The question of how to pay employees is a good one. This can be approached from several different angles. So today we’re going to look at it from a 360-degree view.

Let’s start with the important points to pay employees correctly and in accordance with the local, state and federal statutes. Unless you have employees, who are strictly officers of the company, they are to be paid at least twice monthly. They need to receive their pay in the form of a paycheck or direct deposit with the correct taxes withheld for payment to the corresponding government agencies. Unless you have a qualified accounting professional to do that for you, we recommend using a reputable payroll company to take care of that.

Before paying an employee and deciding on a pay rate, they are required to be classified as exempt or non-exempt, meaning not exempt from overtime, based on their job duties and salary. The Department of Labor sets the rules for classifying employees. These classifications are not interchangeable and if not done correctly, can lead to legal problems.

Non-exempt employees should earn at least the minimum wage. Today there are over 20 cities in California that have a minimum wage for workers that work in their city. The best way to know what the city minimum wage is to check the city’s website or the State’s website for employers. If the city where your employees work doesn’t have a minimum wage requirement, then the State’s minimum wage applies. Non-exempt employees are to be paid premium pay for time they work over 40 hours in a week, or in California for time worked over 8 hours in a shift.

One of the requirements for an employee to be correctly classified as exempt is that they must earn a minimum salary that is at least twice the state minimum wage. As of January 1, 2023, the minimum salary for exempt employees in California is $64,480 per year. Please note that while an employer may hire a part-time employee and classify them as exempt, they are still required to pay them the full salary as if they are full-time.

Beyond the requirements of pay, consider a competitive wage. Many factors influence pay rates, such as location, industry, job title, experience, education level, and performance.

Employers must take these factors into account when determining pay rates for their employees. They should research industry standards to ensure that their pay rates are competitive and make adjustments as needed to attract and retain top talent.

Another aspect of paying a competitive wage, is to provide employees with benefits. From a compliance perspective, there is no requirement to provide benefits unless the company has 50 or more full time equivalent employees. Since benefits are considered to be part of an employee’s total compensation package, it is an important aspect since most employers want to attract and retain the best talent. When an employer provides medical benefits, this is considered by many employees as a must-have and is more attractive to candidates.

Pay Equity in California

Pay equity is a critical issue in our society even now. Studies have shown that pay disparities between different groups of employees still exist today. Beyond a culture issue, California passed the California Equal Pay Act (CEPA) which requires employers to provide equal pay to employees who perform “substantially similar work,” regardless of gender, race, or ethnicity. That means the requirement is not limited to job titles. That’s why they put in the wording when employees perform substantially similar work. This law applies to employers regardless of the number of employees a company has.

Addressing pay equity requires that employers must examine their pay structures and identify any disparities, as well as implementing measures to address any imbalances. This includes deciding criteria for when raises are given, how much raises will be and the bottom and top pay for each job. The best practice is to be sure that once this is done, to formalize it as a company policy and publish it to employees.

It’s important that if it is determined there are employees found to be making less than their co-workers, they be given raises to bring them up to receive equitable pay.

Additionally, CEPA also prohibits employers from retaliating against employees who ask about, discuss, or disclose their wages or the wages of others. Employers must regularly review their pay practices to ensure compliance with California labor laws and to address any pay disparities that may exist.

Paid Time Off

In addition to their regular wages, employees in many states are entitled to a certain amount of paid sick leave. These also include local municipalities that require employers to provide paid sick leave to their workers. While the Labor Code does not require employers to provide paid time off as in vacation or even paid holidays, many employers do offer it as part of their employee benefits package.

If an employer does offer paid time off, they must follow certain rules to ensure compliance with the labor laws based upon both Federal and State requirements. In California, employers must pay out any unused vacation when an employee separates from the company.

Employers should review their time off policies regularly to ensure compliance with the labor laws and to provide competitive benefits that can help attract and retain top talent.

Employee compensation is a critical aspect of any business, and it can have significant impacts on employee satisfaction, retention, and performance. Employers must comply with various laws and regulations when it comes to compensating their employees, including minimum wage and overtime laws, employee classification, and pay equity. By following these laws and regulations and implementing fair and transparent pay practices, employers can create a more inclusive and diverse workplace culture that benefits both employees and the organization as a whole.

As you can see there are many aspects of how to pay employees. Some are regulated by law and others are not. Something I learned very early on in my career is “never mess with someone’s money”. As an employer it is critical to be fair and compliant since the opposite will bring nothing but trouble.

If you’d like help sorting this out, please reach out to me. I still offer a free 60 minute consultation.