Whether you’ve just joined a new company as an HR leader or a CEO looking to assess how well your People Team is functioning, conducting an HR audit is essential. You can carry it out using a checklist or bring in consultants for assistance. Even if you choose the latter, it’s crucial to understand what an HR audit involves, the key areas it covers, and what truly matters. The audit should always begin with a thorough data lake audit. Only proper employee data management and effective process automation will free HR from routine tasks and allow the team to focus on what matters. That’s why we’ve created Tribune, a next-generation HRIS that makes managing remote teams simple and efficient.
The section on legal compliance is typically the most complex, requiring careful adherence to local laws. It’s important to review not only state regulations but also city-specific requirements.
Please note that the information in this article is not intended as legal advice but rather as an example of the intricacies of labor law. Always consult with legal professionals for guidance.
Here’s a general overview of what to look for when conducting an HR audit on California labor laws. Remember, you should always verify the details with local labor law experts:
Wages
Minimum Wage in California 2024:
In California, the minimum wage varies depending on company size.
$16.00 per hour for companies with 26 or more employees.
$15.50 per hour for companies with 25 or fewer employees.
There are also local ordinances (e.g., in Los Angeles and San Francisco) with higher minimum wage requirements. Always ensure to check local laws during the HR audit.
Overtime Pay:
California has unique overtime regulations. Employees must be compensated:
At one and a half times their regular rate for hours worked beyond 8 in a day or 40 in a week.
At double the rate for hours worked beyond 12 in a day or for working more than 8 hours on the seventh consecutive day in a workweek.
HR should record all relevant data in the company’s HRIS. We recommend using Tribune, a modern HRIS that allows for the efficient administration of both employees and contractors in a unified system.
Employee Classification
Exempt Employees:
These employees are exempt from the Fair Labor Standards Act (FLSA) rules on overtime pay. They are typically in managerial, professional, or administrative roles and do not receive overtime pay. To qualify as exempt, employees must meet specific criteria related to responsibilities, decision-making, and minimum salary levels ($684 per week in 2024).
Non-Exempt Employees:
These employees are entitled to overtime pay at a rate of at least 1.5 times their regular hourly rate for any hours worked beyond 40 in a week. Non-exempt employees usually perform roles that are operational or administrative, with less decision-making authority. Whether paid hourly or on a salary, they must be compensated for overtime.
It’s essential to carefully classify employees, as misclassification can lead to legal action. The key difference between these categories is overtime eligibility and the scope of job responsibilities.
Independent Contractors
California’s AB5 law tightened the rules for classifying independent contractors, using the ABC test to determine eligibility. According to the test:
The worker must be free from the control of the hiring entity.
The work must be outside the usual course of the company’s business.
The worker must be engaged in an independently established trade or business.
Hiring Documents and Forms
Form I-9:
The company must verify that each new employee is authorized to work in the U.S. Form I-9 must be completed within the first three days of employment. California employers must also avoid discrimination based on immigration status and comply with federal and state employment verification laws.
Form W-4 and Taxes:
Employees must submit Form W-4 to calculate federal tax withholdings. Employers need to ensure accurate tax calculations to comply with both federal and California state tax laws.
Leave Policies
Paid Sick Leave:
California requires employers to provide paid sick leave. Employees earn at least 1 hour of paid sick leave for every 30 hours worked, with a minimum of 24 hours or 3 days of sick leave per year. For example, in San Francisco, employees accrue 1 hour of sick leave for every 30 hours worked, with a cap of 72 hours for companies with more than 10 employees and 48 hours for smaller companies. Unused hours can roll over into the following year, but accumulation limits apply. Managing leave balances is best handled through modern HRIS platforms like Tribune.
California Family Rights Act (CFRA):
CFRA allows employees to take up to 12 weeks of unpaid leave for family care or personal illness if the company has five or more employees. This law is similar to the federal Family and Medical Leave Act (FMLA) but covers a broader group of employees and offers more flexibility.
Equal Employment and Non-Discrimination Laws
Equal Employment Opportunity (EEO):
All employers must comply with federal and state anti-discrimination laws, such as Title VII of the Civil Rights Act and the California Fair Employment and Housing Act (FEHA). FEHA mandates that employers with five or more employees must not discriminate based on race, gender, age, nationality, disability, sexual orientation, or other protected categories. Training on preventing sexual harassment is also required every two years for companies with five or more employees.
Inclusion and Diversity Reporting:
California employers with 100 or more employees must file an EEO-1 report, detailing the racial, gender, and ethnic composition of their workforce. Companies must ensure equal opportunities for all employees and actively promote diversity in the workplace.
Work Hours and Breaks
Meal and Rest Breaks:
Employees who work more than 5 hours per day are entitled to a 30-minute meal break. For workdays exceeding 10 hours, a second meal break must be provided. Employees are also entitled to a 10-minute paid rest break for every 4 hours worked. Failure to comply with these requirements can lead to penalties.
Workplace Health and Safety
OSHA and Cal/OSHA Compliance:
Employers must adhere to federal (OSHA) and state (Cal/OSHA) health and safety standards, ensuring a safe working environment. This includes providing regular safety training and conducting workplace safety audits.
Data Privacy Policies
California Consumer Privacy Act (CCPA):
Employers and HR must comply with data privacy regulations concerning employee personal data. This includes implementing data protection measures and honoring employee rights regarding data access and deletion. Regular audits and encryption of sensitive data are critical for compliance.
Terminations and Severance
WARN Act:
California’s WARN Act requires employers with 75 or more employees to provide 60 days’ notice before mass layoffs or plant closures. Failure to comply can result in fines and compensation claims.
Final Paychecks:
When an employee is terminated, the employer must issue all owed wages, including any unused vacation time, immediately.
This checklist provides a foundation for conducting a thorough HR audit, especially when dealing with the complexities of California labor laws.
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