I am both proud and excited to be featured in two new training videos for workplace supervisors and human resources representatives handling California-specific and federal wage and hour issues.

Developed and produced by Kantola Productions, “California Wage and Hour Laws: What You Need to Know” is designed to help companies train their supervisors and human resources representatives to become better, more legally compliant managers.  The video consists of modules that break down the complex requirements regarding a variety of wage and hour matters including:

  • Exempt vs. Non-Exempt Employees
  • Employee vs. Independent Contractor
  • Overtime
  • Meal & Rest Breaks
  • Hours Worked

There is also a federal version of the video.

Both videos are available for purchase in several formats:  DVD, online training for up to 25 viewers, or instant streaming for a single user.  To receive a 20% discount, Fox Rothschild clients and their contacts can enter Fox20 in the “catalog code” box when filling out the online purchase form.

Take a look at a clip from the video below.  Enjoy!

Calculating the correct overtime pay rate in California has long been a complicated process.  The basic overtime rate is defined as one and a half times an employee’s “regular rate” of pay.  This purportedly “regular” figure may change from pay period to pay period when an employee earns shift differentials, different hourly rates for different jobs, or lump sum bonuses.  Such was the case in Alvarado v. Dart Container Corporation of California.

In Alvarado, the California Supreme Court considered the correct method of calculating overtime when an employee is paid a flat sum bonus.  The parties offered competing calculations to the Court.  The employer’s method spread the per-hour value of the bonus across all hours worked in a given pay period—including overtime hours.  The employee argued that the bonus should only be spread across the non-overtime hours worked.  In choosing between the two approaches, the Court emphasized California’s pro-employee policies:  “[W]e are obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee’s interests.”  The Court found that plaintiff’s version was “marginally more favorable to employees.”  Unfortunately, this doesn’t tell the whole story.  The opinion apparently requires employers to calculate the regular rate based on the “relevant pay period.”  This is inconsistent with established California and Federal principles that require regular rate calculations be performed on a weekly basis.  A “friend of the court,” or Amicus brief, was filed in this case on this very issue, and we are hopeful that the Court will issue an amended opinion, or other clarification.worker marking paper next to calculator

In the meantime, let’s look at an example. Suppose an employee works 90 hours in a two-week pay period (including ten hours of overtime), and the employee receives $15 per hour and a $100 bonus.  The value of the bonus must be calculated by dividing the $100 by the 80 non-overtime hours worked, which comes out to $1.25 per hour.  This would then be added to the employee’s straight time rate for an effective regular rate of $16.25 per hour.  Of course, the next step is to multiply the regular rate by 1.5 to obtain the basic overtime rate, and then multiply the number of overtime hours worked by the overtime rate.

The fun didn’t end there.  The Court drew a distinction between flat sum bonuses, like the one at issue in Alvarado, and bonuses that increase in rough proportion to the hours worked—such as piecework or commission bonuses.  In these cases, the Court stated “the payment of the bonus itself constitutes base compensation, including base compensation for overtime work, in which case one might be able to argue that only the overtime premium need be added.”  In other words, different bonuses require different overtime calculations.  Adding insult to injury, the Court proclaimed this interpretation is to be applied retroactively.

The big takeaway here is that employers must take a closer look at their bonus plans and overtime calculations to ensure compliance with the new standard.  Isn’t math fun?

Guest blog post by Mikella Wickham:

They say location is everything in business.  How about classification of workers?

In certain industries, workers have a unique combination of specified skills and

Fit people working out
Copyright: wavebreakmediamicro / 123RF Stock Photo.

relative freedom to do their job.  As a result, small businesses are stuck between a rock and a hard place when deciding whether their workers are employees or independent contractors.  Of the many small businesses that want to pay their workers fairly and legally, it is becoming harder to do so without going out of business altogether.

Take fitness companies, for example.

Fitness instructors are not the average employees.  They may have input on their schedules (because they only want to work mornings or weekends).  They may work at several different studios, or work more than one job.  Often they teach in their own style, and even impact how many customers attend the classes.  Very often customers are loyal to a studio based on their rapport with a particular instructor.  Does the fitness company pay that person as an employee or as an independent contractor?

Let’s say the employer pays the instructor as an employee, on an hourly basis.  That worker becomes much more expensive for the business because she is covered by workers’ compensation insurance, gets paid sick leave, is paid at least the minimum wage (which keeps going up), and gets overtime, meal breaks and paid rest breaks.  Given all of that, how does the employer incentivize the instructor to bring more customers in the door to offset the additional costs incurred?

Alternatively, if a company pays a fitness instructor as an independent contractor (as many do), but still controls aspects of what the instructor does (such as what she wears, the music she plays, or the moves she teaches), it risks a misclassification claim.  Defending such lawsuits can mean death to a small business.

With no law designating a “dependent contractor” middle ground category, businesses are left to choose from a pick-your-poison set of options.

Standing next to larger brand name fitness companies, smaller fitness companies who can afford to pay employees well, or eat losses at smaller studios for the larger corporate good, can find themselves disadvantaged in a David and Goliath battle to simply have a place in the market.

As we have suggested, perhaps the law will carve out an exception for businesses in this category.  The future will tell.  In the meantime, small businesses have a tough decision to make: pay up now, or, perhaps, pay more later.


Mikella P. Wickham is a summer associate, based in the firm’s Los Angeles office.

Wages, salaries, and benefits make up a large proportion of costs for most businesses. One way to control these costs is to control how much overtime employees work. In California, nonexempt (i.e. hourly) employees are entitled to one and half times their regular rate of pay when they work more than eight hours in a workday or 40 hours in a workweek. They’re also entitled to time and a half for the first eight hours on the seventh day of work in a workweek. Any work in excess of 12 hours in one workday, or eight hours on the seventh workday in a workweek must be paid at twice the employee’s regular rate of pay.

Some businesses address excessive overtime by telling their workers that they need management approval to work overtime. If they work overtime without approval, however, you still need to pay them for that work. You can counsel them, or even take corrective action for their failure to follow instructions. But you still need to pay them. Employees who aren’t paid for all of their time can claim overtime violations, minimum wage violations (for time they weren’t compensated for), waiting time penalties (up to 30 days pay if they weren’t paid everything they were owed at termination), PAGA penalties, attorneys’ fees, and more. California has no shortage of exorbitant penalties for seemingly minor violations.

Copyright: ximagination / 123RF Stock Photo
Copyright: ximagination / 123RF Stock Photo

Similar problems arise if employees who are forbidden to work overtime feel pressured to work “off the clock.” Take the example of a new nurse who needs to finish charting on his patients before he leaves for the day, but who’s also prohibited from working overtime. If he clocks out to finish his work and the employer knows about it, or reasonably should know about it, the employer needs to pay him for that time. Again, it can counsel him or take corrective action for not following the rules, but it can’t withhold his pay.

Managers working to reduce overtime need to make clear to their workers that they may not work off the clock. And if the managers learn of employees doing so, they need to ensure that they are paid for that time. Controlling overtime is an effective way of controlling costs, but only if you do it right. Do it wrong and you risk losing any possible savings and then some defending wage and hour claims.

You don’t need a ton of HR or employment law experience to know that we do things a bit differently in the Golden State. Here are some of the ways that complying with Federal employment laws actually violates California law:

1. Using the Department of Labor approved forms to certify the need for FMLA/CFRA leave – The DOL has created forms to give employees to establish that they’re entitled to leave under the Family Medical Leave Act. There’s one for employees who request leave for their own serious health condition (pdf) and one for those who seek leave to care for a family member (pdf). While the California Family Rights Act parallels FMLA in many respects, it does not allow you to ask the patient’s diagnosis, which the FMLA forms ask in section A(3).

2. Determining exempt status based on an employee’s primary duties – Under federal law, exempt status depends on an employee’s primary duty. While the time spent performing that duty is a factor, it’s not dispositive. “Employees who do not spend more than 50 percent of their time performing their major or most important duty may nonetheless meet the primary duty requirement if the other factors … support such a conclusion.” But if you categorize such an employee as exempt in California, you’re violating the state’s wage and hour laws. Because in California, how the employees spend their time is dispositive.

3. Treating “highly compensated” employees as exempt – Federal law recognizes an exemption for certain employees earning over $100,000 per year. California does not.

4. Paying employees the federal minimum wage – Or even worse, taking the federal tip credit in calculating the minimum wage for tipped employees.

5. Paying terminated employees their final pay on the next regularly scheduled payday – That’s fine under federal law. But it subjects you to significant fines in California — equal to a full days’ pay for every day you’re late.

6. “Use-it-or-lose-it” vacation policies – Again, it’s acceptable under federal law to tell employees they will forfeit any accrued vacation that they don’t use it by a particular date. But not in California. Among other things, you’ll be shorting the employees on their termination pay (by not paying for all their accrued vacation). That will subject you to the same waiting time penalties as in the prior item.

7. Not paying daily overtime to nonexempt employees who work more than 8 hours in day.

So if you’re running a business in California, it’s not enough to simply comply with federal law. You need to pay attention to the specific requirements of California law, too. For more on California’s unique employment law requirements, check out this brief summary on Doing Business in California (pdf).

 

Themis 2662

Back in January 2012 I blogged about regular rate issues as an anticipated hot issue for 2012 and beyond.

In that post I explained that the “regular rate” is not the rate an employer regularly pays. Rather it is the required overtime rate of pay that considers all compensation paid to the employee. I also explained that the reality is, for non-union employers who pay commissions, non-discretionary bonuses, service charges, and even provide perks (like free meals), the calculation of the regular rate of pay is a challenge.

But let’s assume you overcame that hurdle, and understand that you actually have to pay overtime at the “regular rate” that includes additional compensation. You should be good, right? No litigation, right? Well, not necessarily, especially if you haven’t correctly listed the correct “regular rate” on your paystubs.

Here’s the problem. California Labor Code Section 226 was amended in 2012 to provide that an employee is deemed to suffer an injury if the paystub is wrong. One of the items the employer is required to list on the paystub is “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate.” The goal is to make the paystubs transparent for the employees so they can understand how they have been paid.

Okay, that sounds simple, but when you actually follow the complicated math to compute the regular rate, it gives you the rate for the overtime premium, not the overtime rate. Yes, that’s right. You actually pay half of the regular rate.

For example, let’s say you have an employee who works at two rates in one work week: 20 hours @ $8 per hour and 25 hours @ $12 per hour. In addition, she earned a commission of $100 in that same workweek. If you do the math, the regular rate for overtime purposes is $12.44 per hour (that blends both rates and takes into account the commission paid). So what rates do you put on the paystub in a way that explains to this employee what she earned? If you put $12.44 and multiply it by the 5 hours of overtime, you’ve overpaid her for that week, because you only pay half of what she earned in the overtime rate. So, the paycheck needs to look something like this:

Chart

But will the employee understand why she is not earning $12.44 times 5 hours? Will she understand how the $12.44 rate is computed and that it is a calculation that blends her two rates and the commission earned? Is it better to list the overtime premium rate of $6.22 times 5 hours? Which way is more transparent? Hard questions with no easy answers, which is why I still think that regular rate issues will continue to be fodder for litigation for many years to come.

Many thanks to Jesse Koppin for his assistance with this post.

 

California law generally requires the payment of overtime to non-exempt employees for hours worked over 8 in one workday, and over 40 in one workweek, and on the 7th day of the workweek. The calculation is straightforward for non-exempt employees paid only an hourly wage. But some employers pay hourly employees a fixed salary, such as $1k per week or $50k per year.

AB 2103 (link) clarifies that such a fixed salary can only be deemed to be compensation for the employee’s regular non-overtime hours. Accordingly, the hourly rate for a non-exempt full-time salaried employee must be 1/40th of the employee’s weekly salary. Employers may not enter into private agreements to the contrary. AB 2103 specifically overturns Arechiga v. Dolores Press, 192 Cal. App. 4th 567 (2011), in which the Court of Appeal held a private wage agreement between the employer and employee, paying the employee a fixed salary for 66 hours of work each week was okay, and that the employee was not owed any further overtime.

Therefore, AB 2103 will only impact employers who:

  • Pay non-exempt employees a fixed salary instead of an hourly wage; and
  • Have tried to include overtime in that fixed salary.

Paying non-exempt employees a fixed salary is confusing and can cause many problems.

First, the employer still needs to convert that salary to an hourly wage for purposes of overtime. So why not just give the hourly rate to begin with? Simply state in the offer letter that the annual salary is a "target salary" of $50k per year, which equates to $24 per hour, with a caveat that the employee’s actual earnings may vary based on hours worked. That is much more accurate.

Second, employers also get into trouble with salaried non-exempt employees if they fail to keep adequate time records. Remember, if the employee is non-exempt there is still a requirement to keep records of hours worked meal breaks taken.

Finally, the paystub needs to be accurate too. Rather than a fixed salary on the stub, it should list the hourly rate and the hours worked. For the example above it should list 40 hours at $24 per hour.

Bottomline, paying a non-exempt employee a fixed salary is an invitation to unintended pay errors, which is never a good thing – especially in California.

 

California employees are exempt from the overtime requirements if they satisfy the executive, professional, or administrative exemptions. Of these, the administrative exemption is the least well-defined.

Much of this uncertainty stems from the requirement that the employee’s duties involve “performance of office or non-manual work directly related to management policies or general business operations of his/her employer or his/her employer’s customers.” This requirement comes straight from the Wage Orders (pdf).

To illustrate what the requirement means, let’s use an example like, oh I don’t know, insurance claims adjusters. Do they qualify for the administrative exemption? According to California court of appeal decisions in Bell v. Farmers Insurance Exchange in 2001 and 2004, claims adjusters are not exempt.

In deciding class action claims brought by claims adjusters at Liberty Mutual Insurance and Golden Eagle Insurance, a California court of appeal decided again in 2007 that claims adjusters are nonexempt. The case (Harris v. Liberty Mutual) went up to the California Supreme Court late last year. The state supreme court sent it back to the court of appeal saying that the appellate court had relied incorrectly on the Bell cases and the law had changed. It told the court of appeal to look at it again.

Yesterday, the court of appeal issued its decision (pdf). By two votes to one, the court of appeal said it had looked at the issue again and still concluded that claims adjusters are nonexempt. It acknowledged that there were agency opinion letters and federal cases that concluded otherwise. But in the words of the court, “we do not rely upon the agency opinion letters, and we conclude that the federal cases involving claims adjusters are not persuasive.”

Can employers ignore laws articulated in federal agency opinion letters and federal court decisions and seek to justify doing so by saying that they found those authorities “not persuasive”? I don’t recommend it.

Is the case heading back to the state supreme court? Count on it.

In the meantime, does the law on who does or doesn’t qualify for the administrative exemption remain unclear? Absolutely.

As the law currently stands, employees qualify for the exemption if, among other things, their duties relate to the administrative operations of a business as distinguished from production or, in a retail or service establishment, sales work. If you’re unclear how that applies to particular positions in your business, get advice from someone who follows this area. It’s much cheaper to spend the time to get it right than to fight claims by multiple employees for unpaid overtime going back years.

Ok, maybe it is just me, but I think that Sullivan v. Oracle is a really big deal to employers.  It certainly bucks the trend of pro-employer rulings of late.

For many employment matters, the operating assumption was that the law of the employee’s home state applied, but not any more.  Now, when a non-exempt employee comes to California to work, train, or help out on special assignments, that employee will need to be paid overtime for the time they spend here based on California’s requirements.  My head spins when I think of the implications.

Imagine a company with a technical sales and support crew in many different states with an annual training week in its southern California headquarters.  Or a company back east that opens an office or retail location in California, and has its best eastern staff help set up the business here.  Or a hotel chain that has an employee from out of state come here to assist during busy season or cover for someone on a medical leave.  Or a law firm with a main office in the Midwest that sends a paralegal to California to work on a trial.  Now, all of these traveling employees (if non-exempt) will need to be paid overtime on an 8-hour day for the time spent here. 

Do they need to be given meal and rest breaks as only our state requires?  Will their pay-stubs need to be consistent with California requirements too?  What about international employees, are they "non-residents" that need to be paid per California’s requirements also?  What if the employee qualifies as exempt in her home state, but not here?  The questions are endless and the answers are yet to come.

And one more thing.  The converse is not true.  This case does not stand for the proposition that a California employer is relieved of its duty to pay non-exempt employees daily overtime when they travel out of state.  Is your head spinning yet too?

 

 

 

 

 

 

 

 

  

California law requires that non-exempt employees be paid overtime after 8 hours in a day or 40 hours in a week. In many states, and under federal law, employees earn overtime only after 40 hours in a week, regardless of the number of hours worked in a day. So what law applies when a California-based employer has out-of-state employees travel to California for work? This is the question that the California Supreme Court addressed last week in Sullivan v. Oracle

Oracle is based in California and the named plaintiffs lived in Arizona and Colorado, but traveled throughout the country training Oracle customers how to use the company’s software. During a four-year period, the employees spent between 20 and 110 days in California.

 

The Court concluded that California’s overtime requirements apply equally to all employees who perform full days or weeks of work in California, regardless of their state of residence. 

 

The unanimous decision placed considerable emphasis on the fact that the statutory language did not specifically exclude non-residents (where other provisions of the California Labor Code did). 

By this rationale, the ruling seems to apply with equal force to companies based outside of California who have employees travel to California to work. For full days or weeks of work done in California, it now appears that employees must be paid overtime according to California law. 

 

Oracle, of course, pointed out the burdens this places on employers who may have employees working all over the country. Tracking overtime is complicated enough when an employee is subject to only one state’s overtime rules. The idea of paying traveling employees according to the laws of multiple jurisdictions is enough to give even the most sophisticated payroll professionals nightmares. But the Court (rather naively) responded that “the asserted burdens on out-of-state businesses to which Oracle refers are entirely conjectural.”

 

Oracle also observed that the ruling could affect not only overtime laws, but myriad other Labor Code requirements, such as those regarding “the contents of pay stubs, meal periods, the compensability of travel time, the accrual and forfeiture of vacation time, and the timing of payment to employees who quit or are discharged.” The Court responded that its ruling only addressed overtime and “one cannot necessarily assume the same result would obtain for any other aspect of wage law.” So expect further litigation before there’s any clear guidance on whether these other rules apply to out-of-state employees working in California.

 

In the meantime, here’s a summary of some of the aspects of California employment law that most often trip up out-of-state employers.