If you are an employer in California, you are likely well aware of Labor Code § 226 and the many items that our state requires to be on employee paystubs: gross wages, legal name of employer, inclusion dates for the pay period, etc. (Labor Code § 226) Failure to adhere to all of Labor Code § 226’s paystub requirements can result in penalties owed to the employee, and worse still, the possibility of a dreaded PAGA action. It is no surprise then that vigilant employers have kept a close eye on their paystubs to ensure inclusion of all the necessary information.

Businessman handing over paycheck at desk in officeBut what about the paychecks themselves? Often forgotten is Labor Code § 212 which imposes certain requirements on employers who pay employees with traditional paychecks (as opposed to direct deposit). A traditional paycheck must be “payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument…” Labor Code § 212(a). The point being that employees must have the opportunity to know where they can cash their paycheck and receive their wages immediately, without paying a fee.

Does this mean an employer must pick out one specific location where an employee can cash their paycheck and then list the location and its address on the check? Lucky for employers and employees, the answer is no. As long as the drawee of the check is a bank, the bank’s address need not appear on the paycheck itself. In other words, if the employer uses a bank with branches in California for its payroll checks, the employer need only list the name of the bank, so long as the check can be cashed immediately without a fee to the employee at any of the bank’s branches.

Failure to comply with Labor Code § 212 can result in minor penalties to an individual if they can establish that they were denied the opportunity to immediately obtain their wages. However, a purely facial violation on the check, and nothing more, could potentially result in a much larger PAGA lawsuit.

Although many workplaces find that the vast majority of employees receive their pay through direct deposit, there are still many employees who receive their wages in the form of a traditional paycheck. Accordingly employers should examine their paychecks and ensure the following:

  1. Paychecks should list the name of a national or state bank that has conveniently located branches where employees can cash their paychecks; and
  2. Employers should confirm with the bank used for its paychecks that all employees can cash their paychecks immediately at any of the bank’s locations without a fee (even if the employee does not otherwise bank there).

I’ve just ordered my family’s holiday cards and started making my gift lists.  I know that the holidays will creep up on us quickly and before I relax with a gingerbread latte, there is work to be done.  I wanted to share my list of the five HR-related to-dos California employers should consider before the end of this year.

Year-end HR To-Do List
Copyright: mexrix / 123RF Stock Photo
  1. Review Your Independent Contractors: This year’s numerous court decisions and administrative guidelines make it virtually impossible for companies to categorize workers as independent contractors. Now is a good time to review who you are still paying via Form 1099. January 1 is the best time to convert misclassified independent contractors to W-2 employees so that tax paperwork will be as clean as possible and hopefully not raise any concerns. When in doubt, classify workers as employees and talk to your attorney to help craft the appropriate communication.  For classification criteria if you choose to continue to work with contractors, I invite you to read a Law360 article written by my colleague Colin Dougherty, entitled “Nothing New in DOL Worker Misclassification Memo.”
  2. Ensure Employees Are Properly Classified: While the DOL’s proposed amendments to increase the salary threshold for employee overtime exemptions are usually ignored by CA employers, if these amendments pass, they will indeed impact many CA workplaces. So, it is worth taking a look at questionably classified employees whose salaries are below the proposed threshold. Effective January 1, 2016, this amount in California will increase to approximately $800 per week ($41,600 per year) when California’s minimum wage increases to $10.00 per hour. The new federal proposal raises that amount to $970 per week ($50,440 annually). There is also a proposed increase in the “highly compensated” exemption from $100,000 to $125,148 annually. You may have a suspicion that some of your employees within this salary band should be earning overtime, in which case, the new year is as good a time as any to minimize overtime liability and reclassify those employees.
  3. Organize Personnel Files: Consider this a second chance at spring cleaning. At the end of each year, take the time to organize your employee files and I-9 Forms and separate the terminated employees from the active. Keep I-9 files separate from employee personnel files and maintain them for one-year post-termination. Keep terminated employee personnel files for three years after the date of separation.  Once that retention requirement has been met, grab the shredder.
  4. Review Your Paystubs: Why start another year wondering if you might get hit with the PAGA suits that are plaguing other California employers? Don’t assume your third-party payroll provider has it covered. Especially with the new reporting requirements on paid sick leave, best practices demand that accounting, human resources and payroll administrators are collaborating to ensure compliance. Luci Li recently posted a go-to list of what must be included on every employee’s regular wage statement.
  5. Analyze Compensation Practices: The California Fair Pay Act goes into effect January 1st so your policies and practices need to be in compliance. Evaluate employees by job duties, not title, to ensure men and women are compensated equally. If you find disparity, either fix it or be sure you can justify it. Jeff Polsky recently posted a rundown on the Fair Pay Act and what factors can legitimately be used to justify pay disparities.

Well, until the year-end close-out phone calls start rolling in, I think I’ll head over and get that latte… in a red cup, of course.

On Friday, Governor Jerry Brown signed AB 1506, which is intended to lessen certain types of employer liability under California’s Private Attorneys General Act. PAGA allows private employees to sue to recover penalties that the state labor commissioner could have collected. It’s been a huge headache for employers. In addition to drastically expanding the ways they could be sued, PAGA provides a cause of action that certain courts say is exempt from an employee’s agreement to arbitrate.

One way that employees have used PAGA claims is to sue if their wage statements don’t contain all the required information. Under the new law, an employer would have an opportunity to cure a PAGA violation based on failure to include the beginning and end dates of the pay period and the employer’s proper name and address. Before suing, an employee would have to give notice of the violation and then the employer would have 33 days to cure the violation. To do so, the employer needs to provide corrected wage statements to all employee who received inaccurate information during the three years before the notice.

Copyright: leeavison / 123RF Stock Photo
Copyright: leeavison / 123RF Stock Photo

Is this the answer to employers’ dreams? No. But it’s a tiny step in the right direction. Moreover, you glass-half-full types may be able to take comfort in the fact that the Governor has not yet signed AB 465 (to ban employment arbitration), SB 588 (to expand liability for wage and hour violations to “persons acting on behalf of an employer”), or AB 1017 (to ban employer inquiries about prior compensation). He has until October 11th to act on those bills.

I just returned from the Cornell HR in Hospitality Conference in Las Vegas with my partner Carolyn Richmond.  I participated in the Executive Summit and shared ideas with some of the most progressive minds in the hospitality industry.  Here is my top ten list of take-aways:

  1.  Once a year performance reviews are backwards looking, and millennials (soon to be 50% of the workforce) want consistent feedback.  As one panelist put it “you can’t drive looking through a rear view mirror.”  It is time to re-think how you provide feedback.
  2. Similarly, once a year employee engagement surveys can have limited value, especially when the management team has learned how to manipulate results (such as by scheduling the employee appreciation party right before the survey goes out).  Plus, if you aren’t going to fix the issues identified in the survey, conducting one can do more harm than good.
  3. While California law still allows employers to terminate (or not hire) for a positive marijuana test – be careful – if the drug is taken for a disability, the applicant/employee could assert a disability claim.  Do you want to be the test case?  Most employers do not.
  4. Do not assume your paystubs are compliant; paystub class actions are here to stay so audit them in each jurisdiction.
  5. When negotiating vendor agreements (an issue I have blogged about before), add a provision about ACA compliance and make the vendor take full responsibility for it.  Plus, specify that you are not joint employers, and the vendor will indemnify you for any assertions of joint employment status.
  6. Scrutinize your background check vendor, and carefully weigh the risks of getting the process wrong versus the risk of a negligent hiring claim.  Some jobs and industries warrant (or require) background checks, but many do not.
  7. Do not assume that pay equity exists just because employees with the same job title are in the same “salary band.”  If all women are at the bottom of the band, then you will need to justify why or rectify.  Moreover, the rationale that the men were better negotiators upon hire is not a viable defense to a pay equity claim.
  8. Be careful before you offer to pay a departing employee’s Cobra as part of a separation agreement; you could inadvertently mess up their ability to get coverage on the exchange.
  9. When hiring part-timers (who may not work enough hours to get health coverage), specify in the offer letter that they will be working “variable hours.”
  10. While documentation of performance deficiencies is still critical to defending claims, often it makes sense to move people out quickly and pre-empt a retaliation claim; as a presenter put it “be slow to hire but quick to fire.”

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.