A Comprehensive Guide For Demystifying California's Payroll Laws
Navigating California’s payroll system can be a tall task for small businesses. After all, California has a complex array of business payroll laws, regulations, and compliance requirements. If small businesses don’t comply with these laws, they face costly penalties, legal action, and potentially lasting damage to their reputation in the labor market.
By taking the right proactive steps, however, you can greatly reduce potential risks and avoid unnecessary headaches.
This article will serve as an introduction to California’s payroll laws to help you keep your business in good standing. We’ll also discuss how partnering with a payroll company can take some of these compliance burdens off your plate.
Payday Requirements in California
The first facet of California payroll laws is payday frequency. In most cases, and not without a few exceptions, California employers must pay their employees’ wages at least twice during each calendar month.
Paydays must be set according to a predetermined schedule so employees can predict when they’ll receive their next paycheck and plan their finances accordingly. The purpose of these laws is to encourage employees’ economic stability and well-being.
Californian businesses must establish regular paydays (e.g., every Friday, the 1st and 16th of each month) to stay compliant. They must also post a notice in a visible location outlining this payday cadence. This practice ensures employers:
- Cultivate trust and transparency with their employees.
- Give their employees a greater sense of financial security.
- Proactively reduce payday disputes.
Having payday notices in place can help employers prove their compliance with California’s payroll laws in the case of a lawsuit.
California Payroll Pay Periods
Employing a pay structure will ensure that employees are paid regularly and on time. Here are a few different options for pay structures:
- Weekly pay structures: Employees with weekly pay periods receive their paychecks once a week.
- Bi-weekly pay structures: Employees with bi-weekly pay periods receive paychecks every two weeks.
- Monthly pay structures: Employees with monthly pay periods receive their paychecks once a month.
- Custom pay structures: Some employees may have less conventional arrangements, such as quarterly or annual pay periods.
As noted above, most employers must follow the weekly or bi-weekly cadence.
Additionally, regardless of which payment period is used, California employers must pay their employees within seven days of a pay period’s completion. One exception applies to businesses that follow a semi-monthly payment schedule. With this payment schedule, wages are due based on the following dates:
- Wages earned between the 1st and 15th of the month fall into the semi-monthly payment schedule’s first pay period. They must be paid to employees before the 26th of the month.
- Wages earned between the 16th and final day of the month fall into the semi-monthly payment schedule’s second pay period. Employers must pay these wages no later than the 10th of the following month.
Paying employees on time, based on these regulations, is a vital component of California payroll compliance.
Overtime wages are calculated and paid differently than standard wages. California law requires hourly employees to receive one and one-half times their regular pay rate for any work that exceeds an eight-hour work day, up to 12 hours. For work that exceeds 12 hours, employees are entitled to double their regular rate.
Overtime wages must be paid the following payday after the overtime work occurs. To confirm that employees receive proper compensation for their overtime efforts, their extra hours must be clearly outlined in their paycheck’s itemized statement.
If an employer terminates an employee, California payroll law requires them to receive their final wages immediately. This final payment should cover all of the work the employee has done up to the day of their termination, including:
- Standard wages
- Overtime pay
- Accrued vacation
Employers must also share an itemized statement with their employees upon termination that breaks down their final payment amount.
Reductions in Force
If an employer must make significant numbers of layoffs, there are unique rules that may apply. They can vary from one industry to the next.
For example, a company with over 75 employees that lays off over 50 employees within 30 days must pay out their laid-off workers within 48 hours. Meanwhile, employees who work in the construction industry for less than 24 hours must be paid out immediately. There are also specific notification requirements that may apply. Businesses that are considering a large layoff should consult with legal counsel.
Employee Classifications and Specific Rules
Let’s return to the exception noted above regarding the requirement of two monthly payment periods. These exceptions are based on employees’ industry and classification.
Here’s a brief overview of some of these exceptions:
- Executive, Administrative, and Professional Employees: California executives, administrative workers, and professional employees have some flexibility regarding payment frequency. These workers can receive their payments monthly, semimonthly, weekly, or biweekly. Employers of these workers must clearly outline their chosen payment frequency in their employment terms.
- Farm Labor Contractor Workers: There needs to be more flexibility with farm labor contractor workers. Employers of these workers must pay out weekly wages on specific, predetermined business days.
- Agriculture, Horticulture, Viticulture, Stock or Poultry Raising, and Household Domestic Service Workers: California employees who work in agriculture, horticulture, viticulture, stock or poultry raising, or household domestic services must be paid at least once a month. Additionally, they can’t have more than a 31-day gap between paydays.
- Commission-Based Motor Vehicle Dealer Employees: Employees of California motor vehicle dealers who earn commission-based incomes must be paid monthly unless they have a collective bargaining agreement in place.
You can tailor your small business payment periods based on these five classifications.
Consequences of California Payroll Compliance Failure
California employees are entitled to ensure they’re being paid according to California payroll law. If one of your employees believes they’re being unfairly compensated, they can contact the Division of Labor Standards Enforcement to report their claim.
If your small business is out of compliance, you can incur expensive penalties and more serious consequences. For instance, according to California Labor Code Section 215, companies that fail to post required payday notices or make payments on designated paydays can incur misdemeanors. In addition, payroll noncompliance can lead to costly legal action, including class actions brought by groups of employees.
Ensure Compliance and Seamless Payroll Management with BBSI PEO Services.
While California’s payroll regulations are complex, they serve a worthwhile purpose: to ensure California employees receive fair compensation. By familiarizing yourself with these laws, you can keep your small business in sound legal standing and provide your employees with a positive work environment.
Payroll law compliance is crucial, but it can be difficult for a small business to manage independently. That’s where professional payroll companies can make all the difference.
Since 1972, we’ve provided payroll for small businesses and helped to mitigate risk. By partnering with us, we can help you comply with labor code requirements. In turn, you can reduce the risks of non-compliance and reap the rewards of a happy employee base.
Another benefit of choosing BBSI as your compliance partner is access to our advanced payroll system. This system makes it easy to calculate accurate wage payments, allowing you to streamline your payroll and enjoy greater peace of mind.
If you need guidance traversing California’s payroll landscape, find a local payroll specialist near you today!
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