A new law signed by Governor Gavin Newsom goes into effect on January 1st, 2022 and raises the stakes for California employers when it comes to wage and hour compliance. AB 1003 classifies the intentional theft of more than $950 in wages/gratuities from a single employee (or $2,350 from multiple employees) in any consecutive 12-month period punishable as grand theft.
Although any type of theft over $950 is classified as grand theft in the state, investigating wage theft complaints is typically done by the state Labor Commissioner’s Office, which pursues civil penalties against employers rather than criminal penalties. Under AB 1003, Employers who knowingly commit wage theft under this new law could be charged with a felony and serve up to three years in jail if found guilty.
What constitutes intentional wage theft?
The term “intentional” is not defined in AB 1003, but it is likely that the Labor Commissioner’s definition of “willful” will be used as a standard. Under Labor Code Section 203, a willful failure to pay wages occurs when an employer fails to pay wages to an employee when those wages are due.
Under the same labor code, the Labor Commissioner allows for a “good faith dispute” that seemingly exempts well-meaning employers from criminal liability if they can show they acted in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation of law.
What should California employers do?
Employers must ensure they are attempting to follow best practices when it comes to wage and hour policies and practices in California. Below are some tips to help California employers put themselves in the best position to avoid criminal liability for wage and hour claims when this new law goes into effect:
- Require employees to review that their time entries are correct and have them affirm with their signature before submitting to payroll;
- Create and implement a policy where any payroll errors brought to the company’s attention are immediately corrected, preferably with an option for same-day pay;
- Ensure that overtime hours are paid at the correct regular rate of pay. In California, nonexempt employees are entitled to different overtime rates based on how many consecutive hours were worked in a day and week.
- Review independent contractor agreements and/or invoices to establish the agreed upon and ensure all compensation is being paid;
- Do not credit employees’ tips against the local and/or state minimum wage;
- Meticulously track all gratuities received as required under the Labor Code; and
- Correctly delineate what constitutes a nondiscretionary bonus versus a discretionary bonus. (Non-discretionary bonuses must be included in the regular rate used for determining overtime pay.)
Newsom signed AB 1003 alongside 17 other bills related to employment law and worker protection. Stay tuned to the Emplicity blog for more details on the new laws California Employers will need to comply with in 2022.
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Since 1995, Emplicity has provided a smarter, more secure, and integrated platform of employer services to its 300 business clients and their 8,500 employees. As a Professional Employer Organization, or PEO, the California-based HR outsourcing firm simplifies the compliance, administration, and support businesses need in the areas of employee benefits, payroll, and human resources technology.
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