bonus into the regular rate of pay) without having to factor the bonus compensation into the regular rate of pay. A California Court of Appeal (Lemm v. Ecolab, Inc) found that the employer’s calculation of overtime on a nondiscretionary bonus using the FLSA percentage bonus calculation method was permissible, even though it resulted in less pay than the calculation method set forth in the California Division of Labor Standards Enforcement (“DLSE”) Manual.
In this case, the plaintiff was employed as a non-exempt route sales manager who was eligible to receive a nondiscretionary monthly bonus, eligibility for which depended on meeting or exceeding certain targets. If eligible, for example, the relevant bonus plan provided for a bonus payment in the amount of 22.5 percent of the worker’s gross wages earned during the monthly bonus period. As a result, the bonus payments, as a percentage of gross wages earned comprised of regular and overtime wages, necessarily included additional overtime compensation. The FLSA expressly approves that methodology.
The Court of Appeal held that the percentage bonus on gross wages satisfied the overtime obligation, and the employer was not required to factor the bonus into the regular rate of pay under either a production bonus or flat-sum bonus formula. The court found that by paying a bonus based on a percentage of gross earnings that includes overtime payments, the employer automatically pays the proper overtime rate simultaneously on the bonus amount.
Please note: this decision is limited in that it does not extinguish an employer’s obligation to factor the bonus into the regular rate of pay for purposes of meal premiums, rest premiums, sick leave, and reporting time pay.
(3) Temporary Layoff or Furlough Triggers Final Pay/Vacation Payout. This won’t be news to many of you, since we’ve consistently advised that in the event of a temporary furlough or lay off you follow the DLSE’s similar position: Employers who furlough or temporarily lay off employees without a specific return-to-work date (that is, without a return to work that is within the same pay period) should issue “final” paychecks, including each employee’s vested and unused vacation or paid time off. In Hartstein v. Hyatt Corp. the Ninth Circuit Court of Appeals confirmed that a furlough or temporary layoff without a specified return-to-work date within the same pay period constitutes a “discharge” under California law, activating the employer’s duty to immediately pay all wages earned, including vested vacation or paid time off.
And consider an unpublished Ninth Circuit decision that suggests that pay-out of vacation or PTO on termination should include shift differentials . . . In Mills v. Target Corporation the Ninth Circuit Court of Appeals held that when a California employer pays out an employee’s vested vacation at the time of termination of employment, the employer must pay the vacation time at a “final rate” that includes shift differentials. The Court rejected the employer’s position that it could pay the vacation time at the employee’s “base rate.”
In Mills, the plaintiff, a former employee, was paid a base rate of $13.00 per hour. But at the time of her termination, she also was paid a $2.00 per hour temporary shift differential for work during the COVID-19 pandemic. Upon termination, the employer paid the employee $13.00 per hour for her unused, vested vacation. But the employee argued she should have been paid $15.00 per hour, claiming the Labor Code requires a payout of vested vacation at the “final rate” of “wages” she would have earned for work at the time. In a brief opinion and while acknowledging there is no published, controlling California appellate case on this issue, the Ninth Circuit agreed with the employee and held that the payout for unused vacation time must include the shift differential. This new decision is unpublished, which means it is not controlling precedent. However, we should not be surprised to see this argument being made going forward, and other courts may find it persuasive. The Court’s logic makes sense, actually.
(4) Rounding Policies Are Unacceptable in Companies That Can Capture Exact Time Worked. In 2022, the California Court of Appeal (Camp v. Home Depot) ruled that employers who “can capture and [have] captured the exact amount of time an employee has worked during a shift” must fully compensate employees for all the time worked, rather than rounded time, even if the rounding practice is neutral on its face and as applied. The opinion does not define the circumstances in which an employer might argue that it is unable to capture time to the minute. Rounding policies were not, by virtue of the Camp decision, entirely prohibited.
This year the California Court of Appeal (Woodworth v. Loma Linda Univ. Med. Center) dealt another blow to employers, inching toward eliminating their ability to round employee time punches. The Woodworth court noted the lack of legislation recognizing a rounding exception and explained that technology now enables employers to easily and precisely capture time. Thus, rounding should not be permitted, and employees are to be paid for all the time worked. In Woodward, the medical center could, and did, capture the exact number of minutes that employees worked, so there was no justification for the rounding policy.
In 2024, the California Supreme Court will weigh in on the issue, and it is likely that the circumstances under which rounding is permissible will be further circumscribed (at best) or be held not to exist at all.
What this means to California employers? Given the risks associated with rounding policies generally (you are at risk if you are not regularly auditing the impact of your rounding practice, and at risk if your rounding policy on balance benefits the company more than the employee), consider adopting a time-keeping system that tracks to the minute, and abandoning your rounding practices. And depending on the outcome of the California Supreme Court decision, employers could retroactively face liability for rounding practices that were once permitted.
(5) Some Not-Surprising Decisions from the DOL on Telework. The U.S. Department of Labor (“DOL”) issued new guidance under the FLSA and Family and Medical Leave Act (“FMLA”). Key highlights include the following:
- Short Rest Breaks: Breaks of 20 minutes or less would be treated as compensable (“hours worked”) under the FLSA regardless of whether the employee works from home. Note: California law overrides the FLSA here. If a California employee takes a 20-minute rest break, only 10 minutes needs to be paid.
- Meal Breaks and Off Duty Time: Bona fide meal periods (typically, those that are at least 30 minutes or more) are considered hours worked unless the employee is fully relieved of duties or the employee is not restricted in the use of their time. This would apply regardless of whether the work is performed at the employer’s worksite, from the employee’s home, or at a client’s worksite.
- Break Time for Lactation and Privacy: The FLSA’s requirement to provide reasonable break time for lactation and a private place in which to do so applies even when an employee is working from home or from a location other than the employer’s worksite. Employees must not be subject to monitoring through the use of items such as a computer camera or security camera during the break time.
- Lactation Breaks and Compensable Time: Employers are not required under the FLSA to compensate nursing non-exempt employees for breaks taken for lactation, but if the employer provides paid breaks to other employees for any reason, then an employee who uses that break time for lactation must be paid in accordance with the employer’s paid break policy. Under California law, lactation breaks are paid if taken during the employee’s paid rest break time.
(6) New Minimum Wage Hikes for Employees in the Healthcare Industry. California has enacted new minimum wage requirements for employees in the healthcare industry, which vary depending on the size and type of the health care operation or facility
- Covered Employees include virtually anyone who works for a health care employer: nurse, physician, caregiver, medical resident, intern or fellow, patient care technician, janitor, housekeeping staff person, groundskeeper, guard, clerical worker, nonmanagerial administrative worker, food service worker, gift shop worker, technical and ancillary services worker, medical coding and medical billing personnel, scheduler, call center and warehouse worker, and laundry worker, regardless of formal job title.
- Independent Contractors Are Considered “Employees”: The law extends the definition of “employees” to include “independent contractors” if there is a contract with the health care facility to provide health care services or services supporting the provision of health care, and the health care facility employer directly or indirectly exercises control over the contractors’ wages, hours, or working conditions. All contractors are considered covered health care employees if they perform work on the premises of the health care facility.
This means independent contractors who work on-site and merely provide ancillary services to support health care facilities will likely be subject to the increased minimum wages. Exceptions include outside salespersons, public sector workers whose primary duties are not health care, waste collection workers and workers providing medical transportation services. Accordingly, the hours worked by such contractors must be tracked to ensure minimum wage compliance
- Minimum Wage Rates and Timeline: The new wage ranges apply to nonexempt hourly employees as well as exempt employees paid on a salary basis. They will be implemented on these schedules. Note: The salary threshold for overtime exemption is 1.5 times the health care worker minimum wage, or 2x the state minimum wage, whichever is greater. And, future wage increases will be either 3.5% or CPI-U.Waiver Program: To address the potential financial concerns, a waiver program will be developed by the Department of Industrial Relations no later than March 1, 2024, which will allow certain covered clinics to apply for a one-year temporary pause or alternative phase in schedule of the minimum wage requirements.
What this means for impacted employers?
- Verify whether your company is a covered employer, and identify which individuals are covered employees or independent contractors;
- Evaluate and plan for how increases in the new minimum wage will impact budgets and overall compensation of the company
- Update minimum wage posters before each rate increase;
- Determine whether exempt employees’ salaries must be increased to meet new exempt status thresholds;
- Review service contracts to ensure covered contractors are paid in accordance with the increase minimum rates; and
- Appeal or apply for a waiver, if needed
(7) Minimum Wage Increase for Employees at National Fast Food Chains: Effective April 1, 2024, there is a new minimum wage rate of $20 per hour for employees at a “National Fast Food Chain.” From that point forward, the new Fast Food Council can increase the applicable rate on an annual basis by no more than the lesser of (rounded to the nearest ten cents) either 3.5 percent or the federal Consumer Price Index for Urban Workers. In establishing minimum wage increases, the Council could take into account regional differences, or it could set a statewide increase
A “National Fast Food Chain” is defined as a set of limited-service restaurants consisting of more than 60 establishments nationally. To be covered, the restaurants must share a common brand, or be characterized by standardized options for decor, marketing, packaging, products, and services, and must be primarily engaged in providing food and beverages for immediate consumption on or off premises. Patrons also must generally order or select items and pay before consuming, with limited or no table service. Pre-existing bakeries are exempt, as are restaurants located in a grocery store.
(8) Employers Must Pay for Food Handler Cards. California has long required food handlers in restaurants to obtain certification and, until now, training and testing has been the employee’s responsibility. Employers now are required to pay their workers for all costs associated with obtaining a food handler card. This includes compensation for time spent by an employee to complete the training, the cost of testing, and any element required for the completion of the certification program.
Employees must be relieved of other work duties when participating in food handler training and taking the exam. The training must be provided and taken during normal business hours, and at no cost to the employee. In practical effect, employers must now carve out specific time for employees to satisfy the requirements of the food safety certification programs and pay them for that time.
The new law also prohibits employers from conditioning employment on an applicant or employee having an existing food handler card in order to avoid the costs associated with this new obligation. Employers must consider all applicants regardless of certification status.
(9) Right of Retention and Recall for Hospitality Workers. Since 2021, employers have been required to recall employees in the hospitality industry laid off due to COVID-19, in order of seniority. The law applies to hotels, private clubs, event centers, airport hospitality operations, and airport service providers, as well as janitorial, building maintenance, and security services provided to office, retail and other commercial buildings. This requirement has now been extended through December 31, 2025, and provides amendments that expand recall rights to include anyone who was employed by a covered employer for at least six months and whose most recent separation of employment by the employer occurred on or after March 4, 2020.
The new law also creates a rebuttable presumption that anyone separated by a covered employer due to lack of business, reduction in force, or other economic reason was separated because of the COVID-19 pandemic.
(10) Expanded Local Enforcement of the Labor Code. California law now authorizes local prosecutors to bring actions to enforce the Labor Code. Under the new law, recovered lost wages go to employees, and recovered penalties to the general fund of the state. Attorneys’ fees may be awarded as well. Arbitration agreements (other than collective bargaining agreements) will have no effect on enforcement actions at the local level. Expect this law to have teeth: $18 million was allocated to local agencies to enforce the California Labor Code.
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