California Missed-Break Pay Triggers Payroll Requirements
Author: Michael Cardman, XpertHR Legal Editor
May 25, 2022
Employers in California may need to update their payroll procedures in the wake of a new ruling from the state's highest court.
In Naranjo v. Spectrum Security Services, Inc., the Supreme Court of California concluded that extra pay required for missed meal and rest breaks constitutes wages rather than penalties under the state labor code.
Because these payments are wages, they must be reported on required pay statements and paid within a strict time period when an employee leaves their job (generally 72 hours if they resign or immediately if they are discharged).
Failure to do so may result in so-called waiting time penalties and pay statement penalties, the court held. As the law firm Ogletree Deakins observed, these penalties could potentially add up to hundreds and even thousands of dollars for a single missed break.
In light of the Naranjo ruling, employers operating in California should:
- Ensure payroll departments or third-party providers conform with the ruling;
- Reinforce meal and rest break compliance to avoid missed breaks in the first place, including through employee handbooks and other policies and procedures;
- Use a waiver form to document the required mutual consent of an employer and an employee to waive meal breaks in certain limited situations;
- Consider including missed-break payments in the regular rate of pay when calculating overtime; and
- Consider having employees acknowledge they were provided all the breaks to which they were entitled (although this is not an air-tight shield from liability, it can help an employer defend against claims of missed breaks).
The Naranjo ruling follows on the heels of two other recent Supreme Court of California rulings involving meal and rest breaks:
- Ferra v. Loews Hollywood Hotel, which held that missed-break payments must be paid based on employees' regular rate of compensation rather than their hourly rate, and
- Donohue v AMN Services, which held that employers may not round employees' time punches when they clock in and out of meal breaks.