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Welcome to Legal Bites: bite-sized legal updates by Better. Did you know that your employees missed breaks are considered wages in California, and that means they must be reported on wage statements and paid out at termination? It’s true!⁠

The Basics

California law requires employers to provide daily meal and rest breaks to non-exempt employees. If an employee misses a break because their employer unlawfully makes them work during all or part of a break, the employer must pay the employee an additional hour of pay.

The California Supreme Court ruled in May of this year that this extra pay (sometimes referred to as “premium pay”) for missed breaks constitutes “wages” and therefore must be reported on wage statements and paid within mandatory deadlines when an employee separates from employment. Failure to comply with these requirements may subject the employer to additional penalties.⁠

Those Pesky Waiting Time Penalties

When an employment relationship comes to an end, either by termination by the employer or resignation of the employee, the Labor Code requires employers to promptly pay any unpaid wages to the departing employee. The timeline for payment is very short, and usually no more than 72 hours, depending on the circumstance. Labor Code Section 203 prescribes a sanction for employers who willfully fail to pay the full amounts by the appropriate due date. These are called “waiting time penalties.”

According to the California Supreme Court’s recent ruling, in a case called Naranjo v. Spectrum Security Services, Inc., Section 203 imposes a waiting time penalty for the willful failure to timely pay any wages. The Labor Code defines the term “wages” to include “all amounts for labor performed by employees of every description.”

In its ruling, the California Supreme Court held that premium pay is a statutory remedy for a legal violation, but this does not mean that it cannot also be considered wages. The court didn’t see this as “double dipping” because when an employer requires an employee to work through a break, they should basically receive both the premium pay (because they weren’t allowed to take their break) and wages (because they are in fact working).

So what does this mean for waiting time penalties? Because missed-break premium pay constitutes wages, waiting time penalties may be applied if the premium pay is not timely paid at termination.

And Then There’s Wage Statements to Think About

Section 226 of the California Labor Code creates requirements for wage statements, which comes into play any time wages are involved (hence the name). Section 226 requires employers to provide employees with detailed information, including hours worked, wages earned, and hourly rates through wage statements like pay stubs, and if an employee doesn’t receive a wage statement, they may sometimes recover damages against their employer.

This ties into premium pay now that the court has ruled that premium pay is considered wages! This was bad news for the employer in this case, because their argument was that they didn’t need to list the premium pay… because it had not been paid.

Well, the court basically said, “that’s just silly!” Labor Code Section 226 requires the employer to list all amounts earned and owed to the employee, meaning that if an employee is due premium pay, it must be listed on those wage statements regardless of whether or not those amounts were actually paid.

Wrapping Everything Up

This case illustrates why it’s so important to make sure you’re acting by the book as an employer—the penalties can be astronomical and can easily bankrupt a small business. It’s much cheaper to be in compliance!

Curious about whether or not your employment practices are actually compliant? If you are an employer with employees in California, send an email to bertie@inbetterwetrust.com to schedule a consultation with us!

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Disclaimer: Although this article may be considered advertising under applicable law and ethical rules, the information in this article is presented for informational purposes only. Nothing should be taken as legal advice. Reading this article does not form an attorney-client relationship with us. An attorney-client relationship is formed through a signed engagement agreement. If you would like further information, Better would love to help you out! Feel free to reach out with any questions.