Monthly Archives

July 2016

HOT WAGE-HOUR ISSUES: THE SALARY BASIS TEST AND THE “REGULAR RATE” OF PAY

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Employers face a host of challenges to properly paying employees, particularly when it comes to overtime. When employees are properly classified as “exempt” from the overtime rules, an employer need not worry about these issues. But, the penalties for misclassification can be significant.

Employers who reward non-exempt employees (those entitled to overtime) with additional forms of compensation beyond a base hourly rate, like bonuses or commissions, also face liability if they do not include such payments amounts in the calculation of the overtime owed to these employees.

Minimum Salary Requirements for Exempt Employees

Properly classified “white-collar” executive, administrative, and professional exempt employees are paid for the quality and not the quantity of their work. They are not entitled to overtime. To qualify for these overtime exemptions, employees must perform certain (generally higher level) duties and receive a minimum fixed salary.

Recently, the U.S. Department of Labor amended its overtime regulations to drastically increase the minimum salary requirements for white-collar exempt employees. Effective December 1, 2016, the previous minimum salary of $455 per week ($23,660 per year) will increase to $913 per week ($47,476 per year). Thereafter, the minimum salary will increase automatically every three years, according to an established formula. The new rules permit employers to use nondiscretionary bonuses and incentive payments (those tied to hours worked, production, or efficiency) to satisfy up to 10 percent of the minimum salary requirement.

Currently, California’s white collar exemption requirements are stricter than the federal exemption requirements. For example, the California minimum salary for exempt employees is twice the state’s minimum wage ($41,600 per year), which is much higher than the existing federal minimum salary. Additionally, California rules require employees spend no less than 50 percent of their time on exempt duties, while federal law does not include such a quantitative, time-based requirement.

As a result of the changes the federal regulations, California employers seeking to take advantage of the white-collar exemptions must meet the higher level salary requirements of the federal rules. Otherwise, employees—even salaried employees meeting the stricter duties requirements of California law—will be entitled to overtime under federal law.

Calculating the “Regular Rate” of Pay

Another challenge for employers is properly calculating the overtime rate for non-exempt employees. Many employers mistakenly pay overtime at time and half or double the employee’s base hourly rate, without taking into account other forms of compensation, such as multiple pay rates, shift differentials, commissions, and production bonuses. In fact, these and other forms of non-discretionary compensation received during the workweek must be included in the “regular rate” of pay used to calculate overtime.

The federal regulations—also relied on for interpreting California law on this issue—address how or if an employer must factor various forms of compensation into the “regular rate.” Generally, compensation not measured by or dependent on hours worked, production, or efficiency, such as discretionary year-end bonuses and gifts, are excluded from the regular rate. Similarly, payments for periods when no work is performed, such as holiday, vacation, and sick pay, also do not factor into the regular rate.

But, given the variety of ways that employers compensate non-exempt employees, employers must regularly review their pay practices to ensure compliance with these requirements. Recently, in Flores v. City of San Gabriel, the Ninth Circuit Court of Appeals held in a case of first impression that cash payments made to employees in lieu of health benefits must be included in the “regular rate” under the FLSA, even though the payments did not directly relate to work hours. The court reasoned that the payments were a form of compensation for performing work, and therefore should be included in the regular rate.

Employers Should Conduct Self-Audits to Avoid Costly Penalties

The consequences of failing to satisfy the requirements for the overtime exemptions (i.e., “misclassification”)—including the minimum salary requirement—can be significant. Employers may owe amounts for hours that were worked but not paid, including overtime, failing to provide meal and rest breaks, failing to keep accurate time records, and a variety of other related claims and associates penalties. Employers considered to have “willfully” misclassified face additional penalties, as well.

Similar liability results when employers do not properly pay overtime to non-exempt employees at the “regular rate.” In addition to owed wages, employers may owe penalties for failing to provide accurate wage statements, and “waiting time” penalties to former employees who were not paid all amounts owed at termination. Again, “willful” violations increase the statute of limitations and subject the employer to potential liquidated damages.

To avoid these and similar wage and hour pitfalls, California employers should regularly audit their wage and hour practices to ensure compliance. Employers working with third-party payroll processors should not assume the processors are ensuring each employee meets the minimum salary requirements, or properly calculating the regular rate, either. Instead, employers—who will ultimately be legally response for compliance—should assume primary responsibility for these functions (e.g., identifying amounts to be included in the regular rate), and should rely on their payroll processors to perform the calculations correctly.

Should you have any questions, please contact your HR Ideas representative at 925-556-4404.

Cal DIR Will Resume Enforcement on August 1 of the Requirement to Submit Certified Payroll Records Online

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The California Department of Industrial Relations (DIR) is advising Public Works contractors and
subcontractors that enforcement of the requirement to submit certified payroll records
using DIR’s online system will resume on August 1.

The requirement to keep certified payroll reports (CPRs) has not changed and the
electronic certified payroll reporting system is fully operational. The enhancements to
DIR’s online system, available as of August 1, 2016, consist of a simplified online filing
form. The requirements for uploading payroll records via XML remain unchanged. New
User Guides and video tutorials with detailed instructions will accompany the release of
the enhanced system.

The Public Works Compliance Page can be found at:
http://www.dir.ca.gov/Public-Works/PublicWorks.html

Employee Password Sharing Can Be Criminal Activity!

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A divided 9th Circuit Court of Appeals has upheld the criminal conviction of a man who accessed his former employer’s database to gain proprietary information by using a former co-worker’s username and password. The case of US v. Nosal involved a former high-level executive at Korn/Ferry International, an executive search firm.

The executive sought information in Korn/Ferry’s database to help set up his own competing business. At first, he used his own user name and password to download the information. After the company revoked his access, the executive used his former assistant’s user name and password with her permission.

The federal appellate court ruled that the executive blatantly circumvented Korn/Ferry’s computer use policy and its decision to revoke his computer system access. The court explained that a confidentiality agreement Korn/Ferry required each new employee to sign clearly prohibited password sharing.

Writing for the 9th Circuit panel, Circuit Judge M. Margaret McKeown explained that one of the goals of the Computer Fraud and Abuse Act (CFAA) was to “deter and punish certain high-tech crimes, and to penalize thefts of property via computer that occur as part of a scheme to defraud.” Judge McKeown found it significant that Korn/Ferry had categorically barred the executive from accessing its system.

The fact that a current employee had lawful access to the database did not permit that employee to share her password with the former executive. Therefore, the former employee’s access was unauthorized and in violation of the CFAA.

Marijuana Legalization Is In The Hands Of California Voters in November

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California voters will decide this November whether recreational marijuana will be legalized in the state after an initiative gathered enough support to be placed on the ballot.

Recreational marijuana use is already fully legal in Alaska, Colorado, Oregon and Washington.

While some say it will help fix a broken system, there’s a lot of concern about what the repercussions of legalizing pot will be.

Those in support say prohibition has not worked.

The initiative would allow adults aged 21 and older to possess, transport and use up to an ounce of cannabis for recreational purposes and grow up to six plants.

Businesses and governmental agencies will still have the right to enforce a drug-free workplace.

“Employees have the right to make sure their employees don’t come in intoxicated with alcohol, and they have the same right they’re not impaired by marijuana.

There will also be heavy regulation involved from the packaging of the product to advertising.

Various law enforcement agencies and health groups warn that legalization will lead to more drugged driving and allow dealers of harder drugs to infiltrate the new scene.

There is also concern the initiative doesn’t address issues with current law where teens are already finding ways around the system to get medical marijuana.

If passed, it would authorize resentencing for prior convictions and decriminalization would be effective on Jan. 1, 2017.

Are My California Pay Stubs Compliant?

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Nearly all California employment wage and hour class action lawsuits assert a cause of action under California Labor Code Section 226 as plaintiffs’ attorneys almost always automatically include such cause of action when there are other alleged underlying wage violations, i.e. failure to pay overtime. By asserting this cause of action in their class action complaint, the plaintiffs are provided with the ability to access written itemized wage statements (more commonly known as pay stubs) of (a) a sample of putative class members regardless of whether or not a class action is certified and (b) the entire class if a class action is ultimately certified. At first glance, disclosing pay stubs does not seem problematic except for the time and expense associated with providing the same to the plaintiffs’ attorneys. However, once the plaintiffs’ attorneys are in possession of the pay stubs, they will analyze them to determine if they are non-compliant on their face, which can create large penalties for an employer.

Employers are required to provide employees with pay stubs, which can be a stand-alone document or a detachable part of a pay check. In California, Labor Code Section 226 governs pay stubs. Under Labor Code Section 226, the following items must appear on every pay stub:

Gross wages earned;

Total hours worked by each employee (except for salaried employees who are exempt from the state overtime rules);
The number of piece-rate units earned and any applicable piece rate (if the employee is paid on a piece rate basis);[1] All deductions;
Net wages earned;
The inclusive dates of the period for which the employee is being paid;
The employee’s name and only the last four digits of the employee’s social security number or an employee identification number other than a social security number;
The name and address of the legal entity that is the employer (and if the employer is a farm labor contractor, the name and address of the legal entity that secured the services of the employer); and
All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.
Temporary service employers are also required to provide on pay stubs the rate of pay and the total hours worked by each temporary employee for each temporary services assignment. It should also be noted that in California, the amount of paid sick leave available to an employee is also required to be on the face of the pay stub or provided to the employee in a separate document with the employee’s wages on the designated pay dates.

If any of the items enumerated above are missing, employees may be entitled to penalties. Under Labor Code Section 226, an employee may recover the greater of all actual damages or $50 for each initial violation per employee, and $100 per employee for each subsequent violation, not to exceed an aggregate penalty of $4,000 for a period of one year preceding the filing of a lawsuit. When such penalties are applied to each member of a class, the financial exposure for the employer can be considerable. In addition, employees may recover costs and reasonable attorney’s fees. Moreover, if there is a violation on the face of the pay stub, a plaintiffs’ motion for class certification will more than likely be granted, at least with respect to a Labor Code Section 226 claim.

Although this post relates to California’s itemized wage statement requirement, this issue is not unique to California. In fact, the majority of states have requirements for what must be included on a pay stub as well as applicable penalties for the failure to comply.

COURT RULINGS PROVIDE MORE THAN $1M IN BACK WAGES, DAMAGES FOR MORE THAN TWO DOZEN BAY AREA WORKERS

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Two separate court rulings in U.S. District Court for the Northern District of California are putting more than $1 million in back wages and damages into the hands of dozens of workers denied minimum wage and overtime by the owners of nearly a dozen Bay Area residential care facilities.

In a consent judgment entered May 17, 2016, by Magistrate Judge Donna Ryu, San Miguel Homes for the Elderly of Union City agreed to pay $425,000 in back wages and damages to 26 caregivers working at its Union City facilities, and admitted to not paying minimum wage and overtime.

The action follows a U.S. Department of Labor Wage and Hour Division investigation that found egregious minimum wage and overtime violations as the company made caregivers work around the clock without paying them for all of their hours. The department filed suit against San Miguel Homes in December 2015 after the company’s owners refused to meet with division investigators, claiming that they were not obligated to comply with the Fair Labor Standards Act. In January, the division learned that the company’s owners were threatening to sue workers suspected of cooperating with the investigation, and having employees falsify timesheets.

The consent judgment also requires the company to provide adequate coverage during all shifts to eliminate employees working off the clock and to ensure the company pays employees properly for all hours worked.

In a second ruling, Judge James Donato approved a consent judgment March 7, 2016, between the department and Razel Cortez and Elizabeth Palad, owners of eight residential care facilities. The facilities are Walnut Creek Willows in Walnut Creek, Elizabeth’s Care Home 1 and 2 in South San Francisco, Samantha’s Care Home in San Bruno, New Haven Care Home in Union City, and Rayzel’s Villa and Villa San Lorenzo in San Lorenzo.

Division investigators found the employer misclassified caregivers as independent contractors, paid them a flat monthly salary well below minimum wage, provided no premium for overtime even though the employees often worked 60 hours per week, and failed to keep any records of the employees’ hours worked. The court’s order requires the homes and their owners to pay unpaid wages and damages totaling $643,992 due to minimum wage and overtime violations of the FLSA.

That consent judgment also requires the defendants to hire a third-party monitor to audit their compliance with the FLSA, to post copies of the consent judgment and notices of employee rights in both English and Tagalog at each of their facilities, to provide detailed pay stubs to every employee each pay period and direct them to review the documents, and to provide contact information for the Wage and Hour Division, in both languages, with every pay stub.

The department’s Wage and Hour Division continues to find violations in the residential care field, particularly in the Bay Area. In the 2015 fiscal year, its San Francisco District Office concluded more than 100 investigations of residential care facilities and nursing homes, resulting in $3 million in back wages and damages for more than 475 employees

NLRB ruling says In-N-Out can’t stop Fight for $15 pins

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In-N-Out’s use of buttons on employee uniforms to wish customers Merry Christmas was one of a few reasons a judge ruled that In-N-Out can’t stop employees from wearing buttons for a different reason — promoting “Fight for $15”.

The 309-unit chain requires workers to wear “Merry Christmas” buttons during the holidays, and another in April that solicits donations to the company’s foundation. Both of those buttons are “two to three times larger” than the “Fight for $15” button.

Administrative Law Judge Keltner Locke for the National Labor Relations Board ordered the company to stop enforcing a rule preventing workers from wearing buttons or insignia that relate to wages, hours, employment conditions or labor issues.

The N:RB has ruled in the past that under most circumstances, employers cannot force employees to not wear pins supporting employee causes including but not limited to wage increases, working conditions and/or unionization. To do so, the NLRB says that the employer is stifling the employer’s right to concerted protected activities.

Should you have any questions, please contact your HR Ideas Representative.

Cash in Lieu of Benefits Must Be Included in Overtime Calculations, 9th Cir. Rules

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Employers that provide cash payments to employees who have health care coverage through a spouse or other means may find themselves thinking of the old adage that “no good deed goes unpunished” in the wake of a new appeals court ruling.

In Flores v. City of San Gabriel, the 9th Circuit Court of Appeals held that such payments can result in higher overtime payments.

Under the Fair Labor Standards Act (FLSA), nonexempt employees must be paid one and one-half times their regular rate of pay for all overtime hours (usually those beyond 40 in a workweek).

The regular rate of pay must include not just wages but also other forms of compensation, such as commissions, most bonuses, company cars and corporate housing.

There are, however, some narrow exceptions to this rule, including vacation pay, sick pay, travel expense reimbursements and other similar payments to employees that are not made as compensation for their hours of employment.

The employer in the Flores case offered a “flexible benefits plan,” through which it provided employees a certain amount of money with which to buy medical, dental and vision benefits. The employees were required to purchase dental and vision benefits, but could decline to purchase medical benefits if they could prove they had medical coverage through a spouse or some other alternative means. Employees who declined medical benefits through the city’s plan received the unused portion of their benefits allotment as a cash payment — which ranged in size from $1,037 in 2009 to $1,305 in 2012 — added to their paychecks.

Some of the employees sued their employer, claiming these payments should have been included in the regular rate of pay when calculating their overtime.

The employer claimed these payments could be excluded from the regular rate of pay because they were not tied to the hours the employees worked or the amount of services they performed, and thus qualified as other similar payments.

The 9th Circuit rejected that argument. It noted that a US Department of Labor (DOL) regulation offered the following as examples of other similar payments:

Sums paid to an employee for the rental of his truck or car;
Loans or advances made by the employer to the employee; and
The cost to the employer of conveniences furnished to the employee such as parking space, restrooms, lockers, on-the-job medical care and recreational facilities.
Under this regulation, the 9th Circuit held, a payment may not be excluded from the regular rate of pay if it is “generally understood as compensation for work, even though the payment is not directly tied to specific hours worked by an employee.”

The 9th Circuit also rejected the employer’s argument that the cash-in-lieu-of-benefits payments were covered by a clause in the FLSA statute that excludes from the regular rate any “contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits for employees” because the payments were made directly to employees and not to a trustee or third party.

The ruling will discourage employers from having similar flexible benefits programs, the employer had warned. But the 9th Circuit said its hands were tied, and that such arguments are better made to Congress or the DOL.

The Flores ruling applies to employers operating in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington.

OSHA & Combustible Dust

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OSHA has issued a new Fact Sheet for Combustible Dust Explosion Hazards. The PDF is attached here.

Although OSHA has not yet issued a regulation specifically addressing combustible dust issues, it has and will continue to cite employers under a variety of other OSHA regulations and the General Duty Clause for violations related to combustible dust hazards. See this link for a list of standards under which OSHA may attempt to cite an employer – https://www.osha.gov/dsg/combustibledust/standards.html The new Fact Sheet is a good reminder to consider whether your facility or worksite may have combustible dust hazards.

View PDF Here

Cash in Lieu of Benefits Must Be Included in Overtime Calculations, 9th Cir. Rules

By | HR, Insurance, Private, Public Blogs | No Comments

Employers that provide cash payments to employees who have health care coverage through a spouse or other means may find themselves thinking of the old adage that “no good deed goes unpunished” in the wake of a new appeals court ruling.

In Flores v. City of San Gabriel, the 9th Circuit Court of Appeals held that such payments can result in higher overtime payments.

Under the Fair Labor Standards Act (FLSA), nonexempt employees must be paid one and one-half times their regular rate of pay for all overtime hours (usually those beyond 40 in a workweek).

The regular rate of pay must include not just wages but also other forms of compensation, such as commissions, most bonuses, company cars and corporate housing.

There are, however, some narrow exceptions to this rule, including vacation pay, sick pay, travel expense reimbursements and other similar payments to employees that are not made as compensation for their hours of employment.

The employer in the Flores case offered a “flexible benefits plan,” through which it provided employees a certain amount of money with which to buy medical, dental and vision benefits. The employees were required to purchase dental and vision benefits, but could decline to purchase medical benefits if they could prove they had medical coverage through a spouse or some other alternative means. Employees who declined medical benefits through the city’s plan received the unused portion of their benefits allotment as a cash payment — which ranged in size from $1,037 in 2009 to $1,305 in 2012 — added to their paychecks.

Some of the employees sued their employer, claiming these payments should have been included in the regular rate of pay when calculating their overtime.

The employer claimed these payments could be excluded from the regular rate of pay because they were not tied to the hours the employees worked or the amount of services they performed, and thus qualified as other similar payments.

The 9th Circuit rejected that argument. It noted that a US Department of Labor (DOL) regulation offered the following as examples of other similar payments:

Sums paid to an employee for the rental of his truck or car;
Loans or advances made by the employer to the employee; and
The cost to the employer of conveniences furnished to the employee such as parking space, restrooms, lockers, on-the-job medical care and recreational facilities.
Under this regulation, the 9th Circuit held, a payment may not be excluded from the regular rate of pay if it is “generally understood as compensation for work, even though the payment is not directly tied to specific hours worked by an employee.”

The 9th Circuit also rejected the employer’s argument that the cash-in-lieu-of-benefits payments were covered by a clause in the FLSA statute that excludes from the regular rate any “contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits for employees” because the payments were made directly to employees and not to a trustee or third party.

The ruling will discourage employers from having similar flexible benefits programs, the employer had warned. But the 9th Circuit said its hands were tied, and that such arguments are better made to Congress or the DOL.

The Flores ruling applies to employers operating in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington.