California Employers’ Minimum Wage Compliance Checklist for 2022

On January 1, 2022, the minimum wage in California increased to $15 per hour for employers with twenty-six or more employees, and $14 per hour for employers with twenty-five or fewer employees.

These increases were the latest step-ups in the state minimum wage rate since former governor Jerry Brown enacted Senate Bill No. 3 back in 2016, requiring annual minimum wage increases starting on January 1, 2017, and culminating in a $15-per-hour minimum wage requirement applicable to all California employers on January 1, 2023.

Under California law, employees may bring private civil actions against their employers alleging violations of minimum wage law to recover unpaid wages, as well as attorneys’ fees, costs, and interest.

Also, any failure on the part of a California employer to pay all wages owed to an employee upon his or her departure from the company may result in a statutory penalty under California Labor Code section 203 in an amount equal to up to thirty working days of full pay, which would be six weeks of pay for a regular, full-time employee.

In addition, employees may bring claims for civil penalties under California’s Private Attorneys General Act for initial violations in the amount of $100 for each underpaid employee for each pay period for which the employee is underpaid, and $200 for each subsequent violation.

Individuals may also be personally liable for minimum wage violations. Section 1199 of the Labor Code provides that “every employer or other person acting individually as an officer, agent, or employee” may be guilty of a misdemeanor, fined, and potentially face up to thirty days in prison.

And Section 558.1 of the Labor Code provides for individual liability for any person who causes a minimum wage violation, as long as the person is “an owner, director, officer, or managing agent of the employer.”

As such, California employers may want to consider reviewing their minimum wage compliance status, including the following checks:

1. Applicability

Confirming whether a local minimum wage is applicable to the city or county of operations.

For example, the minimum wage in Palo Alto is $16.45 per hour this year. Many other localities have minimum wage ordinances, including Redwood City, San Jose, and San Mateo, each of which has set the minimum wage for 2022 at $16.20.

2. Notices

Determining whether the local minimum wage ordinance also requires employers to post an official notice designating the minimum wage and describing employee rights related to the rate.

Employers may also need to display the notice in all languages spoken by at least 5 percent of the employees at the workplace or job site.

3. Classification

Evaluating whether employees classified as exempt under the executive, administrative, or professional exemptions earn a minimum monthly salary that is no less than twice the state minimum wage for full-time employment.

If the employees no longer meet the minimum salary basis test, then the exemption can be lost.

4. Reimbursement

Determining if employees who are required to bring to work their own hand tools and equipment customarily required by the trade or craft are being paid twice the minimum wage to ensure that those costs are not reimbursable under California’s wage orders.

5. Commission Exemptions

Confirming that commissioned sales employees are being paid more than one-and-one-half times the minimum wage to qualify for the commissioned sales exemption to daily overtime rules provided in the wage orders.

6. Wage Categorization

Assessing whether the company has entered into any written agreements with employees that tie a category of their compensation to the current minimum wage.

For example, an employee’s base hourly rate may be well above the minimum wage, but the company’s policy is to pay the employee for travel time at the current minimum wage.

7. Overtime Exceptions and Collective Bargaining Agreements

Confirming that employees covered by a collective bargaining agreement are being paid a base hourly rate of not less than 30 percent more than the state minimum wage to qualify for the exception to California’s overtime rules and alternative workweek schedule requirements.

8. Split Shifts

Evaluating whether the company’s split-shift policy pays employees who work split shifts at least one hour of pay at the current minimum wage in addition to the minimum wage for that workday.

A split shift occurs when the employer provides a scheduled interruption in the employee’s workday such that the employee has nonpaid, nonworking periods of time that are not meal or rest breaks.

Under Industrial Welfare Commission Wage Orders 1-15, section 4, and California Department of Industrial Relations guidance, when an employee works a split shift, one hour of pay at the California minimum wage rate must be paid in addition to the employee’s earning at least the minimum wage for all time worked for that workday. That one additional hour of split-shift time must meet the minimum wage requirement.

9. Reporting Time

Determining whether the company’s reporting time pay policy still pays employees their two to four hours of reporting time pay at the current minimum wage.

Reporting time pay requirements apply when an employee is required to show up for work, but the employer is unable to provide the employee with any work or provides the employee with less than half of the employee’s scheduled day’s work. Then the employer must pay the employee for half of his or her usual or scheduled work time, “but in no event for less than two hours nor more than four hours, at his or her regular rate of pay.”

When applicable, reporting time pay must meet the minimum wage requirement.

10. Commission Draws

Confirming for employees who receive a draw against commissions that the amount of the draw is equal to at least the minimum wage.

Some California employers provide commission plans that include a cash draw or advance against future commissions earned. California law provides that such cash advances are equal to basic wages, and thus must be paid at or more than the minimum wage.

Conclusion

California’s minimum wage laws are strictly enforced. California employers may want to ensure compliance with the new minimum wage rate, and encourage employees to always record all time worked and never work off the clock to ensure that they get paid at least the minimum wage for all time worked.

A version of this article was previously published in Law360.