It’s true. Properly paying your California employees can set your teeth on edge. Are you doing it right, are you missing something, who gets what, when?
Well, I’m here to help. First, take a deep breath. Second, if you haven’t already, be sure to take a look at two other episodes – “How to Run Payroll for Your Small Business” and “Paying Overtime”.
That will get you started on the right path. But to help you along, in today’s episode we are going to focus on the top 7 payroll mistakes that small businesses make – so you can be on the lookout, and avoid them.
The first mistake – not paying your employees in a timely manner.
California, like most other states, has some very specific rules around how often your employees must be paid. Exempt employees – meaning those not eligible for overtime, must be paid at least once a month. If they are paid monthly, they must be paid on or before the 26th of each month – and you have to pay them a full month’s wage – even though the month isn’t done yet.
Non exempt employees – meaning those eligible for overtime, have much stricter guidelines. They have to be paid at least twice a month. By the way, both of these groups could be paid more often, these are just the minimum requirements.
So, non exempt employees have to be paid two times a month at minimum. You can either pay them every two weeks, or on a true semi monthly schedule. If it’s semi monthly, you either have to pay them no later than the 26th day of the month for work they did the 1st through the 15th; and then pay them again no later than the 10th of the following month for work they did between the 16th and last day of the month.
Now, if you don’t want to use that schedule, then you have to pay them no later than 7 days after the payroll period ends.
The next mistake is not having set pay days and communicating them to the employee. As I just mentioned, there are specific pay guidelines for both exempt and non exempt employees. Well, you’re required to establish a regular payday, and post a notice that shows the day, time and location of payment.
The next one is a big one, and it trips up a lot of people. Non exempt employees must be paid for every minute they work. And when they say every minute, they mean every minute. If it’s after hours and your non exempt employee sends a text, or makes a phone call, or answers (or actually even reads) an eMail – they have to be paid for that time.
Sometimes companies bring on new employees, and put them through a training. Those employees must be paid for that training – and this applies to all employees. Both exempt and non exempt. And, in fact it also applies to candidates. If you’re interviewing someone, and you want them to do a sample project or report, or some other work product, for you – you have to pay them for that time. And yes, I mean bring them on board as an employee and pay them through your regular payroll with regular payroll taxes etc. It may sound like a big hassle, but that’s the requirement. The main reason for all this is because when an employee works without getting paid, they are volunteering. And employees can’t volunteer for their employer.
“…when an employee works without getting paid, they are volunteering. And employees can’t volunteer for their employer…”
And while we’re talking about being paid for all time worked – be sure you carefully calculate overtime and double time, if it applies. In California, overtime kicks in after 8 hours in a day, and after 40 hours in a week, and for the 1st 8 hours on the 7th consecutive day worked. Double time kicks in after 12 hours in a day and time worked after 8 hours on the 7th consecutive day worked.
The next mistake is an easy one to fall into – the meal penalty assessment. Again, in California non exempt employees must take a minimum 30 minute meal break for every 5 hour shift worked. There are some very narrow exceptions, but basically they all have to take the meal break. Now, if that doesn’t happen because the company didn’t provide ample time, or the take less than 30 minutes – then the company is automatically fined 1 hour’s wage as a penalty. The penalty has to be added and paid that payroll run to avoid further liability for the company. So, when you are processing payroll, you have to pay attention to when the meal period was taken and how long it was. Then add any required penalty assessment into the payroll.
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Next up – non compliant pay stubs. Our pay stubs are required to have very specific information. They have to show the company’s legal name, address; the employee’s name and employee number or social security number. The pay period and pay date must be clearly stated. It also has to have each pay rate that was used to calculate payroll, and the number of hours that was worked under each rate, as well as the total hours worked. Then it also has to show gross wages, all itemized deductions and the net wages as well.
And finally, one of the biggest payroll mistakes is not paying final wages in a timely manner. Basically, whenever you let someone go, you have to give them all their earned wages right then and there. And it can’t be direct deposit because any direct deposit that is on file becomes void upon termination. So you need to cut a check. And each day you miss, you owe another day’s pay – up to a maximum of 30 days. And remember, that final pay has to include vacation pay as well.
And there you have it – if you stay clear of these 7 payroll mistakes, you’ll be in pretty good shape.