Hospitality employers in California face several wage-hour compliance challenges. Not only does the California Division of Labor Standards Enforcement (“DLSE”) actively monitor employers, plaintiffs’ counsel frequently take advantage of the California Private Attorneys General Act, which creates a substantial incentive to pursue wage-hour claims.
So, what’s a hospitality employer to do? Successful compliance programs require a detailed understanding of California’s wage-hour rules. Those rules are located primarily in the California Labor Code and the DLSE’s enforcement guidance, available at
www.dir.ca.gov.
Below are the most common wage-hour claims brought against California hospitality employers.
Minimum Wage
Non-exempt employees in California must be paid at least minimum wage for every hour worked. The current state minimum wage is $15.50 per hour. However, many localities, such as San Francisco, impose a higher hourly rate. Generally, only high-level managers who do not perform “manual” work may properly be classified as exempt.
Rest and Meal Periods
California’s rest and meal period rules, which are unyielding and subject to significant penalties for non-compliance, pose unique challenges to hospitality employers.
Non-exempt employees who work more than five hours per day must be provided an unpaid and duty-free meal period of not less than 30 minutes. The meal period must begin before the end of the fifth hour of work, but there is nothing in the law precluding an “early” meal break, such as a “chef’s dinner” before the dinner crowd arrives. A second meal period is due when an employee works more than 10 hours, and must be taken before the end of the tenth hour of the shift. Employees must take a paid and duty-free 10-minute rest period for each four-hour shift (or major fraction thereof, which is defined as two hours).
Employees who are not provided compliant meal and/or rest periods must be paid one hour of pay for each meal/rest violation at their regular rate of pay, up to a maximum of two hours per day. This “premium pay” is required when an employee is prevented from taking a compliant meal or rest period, but not when an employee unilaterally decides not to take their meal or rest period. So, premium pay is owed, for example, when the restaurant is short staffed and an employee has no time to take a break, or when a manager does not permit an employee to leave the premises during a break.
In certain circumstances, employees may “waive” required meal periods. An employee who works more than five hours in a shift but fewer than six hours may choose not to take a meal period. Similarly, a second meal period may be waived if an employee works more than 10 hours but fewer than 12, and they did not waive their first meal period. There are no waivers for rest periods.
Tips
In California, any gratuity left by a guest, customer, or patron is the sole property of the employee for whom the tip was left. However, employees may participate in a tip pool if “management” does not share in the pool.
There are no written rules regarding how to distribute tip pools. However, the distributions must be fair. For example, front of the house employees likely should be entitled to a larger portion of the pool because they spend more time directly interacting with guests, in comparison to back of house employees.
Tip amounts are not included in overtime calculations, and employers must keep accurate records of all tips and provide employees with tip reports on request. California employers may not make wage deductions from gratuities, or use gratuities as credits against an employee’s wages.
By contrast, service charges may be treated as the property of the employer, unless a local jurisdiction, such as Santa Monica, requires otherwise. Generally, if a business charges a service fee for a large reservation, that amount does not qualify as a gratuity.
Split Shifts
In the hospitality industry, non-exempt employees frequently are scheduled for multiple shifts in the same day. Doing so allows employers to ensure coverage for busy times without over-staffing. However, California imposes a number of restrictions on these “split shifts.”
A split shift is defined as two employer-required shifts or work periods on the same workday with more than a meal period between them. When an employee works a split shift, they may be entitled to a split-shift premium for the workday. Split-shift premiums are calculated as one hour’s pay at the minimum wage in addition to the minimum wage for that workday.
So, for example, employers may schedule their most experienced workers for the lunch rush from 11:00 a.m. to 1:00 p.m., and then bring them back for dinner shift from 6:00 p.m. to closing, so long as those workers are paid at least minimum wage for all hours worked plus one additional hour at minimum wage.
Reporting Time Pay
When a non-exempt employee is scheduled to work but is furnished with less than one-half of their scheduled shift, they are entitled to reporting time pay for at least half the hours they were scheduled to work. The pay must be a minimum of two and a maximum of four hours at the employee’s base rate of pay. This often occurs on days when business is slow, so employers send some of their staff home early. For example, if an employee was scheduled to work eight hours, but was sent home after two hours, then that employee is entitled to six hours of pay—four hours of reporting time pay and two hours worked.
Mileage
California Labor Code section 2802 requires employers to reimburse employees for all reasonable and necessary expenses they incur as part of their work duties. In the hospitality industry, employees may be entitled to mileage related to making deliveries, picking up supplies, and similar activities.
Employers who reimburse mileage at the current IRS-required rate are entitled to a presumption that employees are not entitled to further payment for gas and wear-and-tear on their personal vehicles.
Overtime
Non-exempt employees in California may not work more than eight hours in a workday or more than 40 hours in a workweek unless they receive one and one-half times their regular rate of pay for all hours worked over eight hours in any workday, and over 40 hours in the workweek (or double time as specified below). Such employees must be compensated for overtime at not less than:
- One and one-half times the employee’s regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek; and
- Double the employee’s regular rate of pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.
Pyramiding or “double-dipping” overtime hours is not permitted in California. This means employees receive premium pay for the greater overtime amount (weekly or daily, and not both).
The applicable overtime rate is based on the employee’s “regular rate of pay.” To calculate the regular rate, in most situations, an employee’s total earnings for the workweek (e.g., hourly earnings, shift differentials, bonuses, etc.) is divided by the total hours worked during the workweek. For employees who are paid only one hourly rate, the regular rate is the same as that hourly rate. However, for employees who receive shift differentials, bonuses, or multiple rates of pay, for instance, the regular rate will be higher than the
hourly rate.
Hospitality employees often work in multiple positions that pay different rates, and receive bonuses for working certain shifts. For these reasons, failure to properly calculate the regular rate of pay poses a risk of substantial liability to employers.
Time Records
Employers must implement appropriate methods to track work hours. California Labor Code section 226 requires employers to keep accurate records containing the start and end times of each work period, meal period out/in times, split shift intervals, total daily and pay period hours worked, and total wages paid, among other data. These records must be accessible to employees upon reasonable request. Employees should acknowledge any after-the-fact revisions to their time records. For example, if an employee forgets to clock out/in for a meal period, the employer may manually update that employee’s time records to accurately reflect their meal period, but should have the employee provide written acknowledgment of the revision.
The best practice is to record employees’ actual work time. That said, for convenience, many employers “round” hours worked to the nearest 15-minute increment. Although rounding technically is lawful provided employees are never deprived of a second of time they actually worked, the best practice is not to round time, particularly when electronic records reflect the exact times.
Conclusion
California’s wage-hour laws are complex and ever-changing. Hospitality employers are particularly at risk of wage-hour claims because of the nature of the workforce and industry. These employers must regularly audit their policies and practices for compliance with current state and local requirements.
