North Star Fall Conference. Recipe for Payroll. Is Payroll in California That Difficult?

Transcription

1 North Star Fall Conference Recipe for Payroll Is Payroll in California That Difficult? David Wakeling, CPP Wakeling & Associates Consultant Member of the APA National Speakers Bureau

2 Is Payroll in California That Difficult? California s laws and regulations have many provisions payroll professionals must understand to ensure compliance. These rules include California s personal income tax, disability tax, unemployment tax, and wage and hour rules. California Law California generally conforms to the Internal Revenue Code effective January 1, 2015, but does not conform to the IRC for: Cash-out of accrued vacation/holiday pay upon termination - not subject to unemployment insurance (UI) or State Disability Insurance (SDI); subject to personal income tax (PIT). Personal use of company cars employers are not allowed to elect out of PIT withholding as they are for FIT withholding purposes. Amounts set aside on a pre-tax basis for adoption assistance for California, the amounts are subject to SUI and SDI when set aside. For Federal purposes, the amounts are not subject to FIT withholding or FICA when set aside; they are subject to FICA when the reimbursements are made. Dismissal pay not subject to SUI or SDI if paid under a supplemental unemployment insurance plan; otherwise, fully taxable. Health Savings Accounts California does not recognize HSAs for purposes of exclusion form income or employment taxes. Wages unpaid at time of death are subject to SUI and SDI if paid in the year of death. Qualified moving expenses California is not subject to the IRC that went into effect with the Tax Cuts and Jobs Act effective 01/01/18. Therefore, qualified moving expense payments and reimbursements are preserved as a fringe benefit not subject to state income tax while nonqualified expenses are subject to PIT, SDI, and SUI. Wages Paid to California Residents A California resident is a person domiciled in the state or in the state for other than a temporary or transitory purpose. Franchise Tax Board Publication 1031 explains temporary or transitory as: Generally, the state of residence is where the person has the closest connections. If an individual leaves their state of residence, it is important to determine if their presence in a different location is for a temporary or transitory purpose. Consider the purpose and length of the stay when determining residency. o A person working on a contractual foreign assignment and in California for no more than 45 days in ay consecutive 18-month period is not a resident. Multi-State Tax Liability California has no reciprocity with any other state. Employees who claim California residency and work in another state are subject to California state withholding tax. Employees who reside in another state and work intermittently in California are subject to all California state taxes and withholding on the first day working in California. 2

3 If A California resident performs services in California (employer has nexus in California) or in another state. A California resident performs services that are subject to personal income tax withholding laws of both California and another state, political subdivision, or the District of Columbia (employer has nexus in both California and the other state). Wages Paid to California Residents Then Wages paid to the resident employee are subject to California Personal Income Tax (PIT) withholding, and PIT must be withheld from all wages paid, in accordance with the employee s Form W-4 or DE 4. The wages paid must be reported as PIT wages on the Quarterly Contribution Return and Report of Wages (Continuation) Form DE 9C. The PIT withheld must also be reported on the Form DE 9C. Make the withholding required yb the other jurisdiction, and: For California, withhold the amount by which the California withholding amount exceeds the withholding amount for the other jurisdiction, or Do not withhold any California PIT if the withholding amount for the other jurisdiction is equal to, or greater than, the withholding amount for California. The wages reported as PIT wages on the Quarterly Contribution Return and Report of Wages (Continuation) Form DE 9C are the same wages that are entered in Box 16 on the employee s Form W-2. The PIT withheld must also be reported on the Form DE9C. If A nonresident employee performs all services in California which may include spouse of a military service member (employer has nexus in California). A nonresident employee performs services both in California as well as in another state (employer has nexus in both California and the other state). Wages Paid to Nonresidents of California Then The wages paid to the nonresident employee are subject to California PIT withholding. The PIT must be withheld from all wages paid in accordance with the employee s Form W-4 or DE 4. However, the spouse of a military service member may exclude wages from California PIT withholding by filing a Form DE 4. The wages paid must be reported as PIT wages on the Form DE 9C. The PIT withheld must also be reported on the Form DE 9C. Only the wages earned in California are subject to California PIT withholding. The amount of wages subject to California PIT withholding is that portion of the total number of working days employed in California compared to the total number of working days employed in both California and the other state. The California wages must be reported as PIT wages on the Form DE 9C. The PIT withheld must also be reported on the Form DE 9C. Note: For employees whose compensation depends on the volume of business transacted, the amount of earning subject to California PIT withholding is that portion received for the volume of business transacted in California compared to the total volume of business in both California and the other state. California PIT Withholding A federal Employee s Withholding Allowance Certificate (Form W-4) is normally used for California persona income tax withholding (PIT). However, if an employee wants to claim a different marital status and/or a different number of allowances than are claimed for federal withholding purposes, the employee must file a state Employee s Withholding Allowance Certificate (DE 4). For instance, California recognizes the Head of Household status, and an employee would need to file Form DE 4 to claim that status. If the employee fails to provide either a Form W-4 or Form DE 4, employers withhold PIT using the single marital status and no withholding allowances. If employees expect to itemize deductions on their California income tax return, they can claim additional withholding allowances, which are greater than their federal withholding allowances. When reduced withholding 3

4 amounts are appropriate because of large amount of itemized deductions, employees must complete a Form DE 4, including attached worksheets, to support additional allowances for the itemized deductions. For information on treatment of additional withholding allowances for estimated deductions, refer to Instructions for Additional Withholding Allowances for Estimated Deductions and the Estimated Deduction in the California Employer s Guide, Publication DE44. Use of the DE 4 is optional. However, if employees provide a Form DE 4, it must be used to determine their California PIT withholding. To obtain copies of the Form DE 4, access EDD s website at An online Form DE 4 calculator is available at the California Tax Service Center (taxes.ca.gov/de4.pdf). Tax Return and Deposit Requirements Effective January 1, 2018, all employers are required to submit employment tax returns, wage reports, and payroll tax deposits electronically. The penalty for failure to file Form DE9 electronically is $50 per return. The penalty for failure to file wage reports (Forms DE9C) electronically is $20 for each wage item. The penalty for failure to deposit electronically when required is 15% of the amount due. 4

5 Next Day If federal tax withholding is more than $100,000 and California accumulated PIT withholding is more than $500, then deposit next business day. Semiweekly If the employer is a Federal semiweekly depositor and the California accumulated PIT withholding is more than $500, then deposit per the semiweekly deposit period. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. For example, if a deposit is due on Friday, but Friday is a holiday, the deposit due date is extended to the following Monday. Minimum Wage On April 4, 2016, California Governor, Jerry Brown signed Senate Bill 3 phasing in an increase of the minimum wage through January 1, Senate Bill 3 defines a large employer as an employer who employs 26 or more employees, while a small employer is an employer who employs 25 or fewer employees. State Minimum Wage Effective Date for Large Employers (26 or more employees) $ /01/18 01/01/19 $ /01/19 01/01/20 $ /01/20 01/01/21 $ /01/21 01/01/22 $ /01/22 01/01/23 Effective Date for Small Employers (25 or fewer employees) California Localities Minimum Wage Locality Minimum Wage Belmont $12.50 effective 07/01/18; $13.50 effective 01/01/19 Berkeley $13.75 effective 10/01/18; $15.00 effective 10/01/19 Cupertino $13.50 effective 01/01/18; $15.00 effective 01/01/19 El Cerrito $13.60 effective 01/01/18; $15.00 effective 01/01/19 Emeryville $15.69 for employers with 56 or more employees, $15.00 for employers with 55 or fewer employees effective 07/01/18 Los Altos $13.50 effective 01/01/18; $15.00 effective 01/01/19 Los Angeles (city) $13.50 for employers with 26 or more employees, $12.00 for employers with 25 or fewer employees effective 07/01/18 Los Angeles (county) $13.50 for employers with 26 or more employees, $12.00 for employers with 25 or fewer employees effective 07/01/18 Malibu $13.50 for employers with 26 or more employees, $12.00 for employers with 25 or fewer employees effective 07/01/18 Milpitas $13.50 effective 07/01/18; $15.00 effective 07/01/19 Mountain View $15.00 effective 01/01/18 Oakland $13.23 effective 01/01/18 Palo Alto $13.50 effective 01/01/18; $15.00 effective 01/01/19 Pasadena $13.25 for employers with at least 26 or more employees; $12.00 for employers with 25 or fewer employees effective 07/01/18 Redwood City $13.50 effective 01/01/19; $15.00 effective 01/01/20 Richmond $13.41 effective 01/01/18; $11.91 if employer pays $1.50/hour for medical benefits 5

6 Locality Minimum Wage San Diego $11.50 effective 01/01/17 San Francisco $15.00 effective 07/01/18 San Jose $13.50 effective 01/01/18; $15.00 effective 01/01/19 San Leandro $13.00 effective 01/01/18; $14.00 effective 01/01/19 Locality Minimum Wage San Mateo $13.50 effective 01/01/18; $15.00 effective 01/01/19 Santa Clara $13.00 effective 01/01/18; $15.00 effective 01/01/19 Santa Monica $13.25 for employers with at least 26 or more employees; $12.00 for employers with 25 or fewer employees effective 07/01/18 Sunnyvale $15.00 effective 01/01/18 Labor Law Overtime California probably has the most comprehensive overtime rules of any state. To first determine if an employee is subject to the overtime rules, California s white collar exemption rules must be applied. Exempt Employees California has the same five categories of white collar exemption as the Fair Labor Standards Act (FLSA): Executive Administrative Professional Computer-related Outside sales Executive, Administrative, and Professional: Monthly minimum wage for full time employment effective 01/01/18: o Federal: $1, o California: $3, per month for employers with 25 or fewer employees $3, per month for employers with more than 25 employees Duties: Same as Federal o Note: Pharmacists and registered nurses (except certain advanced practice nurses) are not considered exempt professional employees unless they meet the test for exemption as an executive or administrative employee. Computer-related Employees: Hourly minimum wage for full time employment effective 01/01/18: o Federal: $27.63 o California: $43.58 Outside Sales Employees: Salary Requirement: Same as Federal none Age requirement: o Federal: None o California: 18 or older 6

7 Wage Orders All employers that conduct business within California must adhere to specific wage orders determined by the type of business the employer operates. Before looking into what overtime exemptions apply, each employer has to determine which Wage Order applies to them. The Industrial Welfare Commission issues Wage Orders covering 17 industries and occupations ( There is also a separate wage order covering California minimum wage rules. A thorough understanding of each wage order and how it applies to either industry or an occupation so that overtime rules and exceptions can be identified is critical to ensure compliance. Following is a list of wage orders: Minimum wage order: $11.00 per employers with 26 or more employees, $10.50 for employers with 25 or fewer employees Wage Order No. 1 Manufacturing Industry Wage Order No. 2 Personal Services Industry Wage Order No. 3 Canning, Freezing, and Preserving Industry Wage Order No. 4 Professional, Technical, Clerical, Mechanical and Similar Occupations Wage Order No. 5 Public Housekeeping Industry Wage Order No. 6 Laundry, Linen Supply, Dry Cleaning and Dyeing Industry Wage Order No. 7 Mercantile Industry Wage Order No. 8 Industries Handling Products After Harvest Wage Order No. 9 Transportation Industry Wage Order No. 10 Amusement and Recreation Industry Wage Order No. 11 Broadcasting Industry Wage Order No. 12 Motion Picture Industry Wage Order No. 13 Industries Preparing Agricultural Products for Market on the Farm Wage Order No. 14 Agricultural Occupations Wage Order No. 15 Household Occupations Wage Order No. 16 Certain On-Site Occupations in the Construction, Drilling, Logging and Mining Industries Wage Order No. 17 Miscellaneous Employees Overtime Generally, overtime pay is required for most nonexempt employees in California for hours worked over 8 in a day. This is on top of the federal requirement to pay overtime for any hours worked in excess of 40 in a workweek. Basic rules for nonexempt employees: Any hours worked over 8 in a workday or 40 in a workweek amount to overtime and require payment of 1½ times the regular rate of pay. Any hours worked over 12 in a workday require the employee be paid twice the regular rate of pay. Note that there are several exceptions to this rule. California law does not require premiums for a sixth day s work unless a four-day or other alternate workweek schedule is in effect. If work on the sixth day exceeds 8 hours or causes the total for the week to exceed 40, overtime is due. For hours worked on the 7 th consecutive day in a workweek, the first 8 hours are paid at 1½ times the regular rate of pay. All hours in excess of 8 are paid at double time. California government employees follow the FLSA rule of overtime paid in excess of 40 hours worked in a week at 1½ times the regular rate of pay. 7

8 Note: California does not have any special payment issues for time worked on holidays or weekends. California focusses on workday and workweek when determining overtime issues. California Regular Rate of Pay The California Supreme Court determined that, to calculate a nonexempt employee s regular rate of pay for overtime purposes under state laws, a flat sum bonus earned during a single pay period must be divided by the number of overtime hours worked during that pay period. This interpretation differs from the calculation required under the federal FLSA, which directs employers to divide the bonus by all hours worked during the workweek nonovertime and overtime hours. The decision does not just apply going forward, but also applies to an employer s past actions: meaning an employer could potentially be sued for using the federal method of calculation during past pay periods. Generally, the California statute of limitations is three years. The court limited its decision to flat sum bonuses comparable to the attendance bonus at issue in this case; stating that other types of non-hourly compensation (e.g., a production or piecework bonus or a commission) might increase in size in rough proportion to the number of hours worked, including overtime hours, and might require a different analysis. An additional difference in the new California calculation method is that overtime must be paid at a rate of 1.5 times the regular rate of pay. This differs from the FLSA calculation method, which allows the employee to be paid straight time plus an overtime premium of 0.5 times the regular rate of pay for overtime hours worked. Example: John worked an 8-hour shift each day from Monday through Friday (40 hours). On Saturday, he worked an 8-hour shift (48 hours total). John earns $14 per hour plus a weekend attendance bonus of $15. Using the California calculation method, the employee earns $3.28 more than under the FLSA calculation method per the following. California Calculation Method FLSA Calculation Method Attendance bonus $15 40 = $0.38 $15 48 = $0.31 (nonovertime hours) Total hours worked) Regular rate of pay $14 = $0.38 = $14.38 $14 + $0.31 = $14.31 Overtime rate $14.38 x 1.5 = $21.57 $14.31 x 0.5 $7.16 Overtime work $21.57 x 8 = $ $7.16 x 8 = $57.28 Straight hourly pay $14 x 40 = $ $14 x 48 = $ Attendance bonus Total pay $ $ Commissions When an employer and an employee enter into a contract for employment in California and the employee is paid on a commission basis, the contract must be in writing. The employer and employee must sign the contract and it must establish how the commission will be calculated and paid. The employer must give a signed copy to the employee. The employer must obtain a signed acknowledgement of receipt from the employee. Note that these requirements apply to commission only, not bonuses. Allowed Alternative Work Schedules Under 511 of the Labor Code, employees can vote for alternative workweek schedules (AWS) i.e., 4 days of 10 hours and, if they do, no overtime is due for hours in excess of 8 in a day up to 10 hours a day. In order to be valid, two-thirds of the affected employees in the work group must approve an alternative workweek schedule using a secret ballot election. Employers are not allowed to establish AWS without a secret ballot. 8

9 Except for employees in the health care industry, employees are not allowed to work longer than 10 hours a day without being paid overtime. Qualified healthcare employees are allowed to work 12 hours at straight time. Note: An alternative workweek schedule that results in more than 40 hours a week worked in a week always results in overtime pay for hours over 40. California Labor Law Make-Up Time Labor Code 513 allows employees to make up work time lost due to personal issues under limited circumstances: An employee wishing to use make-up time must submit a written request each time the employee wants to make up time The employee must miss work due to a personal obligation The make-up time must occur in the same workweek The employee cannot work more than 11 hours in one day, and not more than 40 hours in the workweek The employer is not required to agree to the employee s request The employer is not allowed to encourage employees to make up missed work time Meal Periods Meal period rules are outlined in Labor Code 512. Generally, employees are not allowed to work over five hours without a meal period at least 30 minutes long after 5 work hours (after 6 hours for manufacturing industry). However, there are exceptions: If an employee does not work more than 6 hours a day, the employee can voluntarily agree with the employer to waive the right to a meal period If an employee works more than 6 hours a day, and agrees in writing to an on-duty meal period, the tam must be counted as time worked For employees with workdays over 10 hours, a second meal period of at least 30 minutes is generally required Penalty for not providing a meal period: Pay that employee one additional hour of pay for each work day that the meal period is not provided. The sanction is paid in addition to the worked meal period time added to regular hours worked. Frequently Asked Questions The California Division of Labor Standards Enforcement s (DKSE) Frequently Asked Questions (FAQ) on meals periods are available at FAQ No. 5 addresses the issue of employer liability for premium pay if the employee freely chooses to continue working during a meal period (where the employer has not exerted any control over the employee s activities). An employer would not be liable for premium pay where there is bona fide relief from duty and relinquishment of employer control (and no discouragement or coercion from the employer against taking the meal period). It is important to be aware in a situation where an employer knows or has reason to know an employee is working during a meal period, the employer owes the employee compensation for the time worked. This includes any overtime hours that accrue as a result of working through the meal period. 9

10 Rest Periods California wage orders require employers to provide rest periods for nonexempt employees whose daily work time is at least 3½ hours. To the extent possible, the employer should allow these rest periods midway through the work period. The employer should allow 10 minutes for each rest period. Requirement for Number of 10 Minute Rest Periods Less than 3½ hours None 3½ hours to 6 hours One Over 6 hours to 10 hours Two Over 10 hours to 14 hours Three If the employer makes the rest period available, and the employee fails to use it, there is no penalty exposure. California Sick Pay Assembly Bill 1522 provides employees the right to accrue and take paid sick leave. Employees working in California for the same employer for at least 30 days are eligible for paid sick leave by completing a 90-day employment period. The 90-day period works like a probationary period. Employees accrue paid sick leave on their first day of employment when they are hired. For employers subject to a local California sick leave ordinance, the employer will have to comply with both the local and California laws. The local ordinances and the state law may differ. For provisions that differ, the employer will have to provide whichever is more generous to the employee. The following California cities differ from the California requirements: Berkeley Emeryville Los Angeles Oakland San Diego San Francisco Santa Monica Eligible Employees An employee who works at least 30 days within a year in California, including part-time, per diem, and temporary employees, are covered by the new law with some specific exceptions. The following employees are exempt from the requirement to accrue paid sick leave: Providers of publicly-funded In-Home Supportive Services (IHSS) Employees covered by collective bargaining agreements with specified provisions providing paid sick leave Individuals employed by an air carrier as a flight deck or cabin crew member, if they receive compensated time off at least equivalent to the requirement of the new law Retired annuitants working for governmental entities Accruing Sick Leave Employees will accrue at least one hour of paid leave for every 30 hours worked. The accruals are required to begin on the employee s hire date. The schedule must result in an employee having at least 24 hours of accrued sick leave or paid time off by the 120 th calendar day of employment. Note: The employer determines how the year will be calculated, whether it tracks a typical calendar year, fiscal year, or other 12-month period. The law also allows an employer to limit an employee s total accrued paid sick leave to no more than 48 hours or six days in a calendar year. Employers can also limit the amount of paid sick leave an employee can take in one 10

11 year to 24 hours (3 days). Accrued sick leave is not paid on an employee s separation of employment unless the employer s policy provides for a payout (i.e., San Francisco). Rehired Employees The law requires accrued sick leave be restored to an employee if the employee returns to work for the same employer within 12 months of the separation. An employer does not have to allow an employee to use the paid sick leave before working a total of 90 days before the separation and after the employee is rehired. Example: Mary terminates employment at ABC Company November 12, 2017 and is rehired on February 1, Mary had an accrued balance of 24 hours of paid time off when she terminated. Mary is rehired within a 12- month period, and therefore has 24 accrued hours in her sick leave bank when she is rehired on February 1, Paid Time Off For employees working in California, other than the paid sick leave rules, there is no requirement they be paid for any hours not worked (vacation, PTO). If the employer has a policy that allows employees to accrue paid vacation or PTO, the employee owns those accrued hours. Accrued hours must be paid at the employee s termination. Employers are not allowed to have use it or lose it policies for California employees and their accrued vacation of PTO. Employers can have a policy limiting the maximum number of hours an employee can accrue. They can also establish policies specifying how many hours an employee accrues each pay period. Supplemental Wages California has two supplemental tax rates: 6.6% for supplemental wages that are not bonuses or stock options 10.23% for bonuses and stock options California has the same definition of supplemental wages as the IRS. Supplemental wages are wage payments to an employee that aren't regular wages. They include, but aren't limited to: Bonuses Commissions Overtime pay Payments for accumulated sick leave Severance pay Awards Prizes, Back pay, Retroactive pay increases Payments for nondeductible moving expenses. Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. When calculating taxes: If the supplemental wage is given to the employee at the same time as the employee s regular wages are paid, you are required to treat the sum of the payments as regular wages and withhold PIT based on the regular payroll period using the PIT withholding schedules. 11

12 o Note: Federal treatment: If you pay supplemental wages with regular wages but don t specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. If you specify the bonus separately, then use the Federal supplemental rate for the bonus. If the supplemental wage is not given to the employee at the same time as the employee s regular wages, you two options: 1. Compute the amount of PIT to withhold from the supplemental wage based on the combined regular wages and the supplemental wage. a. Compute the PIT withholding on the total of the supplemental wage and the current or most recent regular (gross) wage payment using the PIT withholding schedules. b. From that amount, subtract the PIT you withheld from the regular wages. c. The difference is the PIT amount you should withhold from the supplemental wages. 2. Withhold at the appropriate supplemental rate listed above without allowing for any withholding allowances claimed by the employee. Involuntary Deductions Child Support Withholding Federal Maximum of 65% of disposable earnings if the employee is not supporting another family and 12 weeks in arrears California 50% of employee s disposable earnings Disposable Earnings California s definition of earnings follows the Federal definition which includes wages, salary, bonuses, commissions, etc. Definition of disposable income: Federal gross income less deductions required by law: o Federal income tax o Social security tax o Medicare tax o State income tax o Local tax o State unemployment or Disability tax o Mandated payments for State Retirement Systems California definition of disposable income includes the above deductions plus deductions for: o Union dues o Payments pursuant to a pension or retirement program o Payments to a deferred compensation plan when required as a condition of employment Withholding: Federal - No later than the first pay period beginning 14 days after the mailing of the notice to the employer California - Within 10 days after service of an order Payments are required to be made electronically to the State Disbursement Unit Both Federal and California require payments be made within 7 business days after payday 12

13 Employers are allowed to collect a fee of $1.50 for each support deduction each pay period. The fee and the support deduction combined cannot exceed the child support limits. Creditor Garnishments The maximum amount subject to garnishment cannot exceed the lesser of: 1) 25% of disposable earnings for the week, or 2) 50% of the amount by which disposable earnings for the week exceed 40 times the greater of the state or local minimum wage at the time the earnings are payable Disposable earnings for Creditor Garnishments follow the same rules as California disposable income for child support. Employers are allowed to collect a fee of $1.50 for each creditor garnishment each pay period. The fee and the garnishment deduction combined cannot exceed the creditor garnishment limits. Garnishments in California are continuous. They remain in effect until paid or released. Tax Levy Withholding Rules The Franchise Tax Board (FTB) may issue an Earnings Withholding Order for Taxes (EWOT) as a wage garnishment for employees who owe state taxes. The levy remains in place until the liability is paid or the FTB releases the EWOT. Limits: Follows the Consumer Credit Protection Act limits Payment: Send the first payment at the end of the next pay period that occurs at least 15 days after the EWOT order is received Administrative Fee: $1.50 for each payment Prohibited Deductions Private employers are limited as to the types of deductions that can be made from an employee s wages. The following kinds of deductions are prohibited for private employers only: The cost of pre-employment medical or physical exam taken as a condition of employment or that is required by law Credit-card processing fees or charge from gratuities charged by a customer to a credit card Cash shortage, breakage, or loss of equipment unless it is due to an employee s dishonest or willful act or gross negligence Excess advances to an employee paid on commission unless there is an agreement or promise of repayment for excesses Wage Payment Issues California has some of the most wide-ranging rules regarding wage payment including frequency, lag periods between the end of the pay period and when the employee must be paid, and what information has to be shown on the employee s pay statement. Frequency Under California law, nonexempt employees must generally be paid at least twice a month. The employer must establish a regular payday, and is required to post a notice that shows the day, time, and location of payment. 13

14 If an employer s regular designated payday falls on a holiday, and the employer observes that holiday by closing its business, the employer may pay wages on the next business day. Pay frequency requirements: Employees paid on a weekly, biweekly or semimonthly period must be paid within seven calendar days following the close of the pay period. Exempt employees can be paid their entire salary once a month as long as the payment is made by the 26 th of the month for the period during which the work was performed. Any unearned salary between payday and the end of the month must be included. Pay Statements Pay Statement Requirements California law requires a significant amount of information be reported on employees pay statements: Gross and net earnings All applicable hourly rates in effect during the pay period The hours worked at each rate Total hours worked for all nonexempt workers Overtime hours worked in the current pay period may be itemized as corrections on a pay statement for the next regular pay period The number of piece rate units earned and the rate if the employee is paid on a piece-rate basis All deductions all voluntary deductions authorized by the employee may be summed and shown as one amount The inclusive dates of the pay period being paid The employee s name and either no more than the last 4 digits of the employee s social security number or another existing employee number The name and address of the legal employer If employees are paid in cash, they must also receive an itemized statement showing the above information An exempt employee s itemized wage statement is not required to include total hours worked if the employee is exempt from the payment of minimum wage an overtime under state specific laws or any orders of the Industrial Welfare Commission. Electronic Pay Statements Electronic delivery of pay statements must be voluntary. If statements are posted on a website the site must be secure, control employee access with a PIN, and implement firewalls. If access to the website is through terminals located at the work site or from a home PC the service must be available 24/7, except for occasional downtime for service. At work, employees must have access to individual or network printers at reasonable hours throughout the day to print statements at no cost. Network printers must be secure so others cannot print an employee s personal data and employees must be situated close enough to eliminate risk that data can t=be taken by someone else. Electronic statements must be available for downloading and printing for at least 3 years. Payment By Check Out of State Employers Watch Out! Employers outside California paying wages to California workers have additional concerns. To ensure the employees have timely access to their wages, Labor Code 212(a) prohibits the use of any check that is not negotiable and payable in cash at some place of business in the state. Unless the place of business is a bank, the name and address of the business must be on the check face. 14

15 Termination Pay It the employee s employment is involuntarily terminated, all wages owed must be paid on that date this includes accrued paid time off (vacation, PTO and paid holidays) and commissions earned on the date of termination. If the employee resigns or abandons his/her job, the employer has 72 hours to pay the employee all wages owed. If the employee gives at least 72 hour advance notice of resigning, the employer must pay all wages owed on the employee s last day. If the employee requests that the final wages be mailed, the date the payment is mailed is the date of payment for purposes of the 72-hour rule. For strikers and movie employees voluntarily terminating, the final payment is due on the next regular payday. For governmental agency employees, the final payment is on the next regular payday. Termination Pay Penalties For willful violation, the penalty will be continuation of wages up to 30 days (calendar days including weekends and holidays. Civil penalties of up to $50 for each initial failure to pay wages. If the violation is willful - $100 plus 25% of the amount unpaid for each subsequent violation. Record Retention California law requires pay statement and payroll records be kept onsite or at a central location elsewhere in the state for at least three years. Electronic storage of records is allowed as long as the employer can provide paper copies when asked for them. California requirements for record retention are: Wage and Hour: 3 years Wage orders: 3 years Income tax: 4 years Unemployment tax: 4 years Employee pay statement: 3 years California Payroll Forms DE 9 DE 9C Form Function Used to report and reconcile total wages and tax paid each quarter. The Form DE 9 is used to report wages subject to unemployment insurance (UI), employment training tax (EFT), state disability insurance (SDI), and personal income tax (PIT) withholding. Used to report employee detail for wages, PIT, UI, ETT, and SDI Form DE 9C is filed with Form DE 9, and are due the last day of the month following the end of the quarter. Cannabis Industry California laws require any cannabis business with employees performing services to withhold, report, and remit payroll taxes. Types of cannabis businesses include: nonprofit or for-profit; medical or recreational; cultivator/grower, distributor, transporter, and dispensary. 15

16 Subject to California Labor Law California Labor Code provides Cal/OSHA to convene an advisory committee to evaluate if there is a need to develop industry-specific regulations. Resources: Employment Development Department (EDD) 2018 California Employer s Guide APA: o APA s Guide to State Payroll Laws o PayState Update California Payroll Guide (Author Wolters Kluwer) Wage and Hour Manual for California Employers (Author Richard J. Simmons) 16