Understanding California Labor Compliance: Overtime, Breaks, and More

By Harri Insider Team | February 25, 2021

As 2021 approaches, several new pro-labor laws covering everything from overtime payment to break requirements could spell compliance trouble for Californian restaurant operators.

In an industry facing a talent crisis, staggeringly high employee turnover rates, and mass-restaurant closures, these regulations are an extra burden on operators trying to stay afloat.

California labor laws are very well-intended and, in theory, should reduce turnover by improving employee morale. However, in many cases, they further complicate operational and financial processes that were already complex to begin with. Oftentimes they create loopholes that hurt the employees they were designed to protect.

Below we’ll break down the nuances of labor regulations hitting California in 2021, as well as what resources restaurant operators can take advantage of to minimize associated operational and financial burdens.

* Please note this article is not intended to act as legal advice. It is based on subject matter expertise from the Harri team and our partner networks.

Regulations and resources to keep an eye on

Upcoming and updated Californian regulations:

Updated CAL/OSHA COVID-19 safety regulations, including benefits and reporting – IN EFFECT
Anti-harassment training requirements – IN EFFECT
State-wide minimum wage increase to $14/hr – IN EFFECT
Right to rest exemptions – IN EFFECT
Annual pay data and hours worked report – IN EFFECT, with 100 or more employees
Updated new family leave – IN EFFECT, with 5 or more employees

California labor metrics: what you need to keep track of

Labor management is no simple feat. Anyone running a restaurant knows that a published schedule is never set in stone. Employees swap shifts, call out last-minute, or need to be called in during an unexpected surge of customers.

Keeping track of these can be incredibly difficult for managers already dealing with so much on their plates.

Unit-level managers are responsible for tracking and forecasting key employee KPIs:

Breaks taken and break wavers
Scheduling: days of the week worked for each employee
Scheduling: shift start and end times for each employee
Right to rest periods
Overtime hours
Premium payments: Payment amount, who they were paid to, and how often

Below, we discuss these metrics, their impact on restaurant operations, and how a technical solution can be used to ease any associated tracking and forecasting burdens.

Breaks and break wavers

Trackable employee metrics:

Hours worked — break eligible at 6th hour of work, must be taken before the 5th hour
Breaks waived and unwaived by employee, by day

Operational must-haves:

The ability to dynamically waive and unwaive employee breaks
Daily break waiver tracking
An audit trail of breaks requested or waived, and when they were taken

How we got here

Scheduling an employee to work 8, 10, or even 15-hour shifts without a single break wasn’t uncommon, and Californian break laws first surfaced in the mid-2010s to resolve that unfair employee treatment.

When break laws went into effect, employers worked around them by creating micro shifts. If an employee’s shift wasn’t long enough to warrant a break, the restaurant couldn’t be non-compliant.

Longer, break-eligible schedules don’t always favor employees though. Tipped employees don’t always want breaks, especially if it means missing out on a peak shift. When you’re paid under tip credit, a break can mean a huge decrease in weekly pay.

With that in mind, updated break waiver laws gave employees the power to decide if they want a break or not. Breaks eligibility could be waived or unwaived at any point in the day and restaurant operators are responsible for adapting operations accordingly.

HCM tech for break tracking and dynamic break waivers

Employees hold the power when it comes to break wavers. That means they’re able to waive and unwaive breaks at any point in the day, as many times as they want.

That means traditional POS time clocks won’t cut it when it comes to break monitoring and tracking, let alone the ability to waive breaks. There are no alerts if an employee isn’t break-waived and hasn’t taken their break yet, but that doesn’t mean you won’t get hit with non-compliant fees. And if an employee forgets to clock in their break? That could be on you.

Restaurant operators need a scheduling system that takes employee breaks into account.

An all-in-one HCM platform like Harri:

Notifies managers when an employee reaches their 6th hour and is eligible for a break
Allows you to set team-wide unpaid break rules
Provides dynamic break weavers for all employees
Creates a full digital audit trail of break waiver requests and breaks taken

Our interactive break wavers ensure that all employees can easily waive or unwaive their break at any point in the workday. Templated break wavers make it clear to employees that if they work X hours, they’re eligible for an unpaid, Y-minute break. Templates also outline break waiver conditions if the worker is eligible for a 2nd break or not, eliminating any confusion.

Breakdown: meal breaks and right to rest

Similar to break requirements, employees are also eligible for meal breaks and right to rest periods.

Non-exempt employees are eligible for 10-minute paid breaks for every 4 hours worked, as well as 30-minute unpaid breaks for every 5 hours worked.

For example, if an employee’s shift reaches its 10th hour, they’re entitled to 2 10-minute paid breaks and 1 30-minute unpaid break. Once it extends past the 10th hour, they’re entitled to 3 10-minute paid breaks and 3 30-minute unpaid breaks.

Predictable scheduling

Trackable employee metrics:

Time in-between shifts — must be greater than 1 hour
Split shifts worked — each split shift is entitled to 1 hour of premium pay
Premium payments for sudden shift changes, cancellations, and split shifts

Operational must-haves:

Smart scheduling that accounts for split shift in-between hour requirements
Premium pay forecasting, warnings when premium pay is eligible in a worker’s schedule
An audit trail of premium payments paid, and why

How we got here

The restaurant industry is no stranger to erratic schedules, partially because its service demands are extremely unpredictable.

An employee can come in for an 11 am shift, expect to work until 4 pm, take a break, and pick up a dinner shift at 5 pm. But if it was an unexpectedly slow day, the employer can send them home at any time.

This becomes an issue if that employee already arranged a babysitter or when you consider time and money spent on transit — not to mention wages lost from a canceled shift. Those familiar with Fair Workweek labor laws will see these regulations come from the same heartstrings.

Intelligent scheduling: the operational guardrails

If your scheduling tools aren’t smart, you run the risk of operating severely understaffed, paying compliance-related fees, or losing track of employee overtime hours. With regulations as complex as California’s labor laws, success is dependent on data-based scheduling modules.

Harri’s intelligent scheduling tools were built specifically for the compliance nuances of the hospitality industry, including “necessary evils” like overtime — but only when it’s really needed.

Harri minimizes manual labor put into scheduling with:

Non-compliance alerts
Service demand-based scheduling
Smart employee allocations based on skills and total hours worked

We also help managers easily publish schedules 14 days in advance to adhere to predictive scheduling laws like Fair Workweek. Operate out of multiple states? Advanced schedule periods are easy to set up and change as needed.

Overtime

Trackable employee metrics:

Hours worked — +8 and +10-hour shifts are eligible for 1.5x and 2x OT, respectively
Days worked — 7th consecutive day of work is a full day of OT
Absences and if they correlate with higher OT hours for non-absent staff

Operational must-haves:

Overtime alerts when building schedules
Smart overtime calculation that automatically factors different OT tiers
An overtime reporting tool to accurately track OT payments over time
Time and attendance alerts and reporting

How we got here

Overtime can be a double-edged sword. Tipped employees making subminimum wage often opt into overtime shifts and may be reliant on OT in order to make decent wages. On the other side of the coin, expecting anyone to work multiple 14-hour per week is ridiculous, especially for labor-intensive restaurant jobs. But that’s exactly what was happening.

The same holds true for restaurant operators.

Say a few employees call in sick one day, but the rest of your available employee roster will enter overtime territory if called into work. Do you bring them in and eat the cost, or risk sacrificing customer service quality?

An interesting thing to note is that these overtime protection regulations actually lead to workplace behavior lawsuits. Managers aren’t permitted to ask employees to go home — that would be a compliance violation. However, they would do strange or unpredictable things to try and make workers want to leave, thereby reducing overtime payout.

It’s a lose-lose situation for all parties involved.

HCM tech to track, manage, and reduce employee overtime

Daily operations can quickly snowball into huge financial and operational decisions. Imagine tracking the following in a fragmented system:

You have an employee, John, who works Monday – Saturday. His Tuesday, Friday, and Saturday are doubles (8-hour shifts). John swapped shifts with another employee. Now he’s only working a single shift on Tuesday, but is also working a single shift on Sunday. Friday and Saturday ended up getting an unexpected rush of guests, so you needed John to stay on for what ended up being 2 11-hour shifts.

How many times is John eligible for overtime?

1.5x rate: Sunday, his 7th consecutive workday
1.5x rate: Friday and Saturday, any shift that exceeds 8 working hours
2x rate: Friday and Saturday, any shift that exceeds 10 working hours

Restaurants are so unpredictable that situations like this are not uncommon, but that doesn’t make them any less difficult to track. Any restaurant operator knows that you can close a day with 20 hours of team overtime, but that number can easily jump to 30 or 40 hours after reconciliation.

Harri empowers you to minimize and better understand overtime payments with:

California-specific overtime warnings including eligible shifts and OT hours per week
Premium protection: Turn off OT eligibility for volunteer shifts
Overtime reports to audit labor costs and to understand when paying for overtime makes sense operationally
Dynamic time and attendance reporting across your entire business

Employee pay data reporting

Trackable employee metrics:

Wage and wage type
Hours worked
Sex/gender
Race
Ethnicity

Operational must-haves:

Easy employee onboarding with carry-over data
Dynamic time and attendance reporting across your entire business
Non-compliance reminders for reporting deadlines

How we got here

The California Pay Data Reporting regulation was enacted to help the state better understand (and address) issues surrounding gender and race pay gaps. It also aims to identify groups that are most affected by unfair working hours.

While not mutually exclusive to the hospitality industry, service-level employees are heavily impacted by demographic-related wage differences and scheduling inequalities.

It’s expected that a restaurant manager would earn higher wages than a host or a cashier. But depending on the employer, it’s not uncommon to see two employees at the same location, position, and skill level to have dramatically different salaries.

The California Pay Data Reporting aims to erase these gaps while still maintaining a level of privacy within the workplace. On an annual basis, employers will submit employee wage data alongside various occupational and demographic statistics. If a large discrepancy is flagged, the employer must provide solid reasoning as to the difference or adjust the employees’ salaries to reflect fair wages.

More information, as well as a reporting template, can be found on the DFEH website.

HCM tech to ensure accurate, timely pay and demographic reports

The California Pay Data Reporting law applies to employers with 100 or more employees, which guarantees that most franchises and enterprise restaurants will need to provide annual data reports.

Tracking and updating employee salary information at this scale is prone to human error for several reasons. The hospitality industry is no stranger to high turnover rates. As employees come and go, adding new employee information and removing old employee information each year is incredibly time consuming.

It’s also unlikely that your employees receive raises at the same time, which means you may need monthly or even weekly updates of your staff datasheet. And if employee schedules receive frequent changes to their working hours to accommodate service demands? That needs to be updated as well.

An all-in-one HCM platform that integrates HR processes, time and attendance, and payroll data automatically compiles necessary data in one centralized location. That data is then updated in real-time as employees are onboarded and turned over, receive promotions, and make adjustments to their long-term working hours.

And if your workforce tech contains a fully-compliant, digital onboarding solution, your HR team gains peace of mind that all employee data is entered accurately even before their first day on the job. Employee data is confirmed by themself and their hiring manager, and that data is seamlessly transferred to all other HCM processes to ensure data consistency.

When it comes to mass-reporting, human errors are inevitable. Tech-enabled data collection, updating, and sending ensures fully accurate reports with minimal effort.

Easing compliance burdens with HCM tech

If your business doesn’t operate in California, that doesn’t mean you should put aside compliance concerns. The 2020 election results mean pro-labor legislation is coming down the pipeline, and nationally mandated labor laws are not off the table.

You don’t want to be left scrambling — get ahead of the game and ease your teams into these processes.

Pen and paper tracking methods are rapidly losing credibility when used to manage labor against complex Californian regulations. With an all-in-one HCM solution, managers no longer need to memorize an employee’s shift times, schedule changes, or premium payments.

But the right solution won’t just track that for you. It’ll proactively notify managers when a schedule is at risk for compliance breaches, overtime hours, or premium payments. And if that tool is smart enough, it can accurately forecast labor demands to create smarter scheduling based on historic service needs.

Restaurant operators can save time and money by forecasting:

Service peaks
What employees need to be scheduled, when
How to handle double shifts without dipping into overtime territory
If and when 2x OT payment is necessary to uphold high-quality service

Forecasting is so important. Powerful data analytics tools are an indispensable resource when juggling the many moving parts of Californian labor laws and premium payments.

A recap of California’s labor and wage laws’ impact on hospitality

There’s no one clear solution to the fundamental problem of the hospitality industry, and the 2021 California labor and wage laws will come with both positive and negative consequences.

Below are side effects, intended or otherwise, that Californian business operators and service-based employees can expect.

Reduced team meetings

Californian restaurant operators need to minimally pay staff 2 hours for coming in, even if that means for a meeting. It can be expected that team meetings will happen much less often.

Break-driven employee schedule changes

Companies get creative with breaks to avoid premium payments with minimum effort, but these tend to lend themselves to unfavorable employee shifts.

New scheduling patterns may include:

Mandate everyone a break, ensuring compliance without the hassle (bad for tipped employees)
Create minimalistic schedules so no employees are eligible for breaks

Changes in employee work priorities

Scheduling changes caused by labor compliance may cause employees to request:

Becoming salaried to avoid break mandates or other perceived hassles
Increased schedule flexibility to fit their needs (difficult for employers that are labor-strapped or running extra OT hours)

New shift structures

Overtime regulations popularized 12-8 shifts, which gave an employee the best of the lunch and dinner rushes.

We may see an increase in Mids and small-shift employees to bridge labor lulls between full-day workers while still remaining compliant.

Management changes

Hourly managers were common for the hospitality industry, and it wasn’t unheard of for those workers to clock in 10-hour shifts daily. A 55-hour workweek was normal, although some welcomed them more than others.

To avoid stacking premium payments, many employers decided to exempt them and make them salaried workers. That results in significant wage decreases due to overtime hours lost.

Employee quality of life and retention likelihood

If employees experience massive schedule changes, such as smaller shifts or reduced overtime, they may need to pick up separate jobs to earn a livable wage on hours that work for them.

But scheduling dissatisfaction is the top reason for employee turnover in the hospitality industry. Workplaces that can offer better shifts or overtime payment will find themselves attracting talent.