California Restaurant Labor Laws | A Step-By-Step Guide
California has a vibrant and diverse restaurant industry, from Michelin-starred dining experiences to trendy cafes. However, for those running the show in the background, staying legal and compliant often requires more than just a passion for food. Not only does California have a thriving restaurant industry, it also happens to have some of the toughest labor laws in the U.S. According to a study conducted by Rutgers University, the minimum wage violation rate increased by 56% between 2022 to 2023 in California’s four major metropolitan areas, San Francisco, Los Angeles, San Diego, and San Jose. While navigating these comprehensive laws can be tricky, they’re crucial to protect both employers and employees.
In this step-by-step guide, we’ll be breaking down everything you need to know to ensure you’re staying on the right side of the law when it comes to managing your employees. From minimum wage and overtime to meal breaks and tip pooling, we’ve got you covered.
Table of Contents
- Introduction
- Labor Lawsuits and Penalties
- Payroll and Tip Pooling
- Mileage
- Split Shifts
- Overtime
- Time Tracking and Rounding
- Meal and Rest Breaks
- Key Takeaways
1. An Introduction to California Labor Laws
Compared to other states and federal labor laws, California’s labor laws are some of the most worker-friendly in the nation. Although many labor laws are in place to protect workers, this doesn’t necessarily have to translate to an “us vs. them” mentality – the key here is to foster a culture of respect, going both ways.
Focusing on educating yourself and your management team about the most up-to-date labor laws in California is a great first step to take. Beyond that, staying compliant and treating employees fairly will slowly build trust, which goes a long way in a relationship-based industry like hospitality. Just as guests expect consistent service and quality with every visit, employees expect equality and fairness from their employers.
Whether you’re new to the restaurant industry or a pro, we’ve compiled all of the California labor law essentials in this guide. Keep reading to learn more!
2. California Labor Lawsuits and Penalties
With strict labor laws, California takes any violations seriously. In January 2024, a restaurant operating four locations in Manteca, California, was ordered to pay back $824,405 in wages and damages to 102 workers after the U.S. Department of Labor found that the company failed to pay their employees overtime. Unfortunately, some common labor law violations, such as wage theft, paid rest break violations, and paid sick leave violations, are still rampant in California despite their strict laws. Based on a study released by Harvard University and UC San Francisco, they found that:
- 58% of surveyed California workers experienced paid rest break violations.
- 46% of surveyed California workers experienced one serious violation of the Fair Labor Standards Act (FLSA), including not being paid for all hours worked, not receiving overtime pay, being paid less than minimum wage, working off the clock, or not being paid earned bonuses, tips, or for paid time off.
- 41% of surveyed California workers experienced violations of their mandated paid sick leave.
Whether violations are intentional or accidental, penalties can be charged if the employee files a claim. Here are some penalties you could be charged with by the Labor Enforcement Task Force (LETF) depending on the infraction:
- Failing to Pay the Minimum Wage or Overtime: All wages owed, plus penalties.
- Failing to Provide Rest and Meal Breaks: All wages owed, plus penalties.
- Failing to Provide a Pay Stub: $250 per employee each time they’re paid.
- Misclassifying Employees as Independent Contractors: $5,000 to $25,000 fine per violation, plus unpaid payroll taxes.
- Violating Health and Safety Rules: Up to $25,000 for each serious violation and a possible shutdown of operating equipment.
- Punishing or Retaliating Against Workers: All wages owed, along with a fine of up to $10,000 per employee, and workers get their jobs back.
- Failing to Have Workers’ Compensation Insurance: A fine of $1,500 or more per employee, and no employees can work until everyone is covered.
Depending on the severity of the violation, you may face lawsuits and even jail time. These are serious consequences, which is why staying up-to-date and compliant with labor laws should be a priority. Instead of taking on a reactive approach with backtracking and adjustments, proactive compliance can help you avoid any potential headaches down the road.
3. Payroll and Tip Pooling
In California as of January 1, 2024, the state minimum wage is $16.00 per hour for all employers, which includes restaurants. However, fast food restaurant employees are now covered under a new law that requires them to be paid at least $20.00 per hour starting April 1, 2024.
While federal law allows the minimum wage for tipped employees to be as low as $2.13 per hour, California employers are still required to pay all workers the minimum rate of $16.00 per hour, even if they’re tipped employees. Any tips or gratuities given to employees are theirs to keep on top of their minimum wages earned. It’s important to keep in mind that it’s illegal for employers to make any wage deductions from gratuities, including using them as direct or indirect credits against an employee’s wages.
Reporting Time Pay
Some days, your restaurant might not be as busy as you thought it would be. In these cases, it’s relatively common to send some employees home to reduce labor costs for a quiet shift. However, in California, you’re required to pay “reporting time pay” to employees who are scheduled to report to work but are sent home early with inadequate notice. This rule stipulates that if you send an employee home early, you’re required to pay them for half of their scheduled day’s work. This compensation shall be no less than two hours of pay, and no more than four. So, while you may be thinking you’re saving on labor costs by sending employees home early – remember your obligation to pay reporting time pay.
Tip Pooling and Eligibility
According to California Labor Code Section 351, “every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.” While the laws don’t explicitly cover tip pooling, it’s been interpreted to allow tip pooling policies as long as the tips and gratuities aren’t going toward any owners, managers, or supervisors. Generally, the tip pooling policy must be “fair and reasonable.” Employees who provide “direct table service” or who are in the “chain of service” impacting the guests’ overall experience are typically eligible for tip pooling. This could include a fairly wide range of employees from front-of-house to back-of-house.
Establishing a Tip Pooling Policy
Although there aren’t exact rules and regulations on creating a tip pooling policy in your restaurant, the distributions must be fair. For example, front-of-house employees who deal directly with customers should receive a bigger share of tips in comparison to back-of-house employees. Additionally, management personnel are typically not allowed to participate in tip pooling even if they provide direct table service to a guest or are in a chain of service.
Keep in mind that if tip pooling policies aren’t fair, then it could be a potential violation of the Labor Code 351 and considered a misdemeanor crime. The penalties for this violation include a fine of up to $1,000 and/or 60 days in jail.
Tips vs. Regular Wages
When managing tipped employees, the lines between tips and regular wages can often get blurry. One of the most common misconceptions is that service charges are treated the same way as tips and gratuities. Contrary to popular belief, the IRS requires employers to report service charges, including automatic gratuities, differently from tips.
When it comes to reporting tips, employers have to keep employee tip reports, withhold employee income taxes, and the employee share of Social Security and Medicare taxes based on wages and tip income received. On top of that, employers also have to pay the employer share of Social Security and Medicare taxes based on total wages and reported tip income. This information must then be reported to the IRS. Service charges, on the other hand, are treated the same as regular wages for tax withholding and filing requirements.
While service fees may seem relatively common, California’s new junk fee ban (SB 478), which will take effect starting July 1, 2024, is expected to virtually eliminate unexpected fees for customers. As of now, the only exception to this law is surcharges that go entirely to the restaurant’s employees, like an automatic gratuity charged for large parties.
4. Mileage
According to California Labor Code Section 2802, employers must reimburse their employees for all necessary expenses incurred as a consequence of their duties. Simply put, any task that requires an employee to use their personal vehicle other than for normal commuting has to be reimbursed. For restaurants, this law is mostly relevant for delivery drivers, employees who are tasked with picking up items, or catering staff. Refusing or failing to reimburse employees for these expenses can lead to penalties and even lawsuits.
2024 Mileage Reimbursement Rates
Although there’s no minimum rate for mileage reimbursement under California law, the IRS issues federal standard mileage rates every year as a guideline for employers. The yearly standard mileage rate is calculated by the IRS based on an annual study of the fixed and variable costs of operating and maintaining a vehicle.
As of 2024, the IRS issued the standard mileage rate of 67 cents per mile driven for business use. This is the rate for cars, vans, and pickup or panel trucks, regardless of whether the vehicle is electric, hybrid, gasoline, or diesel-powered. The federal mileage reimbursement rate is the gold standard since an employee could argue in a lawsuit that they’re being undercompensated. The IRS provides these standard rates for a reason and reimbursing employees with a lower rate could potentially lead to trouble.
Establishing a Mileage Reimbursement Policy
If your restaurant business requires employees to use their personal vehicles for work purposes, it’s important to establish a clear and transparent mileage reimbursement policy. Once you’ve chosen a fair and reasonable mileage rate, define trips that would be eligible for reimbursement. For example, every delivery a pizza delivery driver makes could be defined as an eligible trip. Next, determine what documents you’d like your employees to provide when requesting reimbursement. This could include a mileage log app or a simple paper form detailing the date, purpose, and distance driven.
By establishing clear rules upfront for this policy, you can ensure fair compensation for your employees and streamlined record-keeping for anything mileage-related.
5. Split Shifts
Split shifts tend to be common in the restaurant industry with meal rushes at three different times of the day. While these meal rushes can be a big money-maker for restaurants, the periods in between are usually slow and less staff is required. That’s when split shifts can be a game-changer for restaurant owners and managers. To lower labor costs, one employee is scheduled for two separate shifts within the same day – only getting paid for the times they’re scheduled, which are the high-volume periods.
What Qualifies as a Split Shift?
The California Department of Industrial Relations defines a split shift as “a work schedule that is interrupted by non-paid and non-working time periods established by the employer.” Beyond that definition, an employee’s schedule must follow these rules for it to be considered a split shift:
- The two shifts need to be on the same day.
- The period between the two scheduled shifts must be longer than a meal period (30 minutes).
- The period between the two scheduled shifts cannot be a meal or rest break.
- The split shift must be to the benefit of the employer.
- If an employee requests a break for their own convenience, this is not considered to be a split shift.
The Split Shift Premium
Although split shifts can be a great solution to reducing labor costs, restaurant owners need to be aware of the “split shift premium” that’s mandated by the Industrial Welfare Commission Wage Orders 1-15, Section 4. The split shift premium is equal to one hour of pay at the rate of the state minimum wage, or the local minimum wage if there is one, whichever is greater. If an employee voluntarily picks up another shift, they’re not owed a split shift premium.
If you make more than minimum wage, any wages earned over the minimum wage are credited toward the employer’s obligation to pay you a split shift premium. This means that the greater your wage is, the lower the split shift premium will be.
As an employer, it’s your legal responsibility to keep track of employee time and payroll records, which includes split shift premiums.
6. Overtime
In the restaurant industry where profit margins often feel razor-thin, overtime can feel like a pain to your company bank account. While there are ways you can manage overtime costs, sometimes it can be unavoidable. During these times, you’ll want to be prepared and up-to-date on the current overtime laws.
Overtime Eligibility in California
In California, employees are entitled to daily or weekly overtime pay at a rate of one and one-half times their regular rate of pay. Below, we’ve outlined the basic circumstances under which an employer would be required to pay overtime:
- The employee must be nonexempt.
- If the employee works more than eight hours in a day, the regular overtime rate is paid for all hours worked in excess of eight hours and up to and including the 12th hour.
- If the employee works more than 12 hours in a day, the overtime rate is double the employee’s regular rate for all hours worked in excess of 12 hours.
- If the employee works more than six days in any workweek, the regular overtime rate is paid for the first eight hours worked on the seventh consecutive day and overtime at the double rate is paid for all hours worked in excess of eight hours.
- If the employee works more than 40 hours in any workweek, the regular overtime rate is paid for all hours worked in excess of 40 hours.
7. Time Tracking and Rounding
When it comes to tracking your employees’ time, rounding it up or down to the nearest quarter of an hour may seem standard. It’s even permitted by the FLSA, as long as the employer doesn’t always round down. For example, time from one to seven minutes may be rounded down, but time from eight to 14 minutes must be rounded up. Despite being a fairly common way to round time, this regulation was written in 1938, back when most employers used paper punch cards to track employee time. Nowadays, modern time tracking technology can track employee clock-ins and clock-outs by the minute.
Even though time rounding is legal on the federal level, the California Supreme Court ruled in favor of the employee in the case Woodworth v. Loma Linda Univ. Med. Ctr. in July 2023. The court ordered the employer to pay the employee for “all the time” worked, explaining that employers have access to technology that allows them to easily and precisely capture time.
Time Tracking Requirements in California
As an employer in California, business owners are required to keep accurate records of information with respect to each employee for at least three years. These records include:
- Timekeeping records that show the start and end times of each work period, including split shift intervals, overtime, and total daily hours.
- Total wages paid each pay period.
- Meal and rest breaks taken during each work period.
- Pay stubs that include information such as the number of hours worked during the pay period, the rate of pay, any overtime calculations, and deductions.
Keep in mind that an employee’s records must be accessible to that employee upon reasonable request. This means that employees have the right to see their timekeeping records if they suspect that they haven’t been paid correctly or fairly.
With time tracking, it’s important to be on the same page as your employees when it comes to shift start and end times. If you need to make any adjustments on an employee’s timesheet, it’s best practice to ask the employee to sign off on it, so they’re aware of the change. Whether someone clocked in too early or forgot to clock out, any manual changes should be verified and mutually agreed to. Remember that transparency goes a long way when avoiding any discrepancies or miscommunications.
8. Meal and Rest Breaks
Humans aren’t robots, and they shouldn’t be expected to work like one either. Employees need breaks throughout the day, especially in a physically demanding job. Often, they get overlooked during busy meal time rushes, but this isn’t an excuse to forget about meal and rest break compliance. As an employer in California, you’re required to stay on top of this and ensure everyone gets the breaks they deserve.
Meal Breaks vs. Rest Breaks: What’s the Difference?
Based on California Labor Code Section 512, a meal break is an unpaid break of no less than 30 minutes. Employees who work more than five hours per day are entitled to a meal break. If an employee is working more than five hours, meal breaks must be spaced out so the employee isn’t working more than five consecutive hours without an eating period. If an employee is working more than 10 hours, the second meal break has to be taken before the tenth hour of the shift, but can be waived if the shift is less than 12 hours, the first meal break wasn’t waived, and both employer and employee agree to it.
On the other hand, rest breaks are 10-minute paid breaks that must be provided for each four-hour shift. Breaks should be uninterrupted and be taken as close to the middle of the shift period as possible. Rest breaks are similar to meal breaks, but they are shorter and paid.
Below, we've included a table to make meal and rest breaks easier to understand:
Meal and Rest Break Violations and Penalties
If an employee doesn’t end up taking a meal or rest break during their shift, you’re required to pay a penalty equal to one hour of the employee’s regular rate. One exception is when the employee’s shift is no longer than 6 hours and both the employee and the employer mutually agree and consent to waive the meal break.
9. Key Takeaways From California Restaurant Labor Laws
California’s vibrant restaurant scene is fueled by happy employees and satisfied customers. One of the first steps to take toward a dedicated and loyal workforce is making sure that you’re following labor laws. These laws are put in place to protect both you and your employees and adhering to them builds a culture of trust and respect. When your employees are happy, this translates to positive experiences for your guests, leaving them coming back for more. With an ongoing commitment to labor law compliance, your California restaurant will be known for both delicious food and ethical business practices.
Labor law compliance doesn’t have to be complicated with Push. Our all-in-one people management software is designed especially for restaurants to streamline your operations. From hiring and onboarding to time tracking and payroll, we’ve got it all covered for you. Book a demo with us today to see just how simple HR can be.
This document is provided by Push Technologies Inc. ("Push Operations") for information purposes only. This is not an official or legal document and should not be taken as legal advice. Push Operations does not guarantee or warrant the accuracy or completeness of the information provided. For the most accurate and up-to-date information, please check with the proper governing authority.
