Wage Theft In California: What Employers Need To Know?
Wage theft—the failure to pay employees what they're legally owed—is a serious issue in California, and the consequences can be severe.
In fact, in 2018, a single case of wage theft resulted in a construction company being ordered to pay a staggering $16.2 million in restitution to over 1,100 workers.
The stakes got even higher in 2022 when California made intentional wage theft a crime punishable by jail time and hefty fines.
But even unintentional errors can lead to costly lawsuits and damage your business's reputation. That's why every California employer needs to understand the ins and outs of wage and hour laws.
In this guide, we'll break down the complex issue of wage theft in California.
We'll explain:
- What wage theft is
- How wage theft can happen
- Potential consequences associated with wage theft
- How you can protect your business
We'll also share how technology solutions like Timeero can help you stay on top of these regulations and avoid costly mistakes.
Disclaimer: This article is intended for informational purposes only and should not be taken as legal advice. California's wage and hour laws are complex and subject to change. Always consult with legal counsel to ensure compliance with all applicable laws and regulations.
Understanding Wage Theft in California
California stands out from other states when it comes to protecting workers' rights and issuing fair pay. However, these strong protections also mean employers must follow strict rules, especially regarding wages, work hours, and potential wage theft claims.
While wage theft is often a civil matter in other states, California has made it a criminal offense.
Wage theft in California is the intentional deprivation of wages, gratuities, benefits, or other compensation by unlawful means, with the knowledge that the wages are due to the employee.
Under certain circumstances, employers who intentionally withhold wages can face significant consequences, including jail time.
It’s important to distinguish between intentional wage theft and unintentional errors or misunderstandings, as the latter can also lead to costly consequences.
California's Wage Theft Prevention Act and Notice to Employee
To enforce employee protections and ensure employers are aware of their obligations, California established the Wage Theft Prevention Act (WTPA).
WTPA requires employers to provide non-exempt employees with a Notice to Employee (Labor Code Section 2810.5).
This California Wage Theft Notice must be given at the time of hire and within seven days of any relevant changes. The notice must contain detailed information regarding the employee's:
- Rate of Pay: How much the employee will be paid per hour, week, or month.
- Pay Schedule: When and how often the employee will be paid.
- Employer Information: The legal name and address of the company.
- Workers' Compensation Coverage: Details about the employer's workers' compensation insurance.
- Paid Sick Leave Policy: An explanation of how the employer complies with California's paid sick leave law.
In 2024, significant changes have been made to the Wage Theft Notice to reflect updated labor laws. These include:
- Expanded Paid Sick Leave: California's paid sick leave law now mandates five days or 40 hours of paid sick leave for full-time employees, instead of the previous three days or 24 hours.
- Emergency/Disaster Declarations: The notice now requires employers to disclose any federal or state emergency or disaster declarations issued within 30 days before the employee's start date that may affect their health and safety at work.
The California Department of Industrial Relations (DIR) has provided an updated Wage Theft Notice template. Employers must provide the Notice in English and, if applicable, in the employee's primary language (for example, Spanish).
Due to the complexity of these changes, employers should consult with an employment attorney to ensure full compliance with the updated WTPA.
Most Common Forms and Examples of Wage Theft in California
Below are the most common forms of wage theft, including those specific to California.
Minimum Wage Violations
California's minimum wage is significantly higher than the federal minimum wage of $7.25. The Golden State's minimum wage is currently $16 per hour, so employers must pay their employees at least this amount.
However, there are some exceptions you must be aware of. For example, some cities have higher minimum wages than the state requires, such as San Francisco, which is $18.07 per hour.
Following California Labor Law, employers must pay their employees the highest minimum wage that applies to them, whether it's the state minimum wage, a local minimum wage, or a higher rate specified in an employment contract. Failing to do so constitutes wage theft and can have serious consequences.
For example, a restaurant dishwasher in Los Angeles is paid $16 per hour, even though the minimum wage is $17.28. This difference represents a minimum wage violation and constitutes wage theft in California.
Overtime Violations
California's overtime rules are more complex than federal law. You must pay employees at overtime rates: 1.5 times their regular rate for hours worked over 8 in a day or 40 in a week and double time for hours worked over 12 in a day.
Let’s take David as an example, a construction worker in Los Angeles who regularly works 10-hour days on a major project. His employer only pays him for 8 hours worked each day, denying him the legally required overtime pay of 1.5x his regular rate for the additional two hours worked. This is an obvious case of wage theft.
Meal and Rest Break Violations
California law mandates specific meal and rest break requirements, which vary depending on the number of hours an employee works. You must provide these breaks according to the law or pay the meal penalty.
For example, Katelyn, a home health aide in San Francisco, travels between clients’ homes during her shift. Her employer deducts 30 minutes from her pay for a “meal break,” even though she rarely has the time or opportunity to take an uninterrupted break while on the road. This behavior violates California's meal break laws and can be considered wage theft.
Off-the-Clock Work
Requiring or allowing employees to work off the clock, such as during breaks, before or after shifts, or during mandatory meetings, is a common form of wage theft.
For example, Miguel, a pharmaceutical sales rep in San Diego, must attend mandatory company meetings and training sessions outside his regular work hours. However, his employer does not compensate him for this time, claiming it is not “hours worked.” Failing to pay for mandatory off-the-clock activities constitutes wage theft.
Misclassification of Employees
Misclassifying employees as independent contractors is a severe offense in California, depriving workers of crucial protections and benefits. California has strict criteria for determining employment status, and misclassification is a common tactic used by some companies to cut costs and avoid legal obligations.
For example, let’s take Aisha, a delivery driver for a popular food delivery company in Oakland. She is classified as an independent contractor. Despite working full-time hours and following strict company guidelines, she is not entitled to minimum wage, overtime, or other benefits that standard employees receive. This misclassification is a form of wage theft.
In fact, California's Labor Commissioner has filed lawsuits against Uber and Lyft for allegedly misclassifying their drivers as independent contractors instead of employees.
Failure to Reimburse Business Expenses
Not reimbursing employees for costs incurred while performing their job is a clear example of wage theft. Failing to compensate a field employee for mileage accrued while using their private vehicle for work is one of the most common situations employees encounter.
For example, Simon, a cable installer in Sacramento, uses his personal vehicle and tools for work-related tasks. However, he is not reimbursed for gas, business mileage, or tool maintenance costs. This failure to reimburse necessary business expenses can constitute wage theft in California.
Illegal Deductions
Employers cannot make unauthorized deductions from paychecks, such as for uniforms, tools, or cash shortages.
For example, Juan, a seasonal farmworker in the Central Valley, receives a paycheck significantly less than expected based on his hours worked. Upon closer inspection of his wage statement, he discovers that his employer has made unauthorized deductions for housing and transportation costs, which violates California law.
Withholding Final Pay
You must pay final wages promptly upon employee termination or resignation, within specific timelines depending on the circumstances.
For instance, a retail worker in San Jose quits, but their employer waits two weeks to issue their final paycheck, forcing them to rely on credit cards and loans to cover basic living expenses. This delayed payment of final wages is a form of wage theft in California.
Other Violations
There are a few more practices California classifies as wage theft:
- Bounced Paychecks. Issuing checks that are not honored by the bank due to insufficient funds.
- Failure to Pay Reporting Time Pay. Not compensating employees who report for work as scheduled but are given less than half their usual work time.
- Denying Accrued Paid Sick Leave. Preventing employees from using the paid sick leave they have earned.
- Taking Employees' Tips. Employers keep a portion of tips earned by employees without authorization.
- Failing to Pay Split Shift Premiums. Not providing extra pay for employees who work split shifts, where their workday is interrupted by non-paid, non-working periods.
Real-World Case: Rafael Rivas and the $16 Million Wage Theft Scandal
In a landmark wage theft case, California construction mogul Rafael Rivas and his companies were ordered by the California Labor Commissioner's Office to pay $16.2 million for wage theft against over 1,100 workers.
Rivas’ companies engaged in various wage theft practices, such as issuing bounced checks, failing to pay wages for weeks, and misclassifying employees as independent contractors.
This exploitation left many workers struggling to pay rent, buy food, and provide for their families.
Penalties for Wage Theft in California
The Rafael Rivas case highlights the severe consequences that employers can face for wage theft in California. So, what penalties can be imposed?
- Civil Penalties. Depending on the number of employees affected and the duration of the violations, fines for each violation can quickly accumulate to a significant amount.
- Criminal Charges. Employers who commit intentional wage theft that exceeds certain thresholds can face felony charges, which can result in imprisonment and substantial fines.
- Back Wages and Restitution. Employers may be ordered to pay back wages, interest, and other damages to affected employees.
- Attorney's Fees and Costs. Employers may also be liable for the employee's attorney's fees and court costs.
- Liquidated Damages. In some cases, employers may be required to pay additional damages to employees equal to unpaid wages.
- PAGA Lawsuits. Under the Private Attorneys General Act (PAGA), aggrieved employees can sue employers on behalf of themselves and the state for labor code violations. These lawsuits can result in significant penalties for employers.
- Business License Suspension or Revocation. Repeat or egregious violations can result in suspension or revocation of the employer's business license.
In 2022, California strengthened its stance against wage theft by passing Penal Code 487m. This law makes intentional wage theft a crime, punishable as grand theft if the withheld amount exceeds $950 from one employee or $2,350 from two or more employees within 12 months.
Penalties can include:
- Up to 3 years in prison
- Fines up to $10,000
- Restitution to the affected employees
Taking Action Against Wage Theft
When employees suspect they’ve been victims of wage theft in California, they can file a wage claim with the California Division of Labor Standards Enforcement (DLSE) and recover unpaid wages, penalties, and interest.
Wage Theft vs. Unintentional Errors: Understanding the Difference
While wage theft often brings images of deliberate exploitation, not all wage law violations are intentional.
Unintentional errors usually occur when employers:
- Don’t understand complex regulations
- Misinterpret the law
- Calculate payroll incorrectly
For example, if a restaurant owner knowingly underpays their servers and pockets some of their tips, this is a clear case of intentional wage theft.
However, if a small business owner miscalculates employee overtime pay due to a misunderstanding of California's complex overtime rules, this is an unintentional error that they can correct.
Here's how you can differentiate between wage theft and unintentional errors:
- Intent. The key distinction lies in the employer's intent. Wage theft implies that the employer is intentionally withholding wages or denying benefits. Unintentional mistakes are often made in good faith.
- Pattern of Behavior. When there is a pattern of repeated violations, even if each incident could be attributed to an error, it may suggest intentional wage theft. When an employer’s mistakes are isolated, they are more likely to be genuine errors.
- Response to Complaints. If an employer ignores or dismisses employee complaints about unpaid wages or denied benefits, they may be committing wage theft. When an employer promptly investigates errors and tries to rectify them, they demonstrate good faith.
- Knowledge of the Law. Employers who are aware of wage and hour laws but consistently violate them are likely to commit wage theft. However, if they are willing to learn and correct mistakes, odds are that their errors were unintentional.
Why This Difference Matters
It’s important both for employers and employees to understand the difference between wage theft and unintentional errors.
Acting in good faith and rectifying errors can help employers avoid legal repercussions and reputational damage.
If employees know the difference, they can easily choose the best action to recover their unpaid wages, whether through a simple conversation with their employer or filing a formal wage theft claim.
How Timeero Helps Prevent Wage Theft Claims in California
Timeero's time tracking and payroll software is a valuable tool for California employers to prevent wage theft, both intentional and unintentional.
Beyond simply clocking in and out, Timeero's features address many common causes of wage theft, making it easier to comply with California's strict laws and avoid costly mistakes.
Here's how Timeero can help:
Accurate Time Tracking
Timeero ensures accurate recording of employee hours, including overtime by using features like GPS-verified clock-ins, geofencing, and real-time tracking.
With time tracked down to the minute, Timeero helps avoid time-rounding issues that could lead to underpayment, legal trouble, and significant penalties.
Automated Break Compliance
Timeero’s California break tracker feature automatically reminds employees to take their legally mandated breaks. The app accurately tracks break duration, preventing underpayment due to missed or shortened breaks.
Additionally, Timeero allows employees to electronically sign off on their breaks, confirming that they received their entitled time off.
In the event that employees are not taking their mandated breaks, you will be able to spot missed breaks immediately, pay the meal premium, and educate your employees about their rights and obligations.
If your employees have been skipping breaks, use our California meal penalty calculator to estimate the premiums on their next paycheck.
California-Specific Payroll Calculations
Timeero's payroll engine is specifically tailored to California's labor laws, which automatically calculates overtime and double time as required.
Detailed Records and Transparent Reporting
Timeero maintains meticulous records of employee hours, breaks, wages, and mileage. It generates comprehensive reports promoting transparency and accountability for employers and employees.
Employees can also review and confirm their timesheets electronically, ensuring accuracy and reducing the potential for disputes.
Mileage Tracking and Reimbursement
Timeero helps employers comply with California Labor Code Section 2802, which requires employers to reimburse employees for all reasonable expenses incurred during work-related travel, including mileage.
For employees who use their vehicles for work, Timeero accurately tracks mileage and can automatically calculate reimbursements based on IRS rates or custom rates set by the employer.
Wage Theft in California: 6 Steps to Protect Your Business as an Employer
- Prioritize Compliance. Make understanding and complying with California's complex wage and hour laws a top priority. Educate yourself on the latest regulations and changes.
- Provide Accurate Wage Theft Notices. Ensure all new non-exempt employees receive the updated Wage Theft Notice, including details about paid sick leave and emergency/disaster declarations.
- Use Technology. Implement an accurate time-tracking software solution like Timeero. Timeero can automate many compliance tasks and ensure precise timekeeping, proper break tracking, and compliant payroll calculations. Read our detailed Timeero Review to learn how it might benefit your business.
- Train Your Staff. Regularly train your managers and supervisors on wage and hour laws so they can properly calculate hours, manage breaks, and address employee concerns.
- Open Communication. Foster a workplace culture where employees feel comfortable raising concerns about their pay or working conditions.
- Seek Legal Counsel. If you have any questions or concerns about compliance, don't hesitate to consult with an employment attorney.
Timeero is a trustworthy partner in preventing unintentional workplace wage and hour violations along with employee time theft.
The software helps you avoid costly mistakes while making sure employees are paid fairly and accurately by automating complex calculations. Timeero keeps your business compliant with California labor laws and provides transparent records in the process.
Wage Theft in California: FAQ
What is the wage theft law in California?
California has several laws that address wage theft, but the main laws are the California Labor Code, The Wage Theft Prevention Act (WTPA), and the Penal Code 487m.
What is the most common form of wage theft?
California's most common forms of wage theft include minimum wage violations, overtime violations, meal and rest break violations, and off-the-clock work. However, other forms, such as misclassification of employees, illegal deductions, and failure to reimburse business expenses, are also prevalent.
What are wage violations in California?
Wage violations in California consist of actions made by an employer that deprive employees of their full wages and benefits as required by law. The examples listed in this article are all considered wage violations.
What are the penalties for employers committing wage theft in California?
The penalties for wage theft in California can be severe, ranging from fines and civil penalties to criminal charges, imprisonment, and being ordered to pay back wages and damages to employees. Specific penalties depend on the nature and severity of the violation and whether the wage theft was intentional or unintentional.
