Welcome to the guide, everything you need to know about California labor laws for dispensary owners, and how to optimize your labor cost by staying compliant with them!
In comparison to other states and federal labor laws, California labor laws are complex and are largely in an employee’s favor. However, this doesn’t mean that every employer should be bending at their will to their employees’ demands.
Rather, it’s about educating yourself and your management team with the best up-to-date practices of California compliance laws and treating employees fairly. Trust goes a long way in a relationship based industry like cannabis. Much like how guests expect the same consistent service with every return visit, employees expect equality and fairness from their employers.
California labor laws are rules set up to protect the employee of any California establishment. These are typically hourly workers, or non-exempt employees.
California has arguably the most pro-worker employment laws in the country and workers are entitled to numerous rights and protections under California labor law, and can recover large penalties if employers violate those rights.
Violations are easy to fall into, especially if you’re unsure. In the case where an employee feels that they’ve been underpaid, if an employment lawyer approaches a group of unhappy employees; or if the employee contract was simply unclear, the menace of a class action lawsuit is significantly likely to happen.
Long story short: no matter the circumstance, intentional or accidental, class action lawsuits are costly and can be easily avoided with the knowledge of California labor laws.
The first step of solving a problem is acknowledging it exists. When it comes to labor compliance, the “ fly by the seat of your pants” mentality won’t work. Backtracking and making adjustments on future pay dates or future schedules isn’t the best method in fixing recurring problems. Now that we’ve established why understanding California labor laws is crucial, here are the areas of employee labor laws that you should be conscious of when operating a dispensary:
In the state of California, every employee is required to paid minimum wage. Though federal laws and other states allow tipped minimums, the state of California does not. In an employee favorable state like California, any employer who employs 26 or more employees has to pay each of their employee no less than eleven dollars ($11.00) per hour for all hours worked (2011). Employers who employ 25 or fewer employees, have to pay to each of their employees no less than ten dollars and fifty cents ($10.50) per hour for all hours worked (2011). Therefore, tips are paid on top of an employee’s minimum wage.
The first step of compliant tip sharing practices, is establishing tip pool rules. Any gratuity left by a guest, customer and patron are the sole property of an employee or the employee who the tip was left for. Employees are not liable to pay for credit card processing fees and under no circumstance can an employer deduct the fee amount from an employee. Employers are solely responsible for processing charges.
Generally, if a business charges a service fee for a large reservation, that amount is not qualified as a gratuity. However in local jurisdictions like Santa Monica, the service does qualify as gratuity. This is where is gets complicated.
Under Federal law, service charges and tips are taxed differently. Any portions of a service charges given to employees, are qualified as regular wages and must be taxed the same.
All tips (cash or non-cash) are taxed in a different way therefore they must be properly allocated. Tip amounts are not included in overtime calculations and employers are required to keep accurate records of all tips and provide every employee with a tip report (if requested).
When establishing tip pools, the second step is see which employees qualify as tip-eligible. According to California’s Labor Code Section 351, “no employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron…”
Prior, only employees who directly deal with customers are allowed to be in a tip pool.
As of March 2018, any employees paid minimum wage are eligible to be in a tip pool. This includes kitchen staff, whereas prior only wait staff or employees who interacted with guests were allowed to participate in tip pools.
Generally, management personnel are not tip eligible and they are qualified as “agents.’
In this case, agents are defined as “every person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees;".
Employers are defined as "every person engaged in any business or enterprise...that has one or more persons in service under any appointment, contract of hire...expressed or implied, oral or written, irrespective of whether the person is the owner of the business.”
There are no written rules on how much should be distributed to each employee. However the distributions must be fair. A court case regarding tip pools reached a conclusion where "a mandatory tip pool should only be sustained under Labor Code, section 351 when it works a fair and equitable distribution among the employees who participate in the tip pool.” In short, front of house employees should have a larger portion of a tip pool as they spend a larger amount of time directly interacting with guests, in comparison to back of house employees.
Tip pooling practices must be fair, in regards to distribution and equality. If they aren't, they not only violate the Labor code, but they are also no different than withholding employee pay.
Generally management personnel are not allowed in tip pools, however courts have ruled in the favor of managers that perform the same work as employees 90% of the time. In this specific case, tips were collected by a general tip jar. If an employer fails to comply to the tip sharing rules, they are subject to a fine of up to $1000 and/or imprisonment of 60 days. This is on top of any funds that they may have to pay an employee if it is brought to court.
As per California’s Labor Code Section 2802, employers must reimburse their staff for all reasonable expenses that incur while on duty. This can range from delivery driving expenses (gas and wear-and-tear of a vehicle) to picking up an item for your business. Anything that requires an employee to use their personal vehicles other than their normal commuting is required to be reimbursed. And failing to pay these expenses is an easy path to a class action lawsuit.
For every mile of business travel driven, the current federal reimbursement rate for mileage is 54.5 cents . This has been calculated by the IRS based on an annual study of the fixed and variable costs of operating an automobile. Under the Federal law, mileage reimbursement is not required. But in an employee friendly state like California, employers must reimburse employees for all reasonable time spent driving outside of their commute to and from their workplace. In the hospitality industry, the most notable reimbursement is mileage, specifically for delivery drivers.
It’s crucial to note that 54.5 cents is the minimum rate for reimbursements federally. Under California law, there is no minimum but in the case of a class action lawsuit, an employee can argue that they are being under compensated, according to the Society for Human Resource Management. In this case, the importance of a policy here is important. It's crucial to provide a policy in which employees and employers are under the mutual understanding of an agreement. This, should always be in the best interest of the employee and to protect the employer.
If you are a multi-state business with locations in California, it would be a smart and proactive choice to implement a mileage reimbursement policy for all your locations. This will be a competitive advantage for an industry that has high employee turnover; and it'll eliminate the risk for class action lawsuits due to being non compliant.
Joe is a delivery driver. He has signed an agreement for a 80.4 cent mileage reimbursement for his vehicle’s wear and tear, gas, and mileage. On a day’s shift, he has driven 44.7 miles. Included in his mileage, is a 2 mile trip to and from his home as he had forgotten his credit card. In this case, his employer only owes him a 42.7 mile reimbursement as the trip to and from his home was not work related.
To calculate his reimbursement:
Joe is a delivery driver. He has signed an agreement for a 80.4 cent mileage reimbursement for his vehicle’s wear and tear, gas, and mileage. On a day’s shift, he has driven 44.7 miles. Included in his mileage, is a 2 mile trip to and from his home. Earlier in his shift, his co-worker had forgotten to bring his hat, which is a part of his uniform. Joe has an extra hat at home and his manager asks Joe to go home to get it. In this case, the reimbursement will also include the additional 2 miles as the trip to and from his home was work related.
To calculate his reimbursement:
A cost effective solution to mileage reimbursement could be leasing a vehicle for your employees’ work duties like deliveries, if you’re paying more than the federal minimum.
The break even point is:
In short, if your delivery driver drives more than 1125 miles per month, and you are paying a mileage reimbursement of more than $0.60 per mile, it would be a more cost effective idea to lease a vehicle for them to use. However, based on the parameters above, any less than 1125 miles per month would equate to more than $0.60 per mile in cost.
In short, to cover your interests as an employer, look into implementing a fair and understandable reimbursement policy to provide employees with the best benefits. Not only will this proactive step protect your employee’s rights, but it will also strengthen your goal of being compliant.
When scheduling the same employee for two different shifts within the same day, there are more liabilities and payroll penalties that any dispensary owner can be subject to; especially if they aren’t careful.
In every fully operating dispensary, there are generally varying busy times. But when these periods die down, this also means that a store is generating low sales… and if there are low sales, this means that labor costs will also be lowered as well. This is where split shifts come into place. To cover costs, dispensary owners will generally schedule one employee for two shifts. However, California labor laws don’t make this easy.
If an employer wishes to schedule an employee for two shifts within one work day, the shifts must obey the following rules (as per the The Industrial Welfare Commission):
The other half of complying by the California labor code, is ensuring that employees are paid the appropriate premiums. When a minimum wage employees works a split shift, they are entitled to a split shift premium that must be paid for each split shift schedule (one premium per work day)
However, the State of California’s Department of Industrial Relation notes that “Any money earned over and above the state, or local, minimum wage will be credited towards the employer’s obligation to pay the split shift premium.”
This means, employees who are paid more than minimum wage are also eligible for a split shift premium however the premium is lower for higher wages.
If Jane works an 8 hour split shift and is paid $13/hour ($104 total wages). She is not eligible for extra pay as her wages exceed the minimum wage pay (($11 x 8) + $11 = $99).
The premium is calculated as one hour’s pay at the minimum wage shall be paid in addition to the minimum wage for that workday, except when the employee resides at the place of employment. Employees who voluntarily pick up a secondary shift, are not owed the split shift premium.
Whenever an employee is required to block off time to complete work related activities, like remaining on-call or attending mandatory meetings when unscheduled, employers are required to pay employees the time spent on work related activities. This law particularly addresses the issue of when unscheduled employees’ are required to come into their workplace for mandatory meetings during their time off (see the case of Aleman v. AirTouch Cellular).
Employers are also required to pay an employee a daily minimum, particularly if an employee is sent home early. And if scheduled split shifts total to more than 10 hours within a work day, employers must also comply to the “spread of hours” rule. This means, if an employee works a total of more than 10 hours, they're entitled to a minimum of one hour of pay at their regular rate.
In the case where an employee is sent home early, or less than half of the total scheduled hours, the employee is entitled the pay of half of the scheduled shift; but is no less than two hours nor more than 4 hours, at the employee’s regular rate of pay (no less than minimum wage).
If the employee is sent home less than two hours on their second shift of one workday, then they are eligible for two hours at their regular rate of pay (no less than the minimum wage).
Joe is scheduled to work from 10am - 4pm and 6pm to 9pm. During his first shift, Joe is sent home early at 2pm. In this case, he is not entitled to the minimum two hour pay requirement. Joe has already worked more than half of this regular shift. If he had been sent home at 11:30, then he would have been eligible for a minimum of two hours of his regular rate of pay.
During his second shift, Joe is sent home at 8pm. As he has already worked for more than half of his scheduled time, he is not entitled to the minimum two hour pay. However, if he had been sent home at 7pm, he would be entitled to two hours of his regular pay.
As a dispensary owner, educating yourself on the rules and regulations around labor laws, especially in regards to scheduling, will save you a headache in the long run. Creating an employee schedule for a dispensary seems like a simple task but when labor laws regarding split shifts, meal and rest periods, and overtime are thrown into the mix, maximizing your labor cost whilst turning a profit isn't so easy. Employer's aren't required to pay these minimums but fully understanding labor laws will allow you to scheduling thoughtfully, and strategically.
As an employer, you may find yourself paying a lot of overtime. But the question is, are you paying it correctly? Are you overpaying or underpaying? Or are the amounts being paid-out the correct kind (weekly vs daily overtime). Overtime is one of the biggest costs of managing labor, and any mistakes in payment could potentially lead to a class action lawsuit.
In this case, it is key to inform yourself of when and how overtime is eligible, and when it is paid out.
In California, employees are entitled to either weekly overtime pay or daily overtime pay. This is where is gets tricky for business owners who own establishments in multiple states. California is one of the few states that allow weekly and daily overtime. Under Federal law, only weekly overtime is observed. However, in California, both weekly, and daily overtime are observed.
Daily overtime refers to hours worked over 8 hours in a work day. Anything over 10 hours a day and any hours worked past eight hours on any seventh day of a work week is subject to double overtime (2x an employee’s average rate).
Weekly overtime refers to the hours worked over 40 hours in a work week. Any hours over 40 per work week (designated by the employer), and the first eight hour worked on the seventh day of work in any work week, will be considered and compensated as time and a half pay; where an employee is owed their average rate multiplied by 1.5. Generally, pyramiding or double dipping overtime hours is not allowed in California.
This means employees receive the premium pay for whichever overtime amount (weekly or daily) totals to the greater amount.
Overtime pay is calculated by taking an employee’s average rate and multiplying it by the applicable amount (one and one-half times the employee’s regular rate of pay or double the employee’s regular rate of pay).
To better understand overtime calculations, here’s an example: Jane works
Monday: 11 am to 8 pm
Tuesday: 11 am to 8 pm
Wednesday: 10am to 6pm
Thursday: 3pm to 12am
Friday: 3pm to 12am.
Jane reaches her weekly OT threshold at 7pm on Friday. Hours worked from Friday at 8pm to the end of her Saturday shift will total to her weekly overtime amount.
In this case, Jane is owed 13 hours of overtime pay as it is the greater amount.
If an employee works multiple positions but it paid $10/hour for all positions, their average rate remains at $10/hour. However, it becomes complicated when an employee works multiple positions at different rates, or receive recurring bonuses, etc.
If an employee works multiple positions and reached overtime in the work week, you will need to take the weighted average of their hourly rates to determine their overtime pay. Bonuses like an attendance bonus on weekends, must be also be included in overtime pay.
To further understand how overtime time works, here’s another example using the scenario from above:
Jane worked as a host at $10/hour from Monday to Wednesday, and as a server at $9/hour on Thursday to Saturday. She received a $100 bonus for selling a certain number of desserts in her shift. To calculate Jane's average rate, her hourly rates are divided by the total number of hours worked.
Her bonus is calculated by taking her dollar amount divided by the hours worked.
Therefore, her total overtime pay equals to:
The examples provided above are simple situations that may happen in the environment in which overtime may occur. The crux of paying overtime, is being meticulous and extra careful with overtime calculations - especially when cases of bonuses are taken into account. As an employer, it's crucial to ensure that you’re taking the right steps to calculate overtime properly and accurately.
When it comes to rounding hours, staying compliant can be a slippery slope. In a state like California, where labor laws are in high favor of employees, business owners and employers should be aware of the strict rounding policies.
Though rounding policies are allowed under Federal law, the Code of Federal Regulations states that rounding policies are only allowed, when presumably, the policy averages out the employee’s clock times, so that they are fully compensated for all the time they actually worked. Rounding policies should never withhold pay from employees and when used for enforcement purposes, rounding policies can only be used in a manner that will not “result, over a period of time, [to fail to] compensate employees properly for all the time they have actually worked.”
The first step of properly managing employee hours and pay, is to have the proper tracking methods. As an employer in California, business owners are subject to keeping accurate records of information with respect to each of their employees with some of the following:
Employee records are also required to be accessible to employees upon reasonable request. This, especially when rounding hours or for making clock changes. As a precaution, ensure that both you, and your employees are under the same agreement in regards to start and end times, the best practice is to make sure employees sign off on any clock changes. For example, grace periods. In California, there are no mandatory grace periods. But as an employer you may choose to provide an employee with a 10 minute grace period for when they clock out. This grace period is voluntary and you’ve done so to grant employees flexibility when clocking in and out. However, the rounding policy you’ve adopted is to round to the nearest 10th of an hour (every 6 minutes to the hour).
If Joe is scheduled from 10am to 5pm, and he clocks in at 10:02am, you’ll round down to 10:00am. If he had clocked in at 9:58am, you’ll round up to 10:00am. The key here, is to ensure that Joe does not work within the 2 minutes he clocked in early. And if you had asked Joe to work two minutes, you would not use the rounding policy and pay him for all time worked. Any changes to an employees clocked hours, without mutual understanding via heir verbal agreement or written permission, can cause a ripple effect to a class action lawsuit. Especially if you're adjusting and rounding hours without an employee’s knowledge or understanding.
And making adjustments to clock entries or employee pay can be for a lot of reasons.
Whether employees clock out after they've actually stopped working, or even if someone just simply forgot to clock out, any changes to employee hours (and ultimately their pay) should be verified and mutually agreed too. Meaning, adjustments can’t be made on a whim, or in one-off cases. Your clock rounding policies should be fair, transparent and honest. If you change employee’s clock time without their understanding, they have every right to request their employee records and move forward with a class action lawsuit if they’ve found that their hours have been unfairly rounded or adjusted.
Always remember that labor laws are generally in favour of your employees. Meaning, being an employee friendly business is more than a bonus; it's a requirement. Labor compliance laws set the standard of what your employer practices should be; and in a chaotic environment like a dispensary, it's a competitive advantage when retaining employees. Though it’s one aspect of labor management, break compliance is a one of the biggest menace of dispensary businesses; especially in California. The laws are blurry, complex, and the meal and rest periods are hard to manage.
But the first step of managing the beast of meal and rest periods, is fully understanding its rules, regulations, and calculations. We’re always working to make work easy for dispensary owners, so we've put together a quick guide to meal and rest periods in California:
Employees are entitled to two meal periods at a full 30 minutes each when they work a 10 hour shift. The second meal period may be waived only if:
In short, for every 6 hour shift worked, an employee is eligible for a 10 minute paid and uninterrupted rest period and a 30 minute uninterrupted meal period, unless the meal or rest period is mutually waived by the employee and employer.
Meal period violations are easy to come across and penalties can be hefty. Some examples of cases where an employer would need to pay a meal period penalty are outlined below:
The penalty is put in place in order to protect employees and allow them to fully rest for 10-30 minutes and it enforces employers to grant opportunities for employees to have a break.
Peter is scheduled to work from 11:00am to 7:00pm. As he works an 8 hour shift, he is entitled to one unpaid 30 minute meal period, and two 10 minute rest periods. His scheduled breaks are as follows:
At 2:50pm, Peter is asked by his manager to work through this rest period due to a overflowing lunch rush. Peter agrees, and works through his rest break. A rest period premium, which is equivalent to one hour of Peter's“regular rate,” will be given to him in return. In this scenario, Peter's manager technically did not provide him a undisturbed break and made the conscious decision to pay him the rest period penalty instead.
At 3:15, Peter is prompted by his manager to prepare to take his unpaid meal break. He is in the middle of serving a large party, and decides that he does not want to go on his meal break. Peter's manager allows this; therefore they have both mutually agreed to waive the break.
In this scenario, his employer does not have to pay a meal period penalty, as Peter was provided with a meal period but he chose not to go (Brinker Restaurant Corp vs Superior Court, p. 35 [fn]. 19, 2012). Any waived breaks do not require a written agreement. However a meal waiver form is a great tool for Peter's manager to cover his bases as an employer and to track and manage waived breaks.
If a rest period or a meal period was not provided throughout Peter's entire shift, he is entitled to two extra hours of pay at the his regular hourly rate, at the most (one for the meal period and one for the rest periods). Meal and rest period penalties are required for each workday, not each occurrence per day.
It gets tricky when the act of waiving breaks comes into play. Employers must provide the opportunity for employees to have a meal break. However, if the employee chooses not to go when the break is offered then the employer is no longer liable to pay a meal period penalty.
Meal period waivers in this instance are used as preventative measures to class action lawsuits.
Meal break waivers are not legally required, but they're a precaution that can be taken to prevent class action lawsuits.
And they should include 3 key things:
However, please note tat
Our recommendation for success? Three key factors will play a huge part in your dispensary operations staying compliant.
Only when you fully comprehend how something should work, will you able to truly succeed in executing it. There is a lot to learn, we recommend joining our webinar to stay on top of the latest, or hiring a lawyer to help you succeed.
After identifying what the rules you need to follow are, be sure to find where you struggle, so you can create fool proof systems to mitigate legal issues in the future.
Creating systems, investing in software, and learning how to stay up to date are all key factors in succeeding
Though we may be biased, software may be the answer to streamline California labor law compliance. However, this doesn’t mean the answer to your problems will be in a quick Google search to find a suitable software vendor.
Rather the first step should be you reflecting on the issues that are plaguing your day-to-day operations. Are you having trouble tracking your overtime? Or do you issues with tracking meal and rest periods? Or are you spending too much time calculating mileage for your delivery drivers?
Software is space where you’re able to find something that fits you. Once you’ve identified our problems, you can find software that solves the issues you may be faced with.
But sometimes software isn’t the solution. If you’re operating a single location with 10-15 employees, you may only need a great general manager and a bookkeeper to stay compliant. This is why identifying your problems is a key aspect of success. You can only fix what you’re aware of!
California can be a difficult state to a dispensary due to complex California labor laws that are heavily in favour of employees.
KayaPush is a labor management platform that streamlines your operations, and helps you ensure you are staying compliant with labor laws.
If you’re looking for a simple solution to a complicated problem, book a demo today!
Although we aren't lawyers, we did connect with one of the top attorneys in California to collaborate on a compliance webinar for your business!
Sign up below for the upcoming webinar featuring the California labor law expert, Beth Schroeder, LLP!
This document is provided by KayaPush for information purposes only. This is not an official or legal document and should not be taken as legal advice. KayaPush 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.
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