Takeaways
- California wage and hour laws can apply to out-of-state employees working temporarily in California, even for short assignments.
- Employers must account for California’s minimum wage requirements, including higher local rates in certain cities and counties.
- California imposes daily overtime requirements and mandatory meal and rest periods that may differ from employees’ home-state rules.
Background
California labor laws are some of the most comprehensive and restrictive in the country. California’s power to protect workers within its borders is not limited by whether the worker is a nonresident or employed by a nonresident. California has made significant efforts to ensure the rights of anyone working in California, including those nonresident employees assigned to work in California on a temporary or short-term basis. The state’s wage and hour labor laws protect nonresident employees working in California for the duration of their assignment, regardless of how short it is. This includes compliance with minimum wage laws, overtime pay requirements based on the eight-hour day, mandatory meal and rest breaks, and other related labor regulations. See the California Supreme Court decision in Sullivan v. Oracle, 51 Cal. 4th 1191 (2011) (Oracle), wherein the California Supreme Court decisively ruled that the California Labor Code applied to overtime work performed in California by out-of-state plaintiffs for a California-based employer. The Oracle Court found that a full day or more of work by an otherwise non-California, non-exempt employee would be subject to California’s daily overtime law. These wage and hour laws, however, do not apply to Company employees working on California employment issues remotely from other states.
Because the penalties for non-compliance with California wage and hours laws are so strict, it would be wise to err on the side of caution and adhere to California’s wage and hour laws, should there be any uncertainty, particularly with respect to the classification of workers as non-exempt. Considering the negative consequences for an employer who misclassifies employees as exempt and the adverse impact of the California “Multiplier Effect” (see discussion below), it is much safer to tread carefully.
As the Oracle Court pointed out, “[t]o exclude nonresidents from [California’s] overtime laws’ protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states.” (Id. at 1199).
Wage and Hour Laws Applicable to Out-of-State Workers Temporarily Assigned to California
Minimum Wage
Under California law, starting January 1, 2026, non-exempt workers must receive at least the minimum wage of $16.50 for the duration of their assignment. The base annual salary to qualify as an exempt employee is $68,640. These minimums are usually increased annually. Keep in mind that a number of California municipalities have enacted their own minimum wage requirements that exceed the state’s current minimum wage of $16.50. Consequently, the minimum wage requirement will depend on the location to which the out-of-state employee is assigned to work.
The following are current examples of minimum wage requirements.
Effective July 1, 2026, the following California municipalities increased their minimum wage requirements as follows:
- Alameda: $17.76 per hour;
- Berkeley: $19.61 per hour;
- Emeryville: $20.34 per hour;
- Fremont: $18.05 per hour;
- Los Angeles (City): $18.42 per hour;
- Los Angeles (County): $18.47 per hour;
- Malibu: $17.91 per hour;
- Milpitas: $18.50 per hour;
- Pasadena: $18.57 per hour;
- San Francisco: $19.61 per hour; and
- Santa Monica: $18.47 per hour.
Additionally, the cities of Glendale, Los Angeles, Long Beach, San Diego, Santa Monica, and West Hollywood have industry-specific minimum wages. As of July 1, 2026, the minimums were increased as follows:
- Glendale: $25 per hour for hotel workers;
- Los Angeles (City): $25 per hour for hotel and airport workers. Note: Employers who do not provide the required health benefits must pay additional wages;
- Long Beach: $26.50 for hotel workers;
- San Diego (City): $19 per hour for hotel and amusement park workers; $21.06 per hour for workers at certain event centers;
- Santa Monica: $25 per hour for hotel workers (Santa Monica matches the Los Angeles City’s hotel workers’ minimum wage rate); and
Overtime
Overtime pay is also regulated, requiring employers to compensate non-exempt employees at a premium rate for hours worked beyond the standard 40-hour workweek. California operates under what is referred to as “the eight-day” rule. This means that non-exempt hourly employees must be paid at least 1.5 times the minimum wage when they work over eight hours a day and twice the minimum wage for each hour worked more than 12 hours a day.
Rest and Meal Breaks
California’s hourly non-exempt workers, including out-of-state short-term and temporary employees, must receive the following breaks: An uninterrupted 30-minute unpaid meal break when working more than five hours in a day. An additional 30-minute unpaid meal break when working more than 12 hours in a day. A paid 10-minute rest period for every four hours worked. The employer is not allowed to require employees to remain on the premises during mandatory breaks.
Misclassification of Employees as Exempt from Overtime and Meal and Rest periods
As noted above, when a company has an ongoing relationship with the vendor, “… it may send an audit team consisting of salaried employees (exempt) on a random basis to audit the vendor.” These employees engaged in auditing may well be entitled to be treated as exempt in their home state, but not in California. To begin with, in order to be classified as salaried/ exempt, the base annual salary of the auditors must be at least $68,640. In addition, California has enacted what is known as the ABC Test to determine whether an employee can be classified as exempt. The burden is on the employer to prove that a worker should be classified as exempt from being paid overtime and being required to receive rest and meal periods. To qualify as exempt, a worker must satisfy all three of the following criteria:
- (A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- (B) The person performs work that is outside the usual course of the hiring entity’s business.
- (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The difficulty for many firms has been the B prong of the ABC test (aka “Killer B”),which can be all-encompassing. The vast majority of employees hired perform work that is part of the company’s business. Work that requires specialized expertise is more often assigned to third-party contractors.
Another reason that certain positions do not qualify to be classified as exempt is that, under California law, they must meet the “duties test” as either Executives, Administrators, or Professionals (primarily lawyers, physicians, and licensed accountants) who hold active state licenses. Auditors must be CPAs licensed in California in order to be classified as Exempt.
Misclassification and the California “Multiplier Effect”
Misclassification of employees working in California as exempt can trigger a wide range of penalties under the California Labor Code known as the “Multiplier Effect.” If an employee is misclassified as exempt, a small wage payment violation (e.g., non-payment of overtime hours or off-the-clock work) could result in substantial penalties. If the employees are misclassified as exempt, the employer would not only be liable to the misclassified employees for unpaid overtime, premium pay for missed meal and rest breaks, but also California “waiting time” penalties, which could easily amount to six weeks of pay.
For example, if the employer failed to pay an employee for all overtime hours worked at the time wages were due or at the time of the employee’s termination, the employee is entitled to receive “waiting time” penalties under California Labor Code section 202. Sections 201 and 202 of the Labor Code require California employers to pay all wages earned within strict time periods from the date of the employee’s resignation or termination. Under Labor Code section 203, for each day payment of wages owed is delayed, misclassified employees would be entitled to one day of wages, up to a maximum of 30 calendar days (six weeks). In addition, the employee would be entitled to recover attorney fees, costs, and interest.
The penalties for non-payment of overtime hours, off-the-clock work, or failure to provide each meal and rest period far exceed the value of the original unpaid wage amounts. Of course, the employer would also have to pay for its own defense. The cost to an employer would increase exponentially. Misclassification and the Multiplier Effect have resulted in numerous verdicts and settlements in the multimillion-dollar range.
Individual Liability of Corporate Executives
Bosses Beware: California Labor Code Section 558.1 explicitly holds individuals, including corporate officers or executives, accountable if they contribute to violations of wage payment laws, even if they operate from an out-of-state location. This means that California labor authorities have the capacity to hold out-of-state employers responsible for infractions under California labor laws. This legal framework ensures that protections extend to all individuals working within California’s borders, regardless of their employer’s origin.
Conclusion–Auditing the Auditors
In order to qualify as exempt from overtime, mandatory meal and rest periods, waiting time penalties, etc., employees in California must first meet two tests: First, the Salary Test, which is relatively straightforward as discussed above, and second, the Duties Test, which is much stricter in California as discussed above. Generally, employees must come within either the Executive, Administrative, or Professional exemptions. California requirements to qualify for these exemptions are much more restrictive than under Federal law, which governs in most other states.
As a result, when classifying workers in California, it is prudent to assume employees are non-exempt unless they clearly meet the salary and job duties tests of a California exempt position.
Due to California’s strict penalties for misclassification, any company assigning its out-of-state employees to work in California on a temporary basis is well advised to carefully ensure the workers are correctly classified in accordance with California’s stringent ABC Test and also meet the California salary requirements.
The Company also must take care that it strictly complies with California Wage and Hour laws with respect to its non-exempt employees who are working in California on a temporary basis. Minimum Wage requirements must be tracked according to both state and, if applicable, municipal laws. California’s overtime laws and meal and rest period mandates are highly nuanced and must be closely followed, as the penalties are substantial and the Multiplier Effect applies to them as well. Failure to provide a timely or uninterrupted meal period could result in imposition of meal period premiums in addition to penalties for unpaid overtime, which can lead to Waiting Time penalties.
The penalties imposed for misclassifying hourly non-exempt employees as exempt and failing to comply with regulations applicable to non-exempt California employees, such as minimum wages, overtime pay requirements based on the eight-hour day, mandatory meal and rest breaks, and other related labor standards, are severe. Also, qualifying as exempt in California is much more difficult than under the Federal Fair Labor Standards (the ”FLSA”), due to much stricter salary and duties requirements.
Even when an out-of-state company uses its hourly non-exempt or salaried exempt employees who are not residents of California to work in California on a temporary/short-term basis, these employees are required to be classified and compensated in accordance with the California wage and hour Laws.
When working in California, even on a temporary basis, the Company’s hourly or salaried nonresident employees are required to be classified and compensated in accordance with the California wage and hour Laws.
The California Multiplier Effect
Misclassification of employees as exempt can trigger a wide range of penalties under the California Labor Code known as the “Multiplier Effect.” The “Multiplier effect” means that if an employee is misclassified as exempt, a small wage payment violation (e.g., non-payment of overtime hours or off-the-clock work) could result in substantial penalties. For example, if an employer misclassifies an unlicensed employee who audits financial statements as salaried/ exempt and fails to pay the employee overtime when he works over eight hours in a day, the employer would not only be liable for the unpaid overtime but also California “waiting time” penalties, as the law requires overtime to be paid with the next paycheck or when the employee leaves the job. The employer could easily be liable for up to six weeks of pay if the employer fails to timely pay the overtime due.
For clarification, the liability of California employers for misclassification and the added penalties and damages due to the California “Multiplier Effect” are explained in the attached memo.
California’s classification requirements, overtime laws, and meal and rest period mandates are highly nuanced, and non-compliance with these laws can result in severe penalties.
Due to strict wage and hour laws, along with the strict penalties for non-compliance and the California Multiplier Effect, employing workers in California can be extremely challenging.
The Consequences of California Wage and Hour Violations
The three-year statute for violation of the wage and hour regulations was extended to four years in 2022, increasing potential liability.
Misclassification of employees as exempt can trigger a wide range of penalties under the California Labor Code. This is known as the “Multiplier Effect.” The “Multiplier Effect” means that if an employee is misclassified as exempt for a small wage payment violation (e.g., non-payment of overtime hours or off-the-clock work), it could result in substantial penalties. For example, if an employer misclassifies an unlicensed employee who audits financial statements as salaried/ exempt and fails to pay the employee overtime when he works more than eight hours in a day, the employer would not only be liable for the unpaid overtime but also California “waiting time” penalties as the law requires overtime be paid with the next paycheck or at when the employee leaves the job. The employer could easily be liable for up to six weeks of pay if the employer fails to timely pay the overtime due.
When physically present for work in California, the state’s laws and protections apply. For instance, if a worker who lives out of state has a temporary work assignment in California, they are covered by California’s employment law during the duration of their stay.
Most states have fewer or less comprehensive labor laws than California. California has some of the country’s most extensive employee protections, with frequent changes, updates, and additions to existing laws.
California law provides a range of workplace protections to all employees, no matter their employment status. For example, the Healthy Workplaces, Healthy Families Act requires that workers in California accrue one hour of paid sick leave for every 30 hours worked. This sick leave can be used either for the employee’s own health needs or to care for a family member.
Seasonal and temporary workers in California are also covered by many of the same job protections as permanent staff. While their employment may not include long-term guarantees, these workers are still shielded from wrongful termination and various forms of discrimination. State law prevents employers from firing or discriminating against employees because of protected traits such as race, gender, age, religion, national origin, or disability.
How Does California’s At-Will Employment Status Affect Remote Workers?
California follows an “at-will” employment doctrine, which generally allows employers to terminate an employee at any time and for any reason, unless there is a contract or the termination is based on a protected category. This approach can create unexpected outcomes for remote employees located in states with different legal standards. For example, some states require employers to show just cause for termination. If an employee from one of those states is managed primarily by a California employer, California’s at-will rule may apply, potentially leading to termination without the justification that would be required under the employee’s home state law.
Please get back to us with any comments or questions concerning complex and challenging California wage and hour laws that are constantly evolving.
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