In addition to hourly wage and salary, the spectrum of employee compensation includes a wide range of remunerative elements, including bonuses, sick leave, paid time off, vacation, and insurance benefits. It is important for employers to understand their obligations and options regarding employee compensation in order to limit potential liability exposure and be a competitive player in the market.
Minimum Wage Requirements
Compensation must meet the state’s minimum wage requirements. In California, the minimum salary for exempt employees in 2024 is $66,560 per year. The minimum wage rate for non-exempt employees is $16 per hour. However, the hourly minimum wage rate for non-exempt employes may vary based on local ordinances or industry-specific regulations. For example, minimum wage in San Francisco is $18.07 per hour and beginning on April 1, 2024, the minimum wage rate for workers at fast food restaurants throughout the state will be $20 per hour.
Overtime
Overtime compensation is mandated for nonexempt employees who work hours beyond the standard thresholds. According to California labor laws, any work exceeding 8 hours in a single workday or 40 hours in a workweek warrants overtime pay. Nonexempt employees must be compensated at a rate of at least 1.5 times their regular rate of pay for such overtime hours. Exceeding 12 hours in a workday necessitates even higher compensation, with employees being entitled to at least double their regular pay for these extended hours. The first 8 hours worked on the seventh day of a workweek should be compensated at the rate of 1.5 times the regular rate of pay. Any additional hours on the seventh day require double the regular rate of pay.
Exempt employees are not owed overtime regardless of the number of hours they work in a day or week, but even salaried non-exempt employees may be entitled to overtime pay.
Calculating the regular rate of pay for overtime compensation involves various elements beyond the basic hourly wage. Piecework earnings, commissions, and non-discretionary bonuses are all factors to consider in determining the regular rate of pay and alternative workweek schedules may also impact overtime eligibility. Employers must ensure accurate record-keeping and time tracking to facilitate precise overtime calculations.
Meal and Rest Periods
For non-exempt employees working shifts longer than five hours, a meal break must be provided before the end of the fifth hour. This break must be free from any work duties. In certain circumstances, employers may be able to obtain meal period waivers or be provided an on-duty meal period, but stringent criteria must be met. Non-exempt employees are also entitled to paid 10-minute rest breaks for every four hours worked, or a major fraction thereof.
Employers must accurately record compliant meal periods to demonstrate adherence to regulatory standards. Detailed documentation is essential for transparency and accountability. Failure to provide compliant meals or rest periods may result in additional compensation for affected employees. These premiums, considered wages, entail an extra hour of pay for each workday where a meal or rest period was not provided as mandated by law.
Reporting Time Pay
Employees who are scheduled and show up for work but are provided insufficient hours are entitled to reporting time pay. Reporting time pay is designed to compensate employees who are scheduled to report to work but are given less than half of their scheduled day's work. This ensures that employees are fairly remunerated for their time and availability, even if their workload falls short of expectations.
For example, employees may be entitled to compensation equivalent to half of their usual or scheduled day's work, with a minimum guarantee of two hours and a maximum of four hours. Employees receive this pay at their regular rate of pay.
Non-discretionary and Discretionary Bonuses
Non-discretionary and discretionary bonuses represent two distinct forms of additional compensation.
Non-discretionary bonuses are awarded based on objective criteria and eligibility requirements, often tied to measures of productivity and performance. Employers are bound to the agreed-upon terms regarding the amount and timing of such bonuses.
Discretionary bonuses are entirely at the discretion of the employer. These bonuses are typically granted as a form of general recognition and cannot be tied to performance or production or any other objective criteria. Any bonus tied to objective and measurable criteria will likely be considered non-discretionary and must be included in the regular rate of pay calculation.
Accurate Wage Statements and Recordkeeping
Wage statements must include detailed information such as gross wages earned, total hours worked, piece rate units and rates (if applicable), deductions, net wages, and inclusive dates for the pay period. Additionally, they should feature the employee's name (with only the last four digits of their social security number or an alternative identifier) and the employer's name and address. All applicable hourly rates and corresponding hours worked must be clearly outlined. The purpose behind these requirements is to enable employees to verify the accuracy of their compensation and ensures adherence to legal standards.
Employers must maintain records of employee compensation for a minimum of three years. Based on other potential claims and liabilities, it is generally advisable to maintain employment records, including compensation records for the entire duration of the employment of the employee plus an additional four years. Both current and former employees have the right to request these compensation records, and when they do, employers must fulfill the request within 21 days.
Additional Benefits
Paid Sick Leave
To be eligible for sick leave, employees must have worked for the employer for at least 30 days within a year and become eligible to use sick leave after their 90th day of employment. This benefit extends to all employees, including full-time, part-time, and per diem workers. As of 2024, employees are entitled to a minimum of 5 days or 40 hours of paid sick leave per 12-month period.
Employers have the flexibility to provide sick leave upfront or through an accrual method. If employers select the accrual method, the accrual rate must not fall below 1 hour per 30 hours worked. Employers can use whatever accrual method they desire, as long as employees can accrue a minimum of 3 days or 24 hours by their 120th calendar day of employment, and 5 days or 40 hours by their 200th day of employment. Notably, under the accrual method, up to 10 days or 80 hours of accrued sick leave, whichever is more, may be carried over into the following year.
Paid Time Off and Vacation Policies
In California, employers are not legally obligated to provide paid time off or vacation days to their employees. However, any earned vacation time is considered wages and must be paid out upon termination of employment. California prohibits "use it or lose it" vacation policies. PTO policies can be integrated with paid sick leave, provided that the PTO policy meets the minimum requirements for sick leave. Employers must communicate their PTO and vacation policies to employees through a written policy.
Unlimited Paid Time Off
Unlimited Paid Time Off (PTO) policies are a more recent and novel approach that offer some flexibility but come with distinct considerations. Unlike accrued PTO, unlimited PTO is not considered vested wages and therefore does not require payout upon termination of employment. However, unlimited PTO policies must be very clear and properly crafted to avoid the various pitfalls of offering an unlimited benefit without creating a legal obligation and commitment to a particular accrual rate Standardized administration of the policies also requires careful consideration and attention.
Conclusion
Understanding the various forms of employee compensation and employers’ obligations related to them, helps employers remain competitive and ensure a fair and equitable workplace. Noncompliance with regulations governing compensation also can create significant liability for employers. The lawyers at Palmer Kazanjian are ready and able to answer your legal questions, recommend best practices, and give your business confidence that it can comply with these requirements.