With the start of 2019, it is a great time to audit employment policies and practices.  The next series of posts will be a review of a few practices California employers should review on a periodic basis.  The posts will cover the following topics: the hiring process, employment records (what should be kept and for how long), wage and hour issues, end of employment issues, and will conclude with training requirements for supervisors and employees.  Obviously, it is important to work with a qualified attorney to ensure compliance, but I wanted to highlight a few issues on these topics that employers can use to start a self-audit that then can be used to save time and money when reviewing with an attorney.

Five areas to audit regarding the hiring process in California:

1. Are applications seeking appropriate information?

2. Are new hires provided with required policies and notices?

3.  Are new hires provided and acknowledge recommended policies?

  • For example: meal period waivers for shifts less than six hours

4. Are hiring managers trained about the correct questions to ask during the interview?

5. Does the company provide new hires (and existing employees) with arbitration agreements?

Wishing you and your company the best in 2019!

California’s state minimum wage increased for California’s employers on January 1, 2018.  California’s minimum wage law provides for two different rates based on the size of the employer, and the minimum wage increases are reflected in this chart:

Date Minimum Wage for Employers with 25 Employees or Less Minimum Wage for Employers with 26 Employees or More
January 1, 2017 $10.00/hour $10.50/hour
January 1, 2018 $10.50/hour $11.00/hour
January 1, 2019 $11.00/hour $12.00/hour
January 1, 2020 $12.00/hour $13.00/hour
January 1, 2021 $13.00/hour $14.00/hour
January 1, 2022 $14.00/hour $15.00/hour
January 1, 2023 $15.00/hour

 

Once the rate reaches $15 per hour, it will be adjusted annually based on inflation.  Here are five potential pitfalls California employers need to be careful to avoid with the increase in the state minimum wage.

Pitfall #1: Who is considered an employee?

California’s Department of Industrial Relations website provides the following explanation:

Labor Code section 1182.12 defines “employer” as: “any person who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person [and] includes the state, political subdivisions of the state, and municipalities.”

Any individual performing any kind of compensable work for the employer who is not a bona fide independent contractor would be considered and counted as an employee, including salaried executives, part-time workers, minors, and new hires.

The DIR admits that California’s minimum wage statute does not specify how employers should count employees to determine if they have more or less than 26 employees.  For example, the law does not provide a time period that employers could use to calculate the average number of employees in determining whether or not they meet the 26 employee threshold.  Therefore, employers should be very conservative in making this calculations, and if there is any doubt or the calculation is close, employers should consider paying the higher minimum wage rate rather than risk an audit or costly lawsuit over the difference in rates.

Pitfall #2: The salary level to qualify as an exempt employee increases based on the state minimum wage.

Employers need to review the base salary for all exempt employees to ensure the employees meet the salary required to be exempt.  To be exempt from the requirement of having to pay overtime to the employee, the employee must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” (Lab. Code, § 515, subd. (a).)  For more information about the salary basis test for exempt employees, see my previous article here.

With the increase in the state minimum wage in 2018, the equivalent of two times the minimum wage of $10.50 per hour for small employers equals $43,680 per year, and two times the minimum of $11.00 per hour for large employers equals $45,760 per year to qualify for the white collar exemptions.

It is important to note that the salary basis test is set according to the California state minimum wage, not the applicable minimum wage that may apply in the various local city and counties in California.

Pitfall #3: Which minimum wage rate applies if the number of employees raises and falls below 26 employees throughout the year? 

The California Department of Industrial Relations provides that: “An employer with 26 or more employees at any time during a pay period should apply the large-employer minimum wage to all employees for that pay period.”  It is important to note that the DIR’s opinion is not binding on a court of law, but it can be instructive of the position the state would take in its own enforcement actions.

Changing the rate of pay for each pay period raises another pitfall about the notice employers are required to provide employees before changing their rate of pay (see pitfall #4 below).

Likewise, employers with exempt employees who are earning at or near the two times salary basis required to qualify as an exempt employee (see pitfall item #3 above), and whose number of employees may increase during the year to 26 or more employees, need to be careful about the salary amounts being paid to employees.  If there is a chance that the employer’s workforce could increase to 26 or more employees, the employer should take a conservative approach and pay the higher salary amounts required for employees to meet applicable exemptions.

Pitfall #4:  Employers are required to update the notice to employees setting forth the employee’s rate of pay. 

California employers are required to provide non-exempt employees with certain information upon hire as required by the Wage Theft Protection Act.  The law became effective in 2012 and is codified at Labor Code section 2810.5.  Many employers use the Labor Commissioner’s template to meet this notice requirement.

However, employers who pre-populate the form will need to revise the forms to ensure that the wage rates comply with the increased minim wage rate in 2018.  Likewise, it is a good practice to review the notices mid-way through the year to ensure compliance with  the various local cities and counties (such as Los Angeles and Santa Monica) that typically increase their minimum wage rates in July each year.

Employers are not required to re-issue the Notice to Employee to existing employees with updated wage information as long as new increased rate is show on the employee’s pay stub with the next payment of wages.  The DIR publishes a great FAQ on the law here that employers should review.

Pitfall #5: Employers still need to comply with local city or county minimum wage requirements if those laws provide a higher minimum wage rate. 

Employers need to review any applicable local city or county laws that may provide for a higher minimum wage than the state minimum wage requirement.  Employers must comply with the highest minimum wage rate applicable to their workforce.  It is also important to review the local minimum wage ordinances as many ordinances differ in how to determine if the employer is small or large, and usually contain their own notice requirements.  A list of the various local minimum wage ordinances across the United States is published by UC Berkley Labor Center.

The DOL’s change in the federal overtime rules requiring a higher salary threshold ($47,476 paid annually) for employees to qualify as an exempt employee takes effect December 1, 2016.  This Friday’s Five discusses five final checklist items California employers should consider when reclassifying from exempt employees to nonexempt employees.

1. The DOL rule changes are still going into effect December 1, 2016.

This week, a few people asked me if the DOL changes are still going into effect since Donald Trump was elected as president.  Mr. Trump is unable to change the DOL’s rule that requires exempt employees be paid $47,476 in an annual salary until he is inaugurated as president.  Therefore, employers still must comply with this deadline.

2. Notice to Employee may be required.

Section 2810.5 of the California Labor Code requires employers provide notice to employees of their rate(s) of pay, designated pay day, the employer’s intent to claim allowances (meal or lodging allowances) as part of the minimum wage, and the basis of wage payment (whether paying by hour, shift, day, week, piece, etc.), including any applicable rates for overtime.

The law requires that the notice is provided to employees at the time of hiring or within 7 days of a change if the change is not listed on the employee’s pay stub for the following pay period. The notice must be provided in the language the employer normally uses to communicate.

Employers should carefully review the need to provide the notice to employee given any reclassification of employees from exempt to a nonexempt employee.  A template Notice to Employee can be downloaded from the DIR’s website here.

3. Consider how the change will be communicated and documented with employees.

Employers should explain to employees who are being reclassified from exempt to nonexempt about how they will be paid.  The notice should inform workers they will be paid overtime for work over 8 hours in a day and over 40 hours in a week.  The communication should also explain any changes in bonuses (don’t forget that nondiscretionary bonuses must be figured into the employee’s regular rate of pay for overtime purposes) and benefits.  Finally, the communications should set out the different duties the employee may be required to perform given the change in classification.

4. Meal and rest breaks.

In addition to communicating the change in pay to employees, the company should also distribute its meal and rest break policy.  The company should distribute any meal and rest break forms to the employees who are being converted to nonexempt that are normally given to new hires.

5. Off the clock and timekeeping policies.

Finally, employers need to implement compliant timekeeping policies to ensure that all nonexempt employees clock in and out for all work time.  In addition, California requires that employers record when nonexempt take their meal breaks, and any reclassified employees must understand this requirement.  Employers need to be careful about allowing employees who are reclassified as nonexempt to continue to use a company cell phone or laptop, as now any work performed once they leave the office must be compensated.  Employers should consider limiting nonexempt employees’ access to company cell phones, e-mail, and computers to avoid off the clock claims.

Any reclassification and audit regarding the proper classification of employees should be done with caution, as there are many different issues to consider that are outside of the scope of this article.

California employers are required to provide non-exempt employees with certain information upon hire as required by the Wage Theft Protection Act.  The law became effective in 2012 and is codified at Labor Code section 2810.5.  Many employers use the Labor Commissioner’s template (embedded below) to meet their legal requirement, and will pre-populate the items in the form that do not change from employee to employee, lessening the information required to be completed on the form for each employee.

Many employers that have employees working at the minimum wage will pre-populate the wage information section of the form with the minimum wage rates and the applicable overtime rates based on that minimum wage rate.  However, with the increase in California’s minimum wage in 2016 state wide and also in many local areas (such as Los Angeles and Santa Monica), employers should review and update the wage information section on the Notice to Employee.

Do employers need to re-issue the Notice To Employee for all employees given the higher minimum wage?

No.  Employers are not required to re-issue the Notice to Employee to existing employees with updated wage information as long as new increased rate is show on the employee’s pay stub with the next payment of wages.  The DIR publishes a great FAQ on the law here that employers should review.

I’ve been fielding a lot of questions from clients about California’s paid sick leave at the beginning of 2016.  There has been a lot of confusion about accrual rates and tracking paid sick leave for employees, and if the employee’s paid sick leave accrual re-sets at the beginning of the calendar year.  This week’s Friday’s Five is five reminders about California’s paid sick leave for 2016:

1.     Employers must remember to keep the two different methods of providing paid sick leave (up-front grant vs. accrual) separate when analyzing their obligations under the law. 

Many employers get confused because they examine the requirements of the law without understanding which requirements apply to the the up-front grant method or the accrual method.  Employers must keep these two different methods distinct when analyzing their obligations under the law.  For example, if employers provide the three days or 24 hours up-front to employees (i.e., the employees do not have to accrue the sick leave), then there is no need to set a cap on accrual.  This is because the law states that employers using the up-front grant do not have to carry over any unused paid sick leave to the next year.

2.     Employee’s accrual and usage is usually tracked based on the employee’s anniversary date.

Generally, the law requires that the employer must provide the employee with three days or 24 hours (whichever is greater) of paid sick leave from the employee’s hire date.  Therefore, the calendar year usually does not apply when tracking and resetting the amount of paid sick leave employees are eligible to use.

3.     Under the accrual method, employers have different options of how to set the accrual rate of paid sick leave.

The law originally required that employers provide employees with an accrual of one hour for every 30 hours worked and allow use of at least 24 hours or 3 days (whichever is greater) each year.  The law was amended in October 2015 to allow employers to use an alternative accrual method as long as it is (1) on a regular basis, and (2) the employee has no less than 24 hours or three days paid sick leave or paid time off by the 120th calendar day of employment, or each calendar year, or in each 12-month period.

I’ve written about the other amendments made to the law in this previous article and discussed the amendments in this video.

4.     At the time of hire, employers must provide notice to most employees about paid sick leave.

The DIR has generated a Notice to Employees that most California employers should be providing to their non-exempt employees.  Among other things, the notice sets forth information about the employer’s paid sick leave policy.

5.     Employers must review their record keeping and pay stub requirements.

The law requires that employers keep records about how much paid sick leave employees earned and used for three years.  Employers are also required to provide employees with information about how much paid sick leave the employee has available to use on their pay stub or on another writing provided to the employee at the same time the employee is paid.

Click here for a video discussing some of the other general requirements of the paid sick leave law.

Are you tired of employmSacramentoent lawyers’ obnoxious headlines asking if you are sick over California’s paid sick leave law yet?  I’ll spare you the play on words and get to some of the major amendments to California’s paid sick leave law, which took effect immediately upon the Governor’s signature of AB 304 on July 13, 2015.  Therefore, the amendments apply to employers going forward.  For today’s Friday’s Five, here is a summary of five of the major amendments employers should note:

1.      Employers may now use a different accrual method other than one hour of paid sick leave for every 30 hours worked.

In order to simplify the math for employers, the law was amended to provide that an employer may use an alternative accrual method as long as it is (1) on a regular basis, and (2) the employee has no less than 24 hours or three days paid sick leave or paid time off by the 120th calendar day of employment, or each calendar year, or in each 12-month period.

2.      If an employer pays out accrued paid time off to an employee at time of termination, the employer does not have to reinstate the previously accrued and unused paid sick days.

The law requires that if an employee separates from employment, but is rehired within one year, the previously accrued and unused paid sick leave must be reinstated.  This amendment clarifies that if the employer pays the accrued but unused sick leave out at the time of separation (which is not required under the sick leave law), then the employee is not entitled to reinstatement of the paid sick leave that was already paid out to them earlier.

3.      If an employer provides unlimited paid sick leave or unlimited paid time off to an employee, the employer meets its reporting requirements on the employee’s pay stub by indicating “unlimited” on the wage statement. 

4.      Employers have different options for calculating the amount of pay owed to employees while taking sick leave.

The amendment clarifies that the employer can use any of the following calculations when determining how much to pay employees while on paid sick leave:

a) For non-exempt employees, the regular rate of pay can be calculated in the same manner as the regular rate of pay for overtime purposes in the workweek.  This is a new option for employers provided under the amendment.

b) For non-exempt employees, the regular rate of pay can be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.  This method was permitted for employers to use under the original law.

c) For exempt employees, employers can calculate paid sick leave in the same manner as the employer calculates wages for other forms of paid leave time.

5.      Employers are not required to inquire into or record the purpose of why the employee uses paid leave.

Employers have many other record keeping requirements under the new law, but now it is clear that they are not required to maintain the reasons why employees used the sick leave.  The original requirement created under the paid sick leave law, and unchanged by these amendments, requires employers to document and keep records of the hours worked and paid sick days accrued and used by an employee for at least three years. Employees (as well as the Labor Commissioner) have the right to access these records. Failure to keep the required records creates a presumption against the employer that the employee is entitled to the maximum number of hours provided for under the law.

Photo: Franco Folini

I’ll be posting some short clips of a recent presentation I conducted on complying with California’s paid sick leave law.  In this first video, I discuss some general rules California employers need to consider to comply with the July 1, 2015 deadline to offer paid sick leave to employees.  Topics include:

  • how to calculate pay rates for employees with fluctuating pay
  • impact of services charges on the employee’s regular rate of pay
  • the 90 day waiting period before employees can use the paid leave
  • required notices employers must use
  • key deadlines to comply with the law

Please subscribe to the California Employment Law Report Youtube channel here.

This Friday’s Five article is busting its own rule with a list of ten rules (it is California, and I should have realized the limitations of lists of five).  While there are many aspects of the new law that I cannot cover in a short article like this, here is a general checklist of ten items to keep in mind when preparing to comply with California’s Healthy Workplaces, Healthy Families Act of 2014 and its July 1, 2015 deadline:

1.     Employees can use their accrued sick days beginning on the 90th day of employment.

2.     Employers may limit the amount of sick leave used to 24 hours or 3 days per year.  Note that the employer must notify the employee of any caps imposed prior to implementation.

3.     Employers may also set a minimum increment not to exceed two hours for use of paid sick leave.  For example, if the employee needs to go to the dentist for a one hour appointment, the employer can only require that the employee use 2 hours of paid leave.

4.     Employers are not required to provide compensation to an employee for accrued, unused paid sick days upon separation of employment.

5.     Employers cannot require employees to find a replacement worker in order to take paid sick leave.

6.     Leave must be the greater of 3 days or 24 hours per year.  Therefore, a part-time employee who works 4 hour shifts will be entitled to 6 days off, and a full-time employee who usually works 10 hour shifts will be entitled to 3 days off (which is 30 hours).

7.     Employers cannot require a doctor’s note in order for the employee to qualify for paid sick leave.

8.     Employees with fluctuating pay rates, the regular rate of pay use to pay an employee using sick leave is calculated by dividing the employee’s total earnings by their total hours worked for the previous 90 days.

9.     Payment for sick leave must be made no later than the payday for the next regular payroll period after the sick leave was taken.

10.  Employers must show the amount of sick leave available on the employee’s pay stub or other writing given to the employee at the time of pay and should already be using the revised Notice to Employee for all non-exempt employees hired in 2015 and going forward.  Therefore, employers should be working with their payroll companies to ensure the paystubs issued to employees show the required information.

Employers should also review the DIR’s frequently asked questions page setting forth details of the law and compliance considerations.

If they have not already done so, employers need to start planning and putting a plan into action in order to ensure full July 1 2015-1compliance by the July 1, 2015 compliance deadline set by California’s Healthy Workplaces, Healthy Families Act.  As I’ve set forth before, many deadlines for the Healthy Workplace Healthy Family Act have already passed, and the primary compliance deadline of July 1 is looming.  Here are some considerations employers should begin resolving right now in order to ensure compliance by July 1.

 1.      Begin a dialogue with payroll company

Make a determination if your payroll company, or possibly some other vendor, will track the necessary accrual of paid sick time and the other data points needed to comply with the law.  Some payroll companies are charging to add this component to the payroll process.  Do not assume that the solution your payroll company is offering complies with the law, and employers need to manage this process very closely to ensure compliance.  Also, the law requires that the employer set out the amount of paid sick leave available on the employee’s pay date with the employee’s payment of wages.  This notice can be made on the employee’s pay stub or some other writing at the time the employee is paid, and a sample from the company’s payroll processing company should be reviewed prior to July 1, 2015 to ensure it meets the legal requirements.

 2.      Begin a dialogue with temporary staffing agents

If your company uses any outside staffing firms, there needs to be a discussion about compliance with the paid sick leave requirements.  It should be carefully spelled out in the contract with the staffing firm about who will be tracking the paid sick leave for the employees and meeting the other requirements of the law.  If the staffing firm is handling this issue, there should be an indemnity clause protecting the client as there could be joint employer liability for missteps in complying with the act.

 3.      Decide what data needs to be tracked and who will track it

There are surprisingly many dates and data points that need to be tracked under the new law.  For example, employees are not eligible to use any accrued sick leave until their 90th day of employment.  Therefore, employers will need to be able to track this deadline in order to ensure the employee qualifies for paid sick leave before receiving pay for the time off.  In addition, employers may cap employee’s use of paid sick leave to 24 hours or 3 days “in each year of employment.”  However, this “use cap” will need to be tracked according to each employee’s anniversary date with the company.  Employers may have multiple vendors who have access to the data necessary to track and calculate the eligibility of employees to use paid sick leave, and there needs to be one point of contact designated to ensure the information necessary is being tracked.

 4.      Provide notice to employees

Employers need to provide non-exempt employees already employed as of January 1, 2015, information about the paid sick leave law and the employer’s policy as soon as possible.  While the notice to employee published by the Labor Commissioner is only required for non-exempt employees, employers should consider communicating its paid sick leave policy and any revised policies to comply with the law (see below) to all employees given that the paid sick leave law covers all employees, exempt and non-exempt.

 5.      Review and decide if your other policies need to be revised to comply with the law.

Employers need to review other policies such as vacation, sick leave, kin care leave, and attendance policies to ensure they comply with the requirements of the new sick leave law.  For example, the act presumes that an employer retaliated against an employee “if an employer denies an employee the right to use accrued sick days, discharges, threatens to discharge, demotes, suspends, or in any manner discriminates against an employee” within 30 days of the employee taking leave or opposing an employment practice prohibited by the law.  With this strong presumption build into the law, employers need to review their attendance policies to ensure that the employees will not be adversely affected if they do take paid time off covered by the act.