New Rules for Missed Breaks in CA, July 1st Minimum Wage Increases and June 30 CalSavers Deadline

It seems the only constant in California is change. Because our employment landscape continues to unfold, if you are flummoxed by the constant changes, just reach out to our team to help your business navigate the path forward.

What California Employers Need to Know: Premiums for missed Meal/Rest breaks are ‘Wages’

California reaffirms its reputation as the most employee-friendly state and raises potential liability for employers. On May 23, 2022, the California Supreme Court issued the long-awaited decision in Naranjo v. Spectrum Security Services, Inc., finding that meal and rest period premiums are “wages” under California law and thus employers could be liable for failure to properly report and timely pay those premiums.

For background, California’s nonexempt workers are entitled to a 10-minute paid rest break for every four hours worked “or major fraction thereof.” A rest period isn’t required if an employee’s total daily work time is less than three and a half hours. Employees must also receive a 30-minute unpaid meal break for every five hours they work. They can waive their right to take a meal break only if they work no more than six hours. A second break must be provided after 10 hours but can be waived if the first break was taken and the employee works no more than 12 hours.

The California Supreme Court has stated repeatedly that employers must provide duty-free rest and meal breaks and not interfere with workers’ ability to take them. However, employers aren’t required to ensure that no work is performed during that time. If employees don’t receive compliant breaks, they are entitled to one hour of pay for each day a rest-period rule was violated and one hour of pay for each day a meal-period rule wasn’t followed. That means workers can receive up to two hours of premium pay per day.

Before the Naranjo ruling, California state and federal courts had reached conflicting interpretations as to whether premium pay is considered “wages” for purposes of California waiting time penalties and wage statement requirements. In the Naranjo case, the California Supreme Court found that premium payments for missed meal or rest breaks are wages and thus can result in wage statement and waiting time penalties. In a unanimous decision, the California Supreme Court specifically held that “[a]lthough the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period.”

Calculating the Premium
Nearly one year ago, the state’s high court changed how this one-hour premium is calculated. In July 2021, the California Supreme Court clarified in Ferra v. Loews Hollywood Hotel, LLC that the calculation of premium owed to the worker must include more than just the employee’s base hourly rate. The court’s holding established that the amount to be paid for those premiums is not employees’ base hourly rate but their “regular rate of pay,” used to calculate overtime pay. According to the DLSE, the regular rate of pay “includes a number of different kinds of remuneration” in addition to hourly earnings, such as commissions, nondiscretionary bonuses and piecework earnings that employees may receive for each unit they produce.

The California Supreme Court provided the following example: Imagine an employee who makes chairs for a furniture manufacturer earns $20 an hour and $10 per piece of furniture produced. If the employee works 40 hours a week and makes 20 chairs, the regular rate would be $25 an hour: (($20 x 40) + ($10 x 20)) / 40.

What Employers Should Do Now
As Naranjo now makes clear, meal and rest period violations can subject employers to waiting time and wage statement penalties if the premium payments are not properly reported and timely paid. To limit liability and exposure, California employers must be cognizant of recent developments and vigilant in updating and enforcing meal and rest period policies and payment procedures to ensure prompt reporting and payment of wages.

Employers should periodically monitor their practices to ensure breaks are being provided properly, premiums owed are calculated correctly and paid timely, and review written policies including the Employee Handbook to ensure they are updated and comply.

Five California Localities Raise Minimum Wage Rates effective July 1, 2022

The state of California’s current minimum wage is $15.00 per hour for employers that have 26 or more employees and $14.00 per hour for employers that have fewer than 26 employees. In May, Governor Newsom announced that all California employers will be required, regardless of size, to pay a new state minimum wage of $15.50 per hour, effective January 1, 2023.

In addition, California cities and counties routinely implement their own minimum wage requirements for hourly workers. Five such localities will be increasing their minimum wage rates, effective July 1, 2022, as follows:

Locale Current Minimum Wage
Minimum Wage Rate on 7/1/2022
Pasadena $15.00 $16.11
Los Angeles County $15.00 $15.96
City of Los Angeles $15.00 $16.04
Emeryville $17.13 $17.68
San Francisco $16.32 $16.99

To reaffirm, for exempt employees in California, the minimum salary paid must be equivalent to twice the state minimum wage rate in effect.

June 30 CalSavers Deadline

State law requires employers to either offer their own retirement plan or register to facilitate CalSavers. If you have at least five California-based employees, at least one of whom is age eighteen, and don’t sponsor a qualified retirement plan, your business is required to register for CalSavers by June 30, 2022.

Employers with five or more employees must be proactive if they wish to be compliant and avoid fines, which are $250 per eligible employee 90 days after the deadline and triple to $750 per eligible employee if the non-compliance exceeds 180 days.