Wage and hour changes are on the horizon once again.
In 2016, Governor Edmund G. Brown Jr. signed SB 3, making California the first state in the nation that committed to raising the minimum wage to $15 per hour statewide. Under the bill, California’s minimum wage increases annually so it hits $15 per hour for all businesses by 2023.
Large businesses with 26 or more employees began complying on January 1, 2017, and will reach $15 per hour in 2022. The increase in 2018 for large businesses is 50 cents — from the current rate of $10.50 per hour to the new rate of $11 per hour.
Small businesses with 25 or fewer employees had a one-year delay; they will see their first increase on January 1, 2018, and will have until 2023 to reach the $15 per hour rate. The increase in 2018 for small businesses is from the current rate of $10 per hour to the new rate of $10.50 per hour.
In the midst of all the statewide changes, various localities throughout California continue to pass their own ordinances that will affect how employees are paid.
Employers should start preparing for these changes by examining all pay practices that may be affected.
The staggered minimum wage increases over the next several years are as follows:
California employers must pay employees no less than the state minimum wage per hour for all hours worked.
When laws differ, employers must comply with the more restrictive requirement — in other words, the requirement that gives the biggest benefit to the employee. Since California’s state minimum wage is higher than the federal minimum wage of $7.25 per hour, most employers will be required to pay that rate. As mentioned above and discussed further below, local ordinances may also come into play.
The obligation to pay the state minimum wage can’t be waived by any agreement, including a collective bargaining agreement.
Remember that a top priority for state enforcement agencies is to stop employers from engaging in so-called “wage theft,” which includes not paying the minimum wage for all hours worked.
The minimum wage increase affects not only your nonexempt minimum wage workers, but also has other ramifications, such as exempt/nonexempt classification and posters and notice requirements, discussed below. Preparation, as always, is key.
The minimum wage rate change also affects overtime pay. Effective January 1, 2018, the overtime rate for minimum wage employees increases but varies depending on whether you’re a large or small business:
Exempt/nonexempt classification is always a tricky issue, as employers must ensure that employees meet the salary basis test for the particular exemption claimed.
For an employee to meet a “white collar” exemption from overtime (the commonly used administrative, executive or professional exemptions), California law states that the employee must earn a minimum monthly salary of no less than two times the state minimum wage for full-time employment, in addition to meeting all other legal requirements for the exemption.
Effective January 1, 2018:
Future increases will also affect the salary threshold.
Also, certain commissioned inside sales employees can be eligible for an overtime exemption under Wage Order 4 and Wage Order 7. Generally, the exemption applies if the employee earns more than 1.5 times the minimum wage and more than half of the employee’s compensation represents commission earnings. Employers will need to make sure that commissioned inside sales employees continue to meet this test after the January 1 minimum wage increase. Outside salespeople do not need to meet the minimum salary requirements.
Misclassification is costly. Employers who are unsure whether their employees ought to be exempt or nonexempt should always check with their legal counsel.
Posters and Notice Requirements
The minimum wage rate change affects notice requirements for the minimum wage posting, itemized wage statements and wage notices.
First, all California employers must post the state’s official Minimum Wage Order (MW-2017) in a conspicuous location frequented by employees. The official notice includes the increase for both 2017 and 2018.
Second, California employers must provide each employee with an itemized statement, in writing, at the time wages are paid (Labor Code Section 226). Among other mandatory information, the itemized wage statement must include all applicable hourly rates in effect during the pay period and the corresponding number of hours the employee worked at each hourly rate. Itemized wage statements will need to reflect any increased wages.
Finally, employers in California must provide nonexempt employees with a wage notice pursuant to Labor Code Section 2810.5. The written notice must be provided at the time of hire and again within seven calendar days after any information in the notice is changed. Among other things, employers are required to notify nonexempt employees, in writing, when there is any change to:
NOTE: If an employee’s rate of pay will increase on January 1, 2018, due to the state minimum wage increase, the employee must receive notice from his/her employer by January 7, 2018. However, if the employer has reflected the change on a timely itemized wage statement and the statement meets all legal requirements, the separate wage notice is not required.
Meals and Lodging
Most of California’s Wage Orders allow employers to credit meals and lodging furnished by the employer toward the employer’s minimum wage obligation (Section 10 of the Wage Orders).
The 2018 credit amounts for meals and lodging are listed on the official MW-2017.
The minimum wage increase also affects piece-rate employees. Piece-rate workers must receive at least the minimum wage for each hour worked. A law that took effect in 2016 requires payment of rest and recovery periods or other non-productive time at specified hourly rates.
Employers with piece-rate compensation systems need to ensure they are complying with the new minimum wage standard.
Draws Against Commissions
A commissioned employee may receive a sum of money that is intended as an advance, draw or guarantee against the employee’s expected commission earnings.
In California, employers must pay these sums at least twice per month. If an employee receives a draw against commissions to be earned at a future date, the “draw” must be equal to at least the minimum wage and overtime due to the employee for each pay period (unless the employee is exempt).
Employers with commissioned employees should make certain that any draw against future commissions uses the new minimum wage rate as a basis.
Tools or Equipment
When an employer requires that employees use certain tools or equipment, or when the tools or equipment are necessary for an employee to perform the job, the employer must provide and maintain the tools or equipment.
There is an exception, however, for employees whose wages are at least two times the minimum wage; they can be required to provide and maintain their own hand tools and equipment customarily required by the trade or craft in which they work.
If you require employees to provide and maintain their own hand tools and equipment, make sure that the employees earn at least two times the minimum wage rate in effect.
There is no distinction between adults and minors when paying the minimum wage. A limited exception exists for “learners,” but that exception does not depend on a person’s age.
“Learners” are employees who have no previous similar or related experience in the occupation. California’s Wage Orders permit you to pay learners 85 percent of the minimum wage, rounded to the nearest nickel. State law allows the subminimum wage to be paid for only the first 160 hours of work, after which the employee must be paid at least minimum wage.
The subminimum wage rate will increase to $9.35 per hour effective January 1, 2018, for employers with 26 or more employees. It will increase to $8.93 per hour for employers with 25 or fewer employees. Federal and state laws provide different definitions of learners. California employers must be careful to comply with both federal and state subminimum wage requirements and give employees the benefit of whichever law is more favorable to the employees.
If you use the “learner” rate, ensure that you follow the strict guidelines for when you can pay the lower rate and use the appropriate rate calculation beginning January 1. Keep accurate records of time worked and do not pay the subminimum wage after the employee reaches 160 hours of work.
Local Minimum Wage Ordinances
Keep in mind that some cities and counties in California adopted their own local minimum wage rates that may exceed the state rate. This is part of a growing trend in which several cities are enacting local ordinances.
If you’re covered by a local ordinance with a higher minimum wage rate, you will have to pay that rate to employees. In addition, if you are covered by a local minimum wage ordinance, you must make sure to post the current local ordinance poster.
Best Practices for California Employers
A 2014 California Chamber of Commerce job creator bill is being credited with encouraging some film and television productions to remain in or return to the state in a recent report from the California Film Commission.
The film commission report, released September 25, says the expanded Film and Television Tax Credit Program 2.0 led to a sustained 12% increase in hours worked in state, the relocation of a growing number of established TV series to California from out of state, and more filming outside the greater Los Angeles zone.
Program 2.0 resulted from the 2014 job creator AB 1839 (Gatto; D-Glendale; Chapter 413).
California GainsIn the two years of the expanded program, according to the film commission report, California has gained 38 feature film projects and 50 TV projects—eight pilots, two movies of the week, 27 TV series, one mini-series and 12 TV series relocating to California.
Tax credit projects are projected to spend $28 million across 10 counties outside of Los Angeles County, the report says.
All the projects are generating an estimated $3.7 billion in direct spending to the state, including $1.4 billion in below-the-line wages (for production workers and the like).
The 12 TV series relocating to California after previously receiving tax credits in other states are on track to spend more than $891 million in California, according to the film commission report.
Taking effect in January 2015, the five-year Program 2.0 more than tripled the size of California film and TV production incentives—from $100 million a year to $330 million a year through the 2019–2020 fiscal year.
Program 2.0 allows productions previously excluded from seeking the credits to become eligible for the funding. The newly eligible projects included big-budget feature films costing $75 million or more, TV pilots and one-hour series for any distribution outlet.
While eligibility is expanded, the program caps the maximum credit any one project can receive.
The report notes that each big-budget feature film employs thousands of workers and typically uses more than a thousand support businesses. Moreover, a big-budget film also may require the use of several large sound stages to build elaborate sets.
To encourage filming throughout the state, the program offers an additional 5% tax credit to productions that shoot outside the 30-mile zone around Los Angeles or have qualified expenditures for music scoring or track recording.
Local Economic Gains
The report notes that when productions film on location outside the Los Angeles area, they typically spend $50,000–$100,000 per day in the local region.
The spending benefits many small businesses, including grocers, hardware stores, gas stations, hotels and other retail businesses, as well as local hires for services such as catering and construction work.
Local governments gain from payments made to local police and fire departments, plus revenue from local permit fees.
Previous Job Creator Bills
Earlier legislation helping contribute to the return of film and television productions to California includes two 2012 CalChamber job creator bills. Both AB 2026 (Fuentes; D-Los Angeles; Chapter 841) and SB 1197 (R. Calderon; D-Montebello; Chapter 840) helped protect jobs in the film industry by extending the film tax credit for two years, until July 1, 2017.
For more information, see the Progress Report on film and television tax credit programs on the California Film Commission website, www.film.ca.gov.
Several bills supported by the California Chamber of Commerce to encourage local governments to approve new housing projects passed the Legislature on the last day of the session and are on their way to the Governor.
The bills either hold local governments accountable for meeting the housing elements of their plans or aim to combat the “not in my backyard” (NIMBY) resistance that can stall needed housing projects.
Now awaiting action by the Governor are:
AB 678 (Bocanegra; D-Pacoima): Promotes Local Agencies’ Compliance with the Housing Accountability Act. The bill seeks to ensure that local agencies comply with the provisions of the Act by requiring a local agency to make relevant findings if it denies a project, clarifying provisions of the Act, and imposing penalties on agencies that violate the Act.
AB 1515 (Daly; D-Anaheim): Stimulates Additional Housing Production. AB 1515 encourages housing project approvals by specifying that a housing development is deemed consistent with local plans and ordinances if there is substantial evidence such that a reasonable person could conclude that the project is consistent.
SB 167 (Skinner; D-Berkeley): Accountability of Local Agencies for Housing Development Project Decisions. The bill promotes accountability for decisions and approval of projects by imposing additional requirements on local agencies when disapproving or conditionally approving a project, and imposing penalties for violation of the Act.
Action NeededThe CalChamber is encouraging members to contact the Governor and ask him to sign AB 678, AB 1515 and SB 167.
As the 2017 legislative session came to a close early Saturday morning, 24 of 27 identified job killer bills had been effectively stopped through efforts of the California Chamber of Commerce, local chambers and the business community.
Many job killer bills were the focus of rigorous debate and controversy; in fact, two new job killers were identified last week as a result of amendments added when the bills were being considered on the house floors.
Below is a recap on the highest profile job killer bills that were still active in the last two weeks of the session.
To Governor; Action NeededThree job killers are on the governor’s desk. The CalChamber is urging its members to contact Governor Brown and ask him to veto AB 1209, SB 33, SB 63.
Below is a summary of each bill:
• AB 1209 (Gonzalez Fletcher; D-San Diego) Public Shaming of Employers — Imposes new data collection mandate on California employers to collect and report data to the Secretary of State regarding the mean and median salaries of men and women in the same job title and job description, determine which employees perform “substantially similar” work, and then have that report posted on a publicly accessible website, where such employers will receive undue scrutiny and criticism for wage disparity that is not unlawful and justified by a bona fide factor.
• SB 33 (Dodd; D-Napa) Discrimination Against Arbitration Agreements — Unfairly discriminates against arbitration agreements contained in consumer contracts for goods or services with a financial institution, as broadly defined, which is likely preempted by the Federal Arbitration Act and will lead to confusion and unnecessary litigation.
• SB 63 (Jackson; D-Santa Barbara) Imposes New Maternity and Paternity Leave Mandate — Unduly burdens and increases costs of small employers with as few as 20 employees by requiring 12 weeks of protected employee leave for child bonding and exposes them to the threat of costly litigation.
Job Killers Stopped
AB 127 (Committee on Budget) was identified as a job killer on September 13 when language was added to a budget bill that threatened energy reliability by mandating the closure of the Aliso Canyon natural gas storage facility. CalChamber had identified AB 127 as a job killer because it would have eliminated jobs and placed regional energy reliability at risk. The bill was never taken up for a vote on the Senate Floor.
SB 49 (de León; D-Los Angeles), which would have created uncertainty and increased potential litigation regarding environmental standards, was held in the Senate Rules Committee. The bill would have given broad and sweeping discretion to state agencies to adopt rules and regulations more stringent than the federal rules. SB 49 would have increased the potential for costly litigation by creating private rights of action under California law, which may be triggered when a state agency takes the foregoing discretionary action.
Finally, a job killer bill that would have increased permitting fees and delayed permitting, SB 774 (Leyva; D-Chino), was held on the Assembly Floor inactive file, just days after being amended with onerous provisions. It would established the California Toxic Substances Board within the Department of Toxic Substances Control (DTSC), requiring DTSC to adopt a new fee schedule by January 1, 2019 “at a rate sufficient to reimburse the department’s costs to implement” its statutory requirements.
SB 774 was tagged as a job killer because it bypassed public participation and input and would have allowed DTSC to adopt future fee schedules as “emergency” regulations when such regulations would have had significant impacts on permittees’ ability to continue to provide vital services to California communities.
Cumulative Job Killer Vetoes
2017: 27 job killers identified, 3 sent to Governor Brown;
2016: 24 job killers identified, 5 sent to Governor Brown, 4 signed, and 1 vetoed;
2015: 19 job killer bills identified, 3 sent to Governor Brown, 1 signed, and 2 vetoed;
2014: 27 job killer bills identified, 2 sent to Governor, signs 2;
2013: 38 job killer bills identified, 1 sent to Governor, signs 1;
2012: 32 job killer bills identified, 6 sent to Governor, 2 vetoed;
2011: 30 job killer bills identified, 5 sent to Governor, 4 vetoed;
2010: 43 job killer bills identified, 12 sent to Governor, 10 vetoed;
2009: 33 job killer bills identified, 6 sent to Governor, 6 vetoed;
2008: 39 job killer bills identified, 10 sent to Governor, 9 vetoed;
2007: 30 job killer bills identified, 12 sent to Governor, 12 vetoed;
2006: 40 job killer bills identified, 11 sent to Governor, 9 vetoed;
2005: 45 job killer bills identified, 8 sent to Governor, 7 vetoed;
2004: 23 job killer bills identified, 10 sent to Governor, 10 vetoed;
2003: 53 job killer bills identified, 13 sent to Governor, 2 vetoed;
2002: 35 job killer bills identified, 17 sent to Governor, 5 vetoed;
2001: 12 job killer bills identified, 5 sent to Governor, 2 vetoed;
2000: No job killers identified. Of 4 bad bills identified at end of session, Governor Davis signs 2 and vetoes 2;
1999: 30 job killer bills identified, 9 sent to Governor, 3 vetoed;
1998: 64 job killer bills identified, 11 sent to Governor, 11 vetoed.;
1997: 57 job killer bills identified, 9 sent to Governor, 9 vetoed.
Administration Announces Intention to Rescind DACA Program
California Chamber of Commerce President and CEO Allan Zaremberg issued a statement September 5, renewing the call for comprehensive immigration reform in light of the announcement that the federal government will rescind the Deferred Action for Childhood Arrivals (DACA) program.
The DACA program was created in June 2012 and allows certain undocumented immigrants who entered the county as minors to receive a renewable two-year period of deferred action from deportation and eligibility for a work permit.
“CalChamber has been a steadfast proponent of comprehensive immigration reform because it is crucial to California’s economic future,” said Zaremberg. “The announcement by Attorney General Sessions highlights the need for comprehensive immigration reform once again and emphasizes the need for an immediate bipartisan solution to provide certain legal status for Dreamers. DACA has shown us that certainty in legal status fosters success in education, employment and job creation. It is a roadmap to achievement if we provide legal certainty for California’s more than 2.5 million undocumented residents.”
California has more at risk than other states. There are nearly 800,000 workers and students enrolled in DACA in the United States. About 200,000 of those individuals are Californians. The end result of uprooting 200,000 Californians, 95% of whom are gainfully employed or enrolled in college, would create change for which the state is unprepared. “Congress must act swiftly to address this issue so we aren’t left with a problem of losing productive tax-paying jobs,” Zaremberg said.
Zaremberg continued, “An important aspect of California’s economy is our booming technology industry, which relies on highly skilled talent to innovate, design, manufacture, create jobs and enable success in the global marketplace. As things stand today, California cannot find enough ‘home grown’ engineers and scientists. We need to reform our inadequate H-1B visa program. Without reform, our jobs leave for offshore locations which would not be a good outcome for the state.”
Many sectors of California’s economy will benefit from immigration reform. “In addition to the technology sector, the agricultural industry would benefit from the certainty created through comprehensive immigration reform,” Zaremberg said.
“We need a bipartisan solution that will provide a permanent legislative solution for Dreamers,” Zaremberg concluded. “We need to preserve California’s workforce and our ability to compete in the global economy. Comprehensive immigration reform will bring certainty to employers, employees and families.”