employee Archives | THOMAS L. SCHULMAN

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WATCH YOUR BACK – THE CASE OF THE MISSING EXEMPT EMPLOYEES

Employee – Exempt or Non-Exempt?

Preface

As Will Rogers stated, “Be thankful we’re not getting all the government we’re paying for.” Unfortunately, we seem to be getting more and more as the present administration winds down. The Department of Labor, Wage and Hour Division (DOL) is now proposing new rules as to who are “white collar” exempt employees not subject to timekeeping and overtime rules.

Presently, there is a three prong test to determine who may be classified as an exempt employee not generally subject to wage and hour rules. The first is the “duties test,” where the employee is paid a fixed salary based on job duties and that salary is not subject to reduction because of variations in the quality or quantity of work performed. The second prong is the amount of salary paid, which must meet a certain minimum specified amount. And the third prong is, does the employee’s job duties primarily involve executive, administrative, or professional decisions? The Fed’s are proposing to change the second prong or the “floor” on the salary requirement.

The Proposed New Rules

The proposed new rules are pretty straightforward. In order to be classified as an exempt employee, your full-time employee must make at least $921.00 per week or $47,892.00 annually. If the employee is part-time, the same criteria applies, but is just broken down by a daily rate. For example, $921.00 divided by 5 equals $184.20 per day. The employee, be he/she full-time or part-time, must also meet the other two prongs of the test. The present threshold is $455.00 per week or $23,660.00 per year. The increase is almost 100%—quite a jump. The rules have also changed for “highly compensated exempt employees,” but that subject is not discussed in this bulletin as it is doubtful that my readers would have many employees in that rarefied atmosphere.

Method In The Department’s Madness

In my opinion, as a matter of misguided social engineering, DOL wants heretofore salaried exempt employees reclassified as non-exempt employees to be subject to all of the wage and hour statutes, including, but not necessarily limited to, all timekeeping requirements, overtime payments, and breaks and meal period rules. As an employer, your choice will now be to either raise the employee’s “floor” salary or change his/her employment status. The administration’s hope is that these employees will ultimately see pay and benefit increases, whichever classification is used. The idea that you or your employees may be fully satisfied with the present arrangement is of no concern to the “command and control” philosophy of many of our politicians or bureaucrats. Good luck with that.

Prepare Now – Proposed Rules – The New Normal

Somehow, in the ever expanding morass of government regulations, proposed rules are always the final rules with, perhaps, some minor tweaks. You must evaluate all of your presently exempt employees and make a determination if they will meet the new salary “floor” or should they be reclassified as non-exempt. In some cases, raising their salary may be an option. In others, “time carding” them may be preferable. In other cases, elimination of the position may make even more economic sense. Amazingly, our betters rarely consider the last option as a consequence of their actions. Unintended consequences are often the result of their altruistic efforts to better our lives.

The Misclassification Trap

Misclassification of employees is now, and has been, a major employment litigation issue. If an employee or group of employees has been found wrongfully classified as exempt, the “aggrieved” employees could bring either class or individual civil actions claiming Labor Code violations because they should have been non-exempt hourly employees. The resulting violations “stack” and will result in multiple damages awarded, including costs and attorney’s fees—big money not usually insured.

If the employer is found to have misclassified non-exempt employees, it would be liable for the following Labor Code Violations:

• Failure to Pay All Wages (Labor Code §§ 201-203)
• Failure to Keep Accurate Payroll Records (Labor Code §§ 226 and 1174)
• Unfair Competition (Business & Professions § 17200 et seq.)
• Violation of Private Attorney General Act (Labor Code §§ 2698-2699)

Because of multiple penalties, possible FEHA, tort, and class or representative actions, it behooves all employers to fully understand these new proposed “white collar” employment rules and prepare to take prophylactic action to insure compliance when, not if, they are finalized. We will try and notify you when that occurs.

Remember, your income depends on running a profitable business and those profits depend, in part, on following the requirements of all federal and state Labor Code mandates. Being an employer in California is not for the faint of heart. Be always aware of and understand your legal duties. At least the weather is great.

This article should not be construed as legal advice and is for informational purposes only.

NOT SO INDEPENDENT CONTRACTOR

July 6, 2015 / tlschulman / 0 Comments

Many small businesses rely on independent contractors to provide various services that are needed to exist in this increasingly complex business environment. Perhaps the most conspicuous independent contractors are professionals, such as doctors, attorneys, and accountants. However, the use of independent contractors is not confined to these visible professions. In fact, you can find the use of independent contractors sprinkled throughout the trades and general workforce.

For small businesses, the use of independent contractors as a part of their business model offers many advantages. The business does not have to withhold income taxes or deduct the usual suspects such as FICA, SDI, unemployment insurance, etc. Nor does the business have to contribute its matching share to those social programs. There are other advantages. Independent contractors are not subject to the state’s labor laws, including Department of Fair Employment and Housing (“DFEH”) complaints, state wage and hour statutes, Federal Fair Labor Standards Act (“FLSA”) provisions, worker’s compensation insurance, as well as a host of other laws and regulations aimed at protecting employees. The very term “independent contractor” denotes an independent service provider contracted with, but not employed by, a business or person. Or does it?

California is the archetypal “nanny” state and is very concerned about the welfare of all of its “children,” especially those employed by the “evil” businesses whose sole purpose is to lie, cheat, and steal. It’s no wonder that California’s maze of statutes, codes, regulations, and rulings help make it the 49th worst place to do business in the country. Oh well, at least the weather is great.

But, I digress. Given the state’s paternalistic attitude, it is not surprising that much labor litigation has revolved around the issue whether a service provider is a true “independent contractor” or a de facto employee. For the business, a finding of the latter can be a financial disaster of titanic proportions, including fines and penalties that can reach upwards of $25,000.00 per day, as well as the spectre of class action litigation. Such misclassification of service providers should be avoided at all costs. Any reward of avoiding some taxes or benefits is simply not worth the risk. Just ask Fed Ex, SuperShuttle, and Uber, just to name a few.

How can you tell who is truly “independent” and who is not? Over the years the legislature and courts have developed a “laundry list” of non-exclusive traits that distinguish an independent contractor from an employee. Notice I said non-exclusive, since neither politicians nor judges like to be pinned down if it can be avoided. You also have to understand that there is a presumption of employment embodied in the Labor Code. This means, if someone is working for you, they are an employee unless you can prove otherwise.

In no particular order the following points should provide some guidance as to “independent” status:

Does the independent contractor maintain his/her own office or does your business provide the work space?
Does the independent contractor have other clients besides your business?
Is the independent contractor a corporation, LLC, or some other legally recognized entity, or is he/she just an individual providing a service?
Does the independent contractor have a business license and carries business and worker’s compensation insurance?
Does the independent contractor set his/her own hours and may decline jobs or assignments he/she does not wish to pursue?
Is the independent contractor required by your business to wear a certain uniform or use the organization’s equipment such as specially marked trucks? Listening Fed Ex?
Does the independent contractor have employees to conduct its business?
Does the independent contractor provide your business with a periodic itemized statement or invoice detailing the services provided?
Are your relations with the independent contractor contractual and not terminable at will by you?
Is the independent contractor performing work not in the ordinary course of your business?
Does the independent contractor have a license issued pursuant to the Business and Professions Code?
Is the independent contractor performing work that requires a particular skill or knowledge?
Is the independent contractor responsible to you for the result of his/her work rather than control by you of the means by which the result is accomplished? This is the famous “control of work” test embodied in the Labor Code.

For you, the small business person, what seems to be “win-win” can be a real “loser.” Some would-be employees will suggest they be treated as independent contractors—also known as “1099 service providers”—in order to avoid withholding taxes and their contribution to the state’s other mandated employment programs. Simply put, it’s a matter of more money in his/her pocket every pay period. It seems like this arrangement would be a “win” for both of you since less taxes are better than more and whose to know?

Of course, all good things come to an end. Typically, this occurs when you want to terminate the arrangement or when the “1099 service provider” is injured on the job. All of a sudden he/she claims worker’s compensation benefits or files for unemployment or disability. Wonder of wonders, now they want to be classified as employees for, what else, the benefits. This is when EDD begins its investigation of your business practices and you are on the hook for all sums that you should have paid, plus interest and penalties. Good luck with that.

The bottom line is, be very careful about utilizing “independent” contractors unless they are truly “independent.” Keep accurate records of each transaction and document their independent contractor status. Remember, as with employees, those who would be “1099 services providers” are not your friends.

BUSINESS WORKPLACE MANDATES AND OTHER MUSINGS OR “DON’T WORRY, BE HAPPY” NOT !!!

May 5, 2015 / tlschulman / 0 Comments

Meal/Rest Periods/Overtime & Retaliation Issues

California wage and hour statutes are somewhat unique in that a failure to follow their mandates exposes the employer to express statutory penalties as well as the potential for a civil lawsuit that could ultimately impose additional money damages far and above any amounts that may be due the employee under the specific wage and hour law. It is important that the employer understands the statutory scheme and meticulously complies with its requirements. Most of those requirements are found in the various Industrial Wage Commission (“IWC”) Orders which spells out some of the do’s and don’ts for employers in specific industries. The IWC Orders may be found on the State of California’s Department of Industrial Relations Web site. We have tried to simplify some of the major common requirements as explained below.

1. Posting – The IWC Order poster for your industry must be posted in a conspicuous location easily accessible to the employees, such as a break room, office, or anywhere employees congregate. It does not have to be posted where it can be viewed by your customers. It should be posted in conjunction with California Minimum Wage Order MW-2014 poster and the new Mandatory Sick Leave poster. All must be displayed.

2. Timekeeping – It is very important that detailed time records are kept on each non-exempt employee. You absolutely must maintain accurate time records documenting the employee’s “time in” and “time out,” and this record should not be created by the employee. A time clock produces the best evidence of the employee’s actual work time.

3. Payroll Stubs – Payroll stubs must reflect the gross wages of the employee less any mandatory or employee authorized deductions. Any employee authorized deductions must be in writing and signed by the employee. The stub should include the employee’s full name and current address as well as the last four digits of his/her Social Security number. It should also list the employee’s paid medical leave status. Note: it is very important that the gross wages are accurate, based on time card records, including all authorized or unauthorized overtime claims. Be sure the employee signs his/her time card as accurate.

4. Meal Periods – The California Meal Period requirement is a 30-minute meal period that must be provided for every five (5) hours worked. The meal period should be as close to the middle of the shift as possible and may be taken “off premises” at the sole discretion of the employee. The “off premises” meal period need not be compensated and is on the employee’s own time. Alternatively, the employee may take an “on duty” meal period (at the place of employment) as long as he/she is paid for the time at the regular rate of pay and the employee signs an “on duty” meal period waiver. Both “on duty” or “off premises” meal periods should be noted on the employee’s time card. For example, if the employee takes an “off premises” meal break, he/she would clock out and back in and be paid for eight (8) hours of an eight and one-half (8 ½) hour shift. “On duty” meal periods also need to be shown and the employee would be paid for a full eight hours, including the thirty minute paid meal period. Don’t forget the waiver.

5. Rest Periods – The California Rest Period requirement is a 10-minute rest period for every four (4) hours of work. However, while offering rest periods is mandatory, the employee may knowingly waive rest periods as long as it is done in writing. Note that both meal period and rest period waivers can be revoked at any time by the employee. If the employee refuses to waive his/her rest period, accommodation must be made. This could include adding coverage, shift change, and/or shift shortening to under four (4) hours. Rest periods need not be shown on time cards.

6. Overtime – For most California employers, the overtime requirements are relatively straightforward—one and one-half (1½) times the employee’s regular rate of pay for anything over eight (8) hours per day or any time over forty (40) hours per week. All overtime should be documented on the employee’s time card or sheet. All overtime, whether authorized or not, must be paid. The employee may be disciplined if continued, unauthorized overtime is a problem, but all employee time spent on the job must be paid. The best policy is not to allow any overtime unless authorized, in writing, by a manager.

7. Breakage & Shortage – “No employer shall make any deduction from the wage or require any reimbursement from an employee for any cash shortage, breakage, or loss of equipment, unless it can be shown that the shortage, breakage, or loss is caused by a dishonest or willful act, or by the gross negligence of the employee.” [IWC Order No. 5-2001, Section 8.] Overages and shortages are always a problem for small retail and hospitality businesses such as restaurants and bars. While many have policies concerning shortage reimbursement, it is easy to run afoul of this particular wage order and the employer must be careful. Under no circumstances is the employer to take any deduction from an employee’s paycheck for shortages or breakage. If it is appropriate, the employee should pay the shortage or breakage as a separate transaction unrelated to his/her paycheck and the transaction should be thoroughly documented. Responsibility for shortages or breakage requires a “willful act” or “gross negligence” on the part of the employee, and these concepts are hard to define. As a general rule, unless shortages or breakage are large and continuous, the operator is probably better off not requiring any employee reimbursements. Advising the employee that continuing shift shortages or breakage of a serious nature could lead to termination is the preferred policy for handling the problem, but be very careful.

8. Retaliation – You, as an employer, may not retaliate against any employee because that employee exercises any of his/her statutory rights under the wage and hour statutes or other employee protection statutes. Retaliation can include demotion, changing conditions of employment [except to accommodate the employee or as a business necessity], or termination. If any employee makes a Labor Commission claim or any claim that suggests possible wrongful conduct on the part of the employer, do not, under any circumstances, change the status of that employee. Do not change shifts, bad-mouth, harass, or in any manner do anything to intimidate that employee. Immediately consult your attorney concerning a strategy to handle that particular situation. The price for the attorney advice will be small when compared to the cost of a lawsuit defense. The quicker wage and hour disputes are resolved, the cheaper they will be.

9. Conclusion – This memo is a brief summary on dealing with the main points in IWC Orders as they pertain to your business. It is not intended to be a comprehensive discussion of all of the provisions contained in the various work orders, nor is it a complete exposition of all meal, rest, overtime, paid sick leave and reimbursement issues, but instead a short guide covering some of the more important wage and hour issues. It is your duty, as the employer, to understand and follow your particular IWC Order mandates to the letter. Seek professional help if you do not completely understand your employer responsibilities.

Remember, your income depends on running a profitable business and those profits depend, in part, on following the requirements as stated in your IWC Order and other Labor Code mandates. Being an employer in California is not for the faint of heart. Be always aware of your legal duties. At least the weather is great.

This article should not be construed as legal advice and is for informational purposes only. Good luck.

2015 California Mandatory Paid Sick Leave Law

February 23, 2015 / tlschulman / 0 Comments

Preface

On September 10, 2014, Governor Brown signed into law AB 1522—the Healthy Workplaces, Healthy Families Act of 2014 (“Act”). This Act mandates that all employees, with only certain exceptions, are provided at least three days per year of paid sick leave. The Act goes into effect on July 1, 2015. This memorandum is intended to provide California employers with some guidance in implementing this new mandated employee benefit. Please note that, as with all Labor Code violations, the Act imposes severe penalties for failure to follow its mandates, so be careful.

Coverage Requirements

All full-time and part-time employees who work at least 30 days per year. You may not limit an employee to less than 30 days per year to avoid the law.
Each employee must receive 1 hour of paid sick leave credit for every 30 hours worked.
The employer may limit the accrual of paid sick leave credit to 48 hours or 6 days per year.
The employer may limit the number of paid sick leave days to 3 days (24 hours) per year.
Any unused accrued, but unused paid, sick leave days would carry over to the following year. Example: Employee accrues 3 paid sick days (24 hours) after working 18 weeks (720 hours) in 2015, but only uses 2 (16 hours). One (1) paid sick day (8 hours) would then roll over to 2016. Note that the employee can only accumulate a maximum of 6 paid sick days (48 hours), no matter the length of service.
Alternately, the employer can institute a policy that awards 3 days of paid sick leave to all employees at the beginning of each year. Sick leave carryover would then be optional at the sole discretion of the employer.
Before an employee can use his/her paid sick leave benefit, he/she must have been employed with the employer for at least 90 days despite having met the other eligibility requirements.
The sick leave law covers not only the employee, but allows the employee to care for his/her immediate family, including spouses, children, domestic partners, siblings, parents and grandparents.

Eligibility Requirements

Non-exempt time card employee’s eligibility is based on the number of hours they work, including overtime, and the amount of sick leave payment is determined by the average rate they are paid, excluding any overtime premium rate payment. For purposes of satisfying the medical leave rate payment requirement, overtime hours are calculated at the straight time rate.
Non-exempt salaried (administrative) employee’s rate of pay will be calculated by dividing the employee’s total wages, including commissions or piece work rate, by the employee’s total hours worked during the prior 90 days of employment, excluding any overtime premium rate payment. For purposes of satisfying the medical leave rate payment requirement, overtime hours are calculated at the straight time rate.
Exempt employees (executive and management), by the very nature of their work status, should be entitled to paid sick leave at not less than the minimum mandated by the Act, at least 3 days per year. It might be wise to track exempt employee sick leave usage lest it becomes an issue at some later time.

Employee Responsibilities

The paid sick leave may be used for a variety of health-related issues, such as doctor’s appointments, dentist appointments, etc. Also “sick leave” covers recovery from domestic violence, sexual assault, and stalking. Basically, any of those needs related to the employee’s health or the health of other family members.
If possible, the employee should give the employer “reasonable” advance notice of the need to take paid sick leave. If advance notice is not possible, the employee should advise the employer as soon as possible. However, the employer may not impose a penalty for failure to do so.
The employee may take partial days off to attend doctor/dentist or other health-related appointments on behalf of him/herself and family. The employer may set a reasonable minimum increment of paid sick leave usage, but it may not exceed 2 hours. Be sure any minimum increments are explained to the employee in writing.

Employer Responsibilities

The employer must advise its employees in writing of the new mandatory sick leave benefit and the notice should be displayed in a conspicuous place—just like the minimum wage, workers compensation, and appropriate wage orders. The Labor Commissioner has published a poster that will fulfill this requirement. A copy of the poster is also included at the end of this article.
The employer is responsible for tracking the employee’s paid sick days accrual and usage and advising the employee of the amount available. It is suggested that this information be a part of the employee’s pay stub along with the other mandated payroll information such as wages, hours worked, taxes withheld, etc. If the employer is using a payroll processing service such as ADP, they should be contacted since sick leave tracking should be a part of the services provided.
The employee must be paid the sick leave payment with the next paycheck after the leave is taken.
Mandatory paid sick leave is a “use it or lose it” benefit and does not accrue over 3 days per year up to the 6 day maximum accrual.
Under the Act, unlike paid vacation time, mandatory paid sick leave does not vest. Upon employment separation, for whatever reason, the employee loses any accrued but unused sick leave.
If the employee has a break in service, returning to work within one year after separation, any accrued, but unused, paid sick leave hours or days must be reinstated.
Should the need arise, the employer may allow the employee to ‘borrow” paid sick leave that has yet to accrue, but such a policy is not mandatory.
The employer is absolutely forbidden from retaliating against any employee who takes his/her mandated sick leave benefits. Be careful. Such retaliation could result in FEHA or other employment tort claims action on behalf of an individual employee or class action litigation with disastrous results.
Employee payroll records documenting hours worked and paid sick days accrued and used must be kept available for at least 3 years. The better practice would be to keep all payroll records for at least 4 years.

Exemptions

Employers that already have in place paid medical leave policies that meet or exceed the Act’s mandated minimums. If your company does provide paid sick leave above the mandated minimums, the better practice would be to track annual employee usage should the issue later arise.
Union workers covered by a Collective Bargaining Agreement that provides same or better sick leave benefits.
Independent contractors working for an employer. But be very careful as to who is a truly independent contractor. California has a very strong presumption that workers are employees and strict requirements as to true independent contractor’s status. This is an employer trap waiting to close.

Act’s Penalties

As with all Labor Code violations, the potential penalties are cumulative and draconian.

For unlawfully withholding paid sick days, the penalty is 3 times the employee’s daily pay or $250.00, whichever is greater up to $4,000.00 aggregate.
If such action causes other harm (not defined) to the aggrieved employee, an additional $50.00 per day up to $4,000.00 aggregate.
Failure to promptly comply with the act, after notice, an additional $50.00 per day, with no upper limit.
If civil action results from violations, an additional $50.00 to each employee plus 3 times their daily rate or $250.00, whichever is greater.
All costs and reasonable attorney fees. Could be the biggest number.
Labor Commissioner may be utilized to pursue employee claims or private right of action accrues to the employee.

There is a safe harbor for minor paperwork and reporting errors, but don’t count on it. Given the newness of the Act, no one knows exactly how the penalties will work. The better practice is to be sure employer is in complete compliance.

Additional Possible Issues and Penalties

The Act clearly states that “[t]he provisions of this article are in addition to and independent of any other rights, remedies, or procedures available under any other law and do not diminish, alter, or negate any other legal rights, remedies, or procedures available to an aggrieved person.” This section, coupled with various other code sections, would allow for either employee class or individual civil actions claiming additional Labor Code violations as the result of the withholding of paid sick leave benefits. The violations “stack” and could result in multiple damages awarded, including costs and attorney fees—big money not usually insured.
If the employer is found to have violated the mandatory paid sick leave provisions, it also may be liable for the following Labor Code Violations:

The employer could also be liable for violations of the Fair Employment Housing Act (“FEHA”) (Govt. Code § 12900 et seq .), and tort claims for discrimination and/or wrongful termination. Such tort claims raise the specter of punitive damages, which will ruin any employer’s day. Because of multiple penalties, possible FEHA, tort, and class or representative actions, it behooves all employers to fully understand and carefully implement the Act’s provisions.

Conclusion

California is becoming the leading state for its unfriendly business climate. With this legislation, the sheer volume and complexity of its existing employment laws means new challenges for employers. It is little wonder that more and more are seeking refuge in other states. I would expect this exodus to continue. However, for those left behind, compliance will remain an issue and this new law will add to that burden. As a small consolation, the weather is usually great.

If you have any questions, comments or need help in developing policies to implement this or other employment related statutes, please feel free to email or call.

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