As a business owner, you already know that California has some of the most employee-friendly laws in the country. While these laws are designed to benefit and protect workers, they can also cause significant risk for employers, even for minor or unintentional mistakes.
Wage and hour claims are among the most common and expensive types of litigation for California businesses due to class-action lawsuits, penalties and attorneys’ fees. Not only are wage and hour cases costly, but they also cause reputational and operational disruption to the business. Your first step to reducing risk is understanding where most companies run into trouble.
Misclassification
Employee misclassification is one of the leading causes of litigation. You may classify your employees as independent contractors or exempt without realizing they don’t meet California’s strict legal tests.
California’s ABC test presumes an individual is an employee unless all three elements can be proven:
A – The worker is free from the control of the hiring entity in performing the work.
B – The worker is performing work that is outside the hiring entity’s regular business operations.
C – The worker has their own business or trade that is of the same nature as the work they are performing for the hiring entity.
To be classified as an exempt employee, the individual must satisfy a duties test and a salary threshold.
Overtime and break violations
Overtime violations are another cause of litigation, as California’s laws are more expansive than federal laws, which define overtime for hours worked over 40 in a workweek. Overtime must be paid for more than 8 hours in a single workday and for the first 8 hours worked on the seventh consecutive day of work In some circumstances, the business may be required to pay double time instead of the standard time-and-a-half overtime pay.
California businesses also face exposure due to meal and rest break claims. Not only do they need to provide meal and rest periods, but they must also provide documentation to prove it. Violations such as late or shortened breaks can lead to penalties. If breaks aren’t provided, employers may be required to pay premium wages.
Businesses must be proactive so that they’re ready when the first of the year rolls around. Reviewing worker classifications, overtime calculations, meal and rest break policies and employee handbooks is key to compliance. Working with a legal professional can help prevent disputes from escalating into litigation.