The latest California legislative session produced hundreds of new laws, including a number of significant new California labor laws. As is often the case, many of these laws threaten to add to the already excessive cost of doing business in the state.
Three California Labor Laws That Promise Increased Costs to Businesses
Many of the new bills that were passed during the last two months represent additions to existing California labor laws. However, despite simply being amendments to current laws, these particular ones have the prospect of adding to business costs for employers.
Minimum Wage Order (MW-2014)
With a few exceptions, most all employees in California have to be paid the current minimum wage as required by state law. As of July 1, 2014, the minimum wage in California was increased to $9.00 per hour. This has been in effect throughout the year 2015.
However, beginning on January 1, 2016, the minimum wage in California will once again increase to $10.00 per hour. Certain employees are exempt from the California minimum wage law, including individuals who are the parent, spouse, or child of the employer, outside salespersons, and apprentices regularly indentured under the State Division of Apprenticeship Standards.
There is also an exception for learners, regardless of their age. However, these individuals cannot be paid not less than 85 percent of the minimum wage and rounded to the nearest five cents. This lower rate only applies during the first 160 hours of their employment in occupations in which they have no previous similar or related experience.
In addition, there are exceptions for employees who are mentally or physically disabled, or both, as well as for nonprofit organizations such as sheltered workshops or rehabilitation facilities that employ disabled workers. Such individuals and organizations may be issued a special license by the Division of Labor Standards Enforcement authorizing employment at a wage less than the legal minimum wage.
California Fair Pay Act (“Act”), Senate Bill 35
Under the new California Fair Pay Act, employers are prohibited from paying employees of the opposite sex lower wage rates for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” While equal pay for equal work is already a legal requirement, the previous equal pay statute was more limited. It prohibited employers from paying employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.
The new standard, however, now permits an employee to bring an unequal pay claim that is based on employee wage rates in any of their employer’s facilities and in other job categories as long as the work is substantially similar.
The defense burden for employers has also increased under the Act. An employer must now establish that the entire wage differential is based on the reasonable application of one or more of the following:
- A seniority system;
- A merit system;
- A system which measures earnings by quantity or quality of production; or
- A bona fide factor other than sex, such as education, training, or experience. This factor will apply if the employer shows that the factor is not the result of a sex-based differential in compensation, is job related to the position, and is consistent with business necessity. An employee can defeat this defense by proving that an alternative business practice exists that would serve the same business purpose without producing the wage differential.
AB 1513 Employment: Workers’ Compensation and Piece-Rate Compensation.
Effective January 1, 2016, this law adds to the existing state Labor Code. The new Section 226.2 will make it even more difficult for California employers to pay employees on a piece-rate basis for any part of their work.
- It requires employers to pay piece-rate employees for rest and recovery periods, and all periods of “other nonproductive time” separately from, and in addition to, their piece-rate pay.
- It makes wage statement compliance for piece-rate employers even more complex.
- As it does not contain a collective bargaining exemption, it also applies to employers of unionized employees.
Section 226.2 not only requires separate pay for rest and recovery periods, but mandates a method to compute that rate. In other words, employers will have to pay a rate calculated on a workweek-by-workweek basis, by using a specific formula that will present a challenge for many payroll systems. Specifically, it requires that employers pay employees for rest and recovery periods and “other nonproductive time” as follows:
Rest and recovery periods. Employers must pay piece-rate employees for rest and recovery periods at an hourly rate that is determined by dividing the employee’s total compensation for the workweek (excluding compensation for rest and recovery periods and overtime premiums) by the total hours worked during the workweek (not including rest and recovery periods). The bill allows certain employers some additional time to program their payroll systems to comply with the “average hourly rate” requirement, provided that they retroactively pay employees the required amount.
Until April 30, 2016, certain large, newly acquired, or publicly-traded employers can pay employees the applicable minimum wage for rest and recovery periods, provided that they begin paying employees based on the specified rate by April 30, 2016 and retroactively pay all affected employees the difference between minimum wage and the required average hourly rate (plus interest) by that date. All other employers must modify their payroll systems to comply with the new requirements by January 1, 2016.
Other nonproductive time. Employers must pay piece-rate employees for “other non-productive” time (time when an employee is under the employer’s control, but is not engaged in activity directly related to the piece-rate activity) at a rate that is no less than the minimum wage. If an employer pays employees a base hourly rate for all hours worked in addition to piece-rate wages, then the employer need not pay amounts in addition to this hourly rate for the “other non-productive time.”
Accuchex is Here to Help California Employers and HR Managers
If you have questions regarding California labor law requirements, or other HR issues and practices, let us help you in managing your HR needs, payroll processes, and staying on top of compliance demands. Get your Free Download: Payroll Outsourcing Guide to help you make an informed decision or call Accuchex Payroll Management Services at 877-422-2824.