Minimum Wage, New Labor Laws, Pay

2017 LABOR LAW CHANGES

The legislature passed many new employment laws or tinkered with old ones.  Below are a three of the most significant changes.

MINIMUM WAGE INCREASE

 In California, the minimum wage will increase to $10.50 per hour on January 1, 2017 for employers who have more than 25 employees.  The people of San Diego passed a ballot proposition in June that increased the minimum wage to $10.50 per hour and will further increase it to $11.50 per hour on January 1, 2017.  Workers get the highest minimum wage rate among federal, state, or local minimum wage laws.

The Federal Minimum Wage will not change for now, but one aspect of it might.  On December 1, 2016, the minimum salary for exempt employees was scheduled to increase to $47,476.00 per year.  That is more than double the old federal minimum salary requirement and is higher than most state minimum salary requirements.  However, a judge in Texas recently ruled that the law would NOT go into effect on December 1.  It might go into effect later; however, the judge may permanently bar the change.  Either way, the judge’s ruling will probably get appealed.

The minimum salary in California will increase to $43,680.00 for exempt employees on January 1, but only for employees who work for employers who employ more than 25 employees.  Why does the state minimum salary distinguish between employers who employ more or less than 25 employees?

The answer is the way in which the minimum wage works in California.  The minimum salary in California is twice the state minimum wage times the number of hours a full- time worker, at 40 hours per week, works in a year.  In other words, the number of hours the state presumes a full-time worker to work in a year is 2080 hours.  Two Thousand Eighty hours times $21 per hour (twice the $10.50 state minimum wage for employers who employ 26 or more employees) equals $43,680.00.  As of January 1, that will be the minimum salary for exempt employees who work for an employer who employs at least 26 employees.  The state minimum wage for all other employees (those who work for an employer who employs fewer than 26 workers) is $10 per hour.  Thus, for employers who employ 25 or fewer employees, the minimum annual salary for exempt workers is $41,600.00 (2 x $10/hour x 2080 hours) or $800.00 per week.

The California minimum wage rate will increase every year through 2023.  The scheduled increases are below:

For employers who employ at least 26 employees:

  1. On January 1, 2017, the minimum wage will increase to $10.50 per hour.
  2. On January 1, 2018, the minimum wage will increase to $11 per hour.
  3. On January 1, 2019, the minimum wage will increase to $12 per hour.
  4. On January 1, 2020, the minimum wage will increase to $13 per hour.
  5. On January 1, 2021, the minimum wage will increase to $14 per hour.
  6. On January 1, 2022, the minimum wage will increase to $15 per hour.

For employers who employ 25 or fewer employees:

  1. On January 1, 2018, the minimum wage will increase to $10.50 per hour.
  2. On January 1, 2019, the minimum wage will increase to $11 per hour.
  3. On January 1, 2020, the minimum wage will increase to $12 per hour.
  4. On January 1, 2021, the minimum wage will increase to $13 per hour.
  5. On January 1, 2022, the minimum wage will increase to $14 per hour.
  6. On January 1, 2023, the minimum wage will increase to $15 per hour.

The minimum yearly salary for exempt employees will increase by twice the minimum wage times 2080 hours.  The governor has the ability to delay implementation of the above minimum wage schedules.

FAIR PAY ACT

In 2015, California amended Labor Code §1197.5 to prevent employers from retaliating against employees who make Fair Pay Act claims.  That law also made it easier for employees to prove unequal gender pay.  On January 1, 2017, the law will now allow employees to make Fair Pay Act claims based on differences in pay between employees of different races and ethnicities as well as gender.  In addition, past salary levels cannot justify lower pay.

CHOICE OF LAW AND FORUM SELECTION CLAUSES

California Labor Code §925 was passed this year and will go into effect on January 1, 2017.  It prevents employment contracts from forcing California workers to bring their claims outside of California when they live and work in California.  It also prevents employers from forcing employees to be governed by the law of another state.  Out of state employers who hire California workers to perform work in California will not be allowed to use handbook provisions or employment contract provisions to force California workers to bring claims out of state and under another state’s laws.  Often, the employment laws of another state favor the employer.  Of course, trying to litigate in a different state significantly burdens most California workers.  In contrast, Labor Code §925 will allow California employees to file claims in California under California law.

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Class Action, Minimum Wage

Managers Are Not Exempt Unless They Make $41,600!

Most employers know that California requires them to pay every employee at least $10 per hour.  Did you realize that an increase in minimum wage requires an increase in salary for exempt managers?  If not, listen up.

Exempt white collar employees must meet certain criteria to be considered exempt.  Probably the most important is the minimum salary level.  Exempt employees must make two times the minimum wage in a theoretical 40-hour work week.  Forty hours per week equals 2080 hours per year (52 weeks x 40 hours).  That means the minimum salary an exempt employee must make is $41,600 (2 x $10 x 2080 hours).  Thus, California requires all managers to make at least $41,600 to be an exempt employee.  Of course, that is also the minimum salary for all other white collar exemptions, unless a particular exemption has a different minimum wage requirement.  For instance, an exempt computer professional must be paid at least $41.85 per hour or at least an $87,185.14 salary per year.  Each year the computer professional wage rates increase according to the yearly percentage increase in the California Consumer Price Index.

I believe that the minimum salary level is the most important criteria to meet for exempt employees because it is the easiest criteria to challenge in a misclassification case.  If a manager is not paid the minimum salary, then that manager simply is not exempt.  If that manager later brings a lawsuit for unpaid overtime, then the employer will lose and will owe back wages, assuming the manager actually worked overtime hours.  Most of the other exemption criteria are not as clearly discernable.

Misclassification cases often create class action liability if enough managers or other exempt employees do not receive the minimum salary.  In both individual claims and class action claims, the prevailing employees are entitled to attorney’s fees.

Employers, I highly recommend that all the managers that you want to classify as exempt make at least $41,600 per year.  Employees, if you are exempt, make sure that you are making the minimum salary.  Local wage laws that have higher minimum wage requirements also increase minimum salaries for exempt employees.  Los Angeles, for instance, will have a minimum wage rate of $10.50 per hour starting on July 1, 2016.  The corresponding minimum salary will be $43,680 (2 x $10.50 x 2080 hours).

I am available to consult with anyone who has a question about the required minimum salary or other exempt employee requirements.  Call me at (858) 292-0792.

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Independent Contractor

Potential Liability of Independent Contractors

Independent contractors are not employees.  An employer need not pay for their benefits or insurance and is not required to withhold taxes from their pay checks.  Unfortunately, an independent contractor that should have been classified as an employee carries hidden costs in the form of unpaid wages and penalties.  Even properly classified independent contractors can still create liability for a business.

The IRS did a study in which it found that millions of U.S. workers were misclassified as independent contractors.  (Report of Treasury Inspector General for Tax Administration (June 14, 2013) Reference Number: 2013-30-058: “Employers Do Not Always Follow Internal Revenue Service Worker Determination Rulings”.)  The IRS and other federal and state agencies are much more carefully looking into potential misclassification now than in the past.  If an employer has a doubt about whether an independent contractor might actually be an employee, it should take the time and effort to investigate the legal issue.  Reviewing the independent contractor relationships is not always easy, in part, because each federal and state agency may have a slightly different list of factors it uses to determine which workers are independent contractors.  Please see my past article: Independent Contractor: Stepped Up Enforcement (May 2015).

When entering into independent contractor relationships, businesses can draft agreements that will help to protect them.  Agreements are not full proof, because the agencies and suing attorneys will look at what the worker does, not what the agreement says.  However, a tightly worded agreement can help.  For instance, an agreement should never use the term “at-will” when referring to the status of an independent contractor.  Only employees are “at-will”.  Simply describe the parameters of the tasks the worker must perform.  Also, avoid non-compete clauses.  That type of control normally is for employees who perform the core functions of the employer’s business.  In most cases, independent contractors have their own businesses that are not directly related to the business for which they work.  Think of outside lawyers, accountants, consultants, and other types of professionals.  If the worker potentially will compete with the business after leaving the company, they were probably employees.

Even properly classified independent contractors can create liability headaches for a business.  When a properly designated independent contractor harasses a protected employee, the business can be liable for those acts.  That is true of other discriminatory conduct too.  Sometimes independent contractors get hurt at job sites.  When that happens, they are not covered by Workers’ Compensation insurance.  If the business arguably caused the injury through negligence or another theory, the injured contractor may sue.

Often, independent contractors are cheaper and less headache than an employee, but the downside can be very steep if the designated worker is not really and independent contractor.  However, even a properly designated independent contractor can create liability for a business.

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New Labor Laws, Uncategorized

NEW CALIFORNIA LABOR LAWS IN 2016

We are in the middle of February and a slate of new labor laws have been in place of nearly two months.  Just to make sure that all employers are aware of them, I thought I would publish this article to describe some of the most important new labor laws.

GENDER PAY EQUALITY

The gender equality pay law under Labor Code §1197.5 has some important changes.  These changes will make it easier for employees to make claims.  The law allows an employee to sue if an employer retaliates against an employee for making unequal pay claim based on gender.  Additionally, unequal pay no longer needs to happen in the same establishment.  Thus, an employee at one location can make a claim for disparate pay that occurs at another location.  Further, an employee of one sex can make a claim for unequal pay when an employee of the opposite sex gets greater pay for: “substantially similar work, when viewed as a composite of skill, effort, and responsibility.”  That standard will be easier to prove than the old “equal work” standard.  Finally, employers can defend sex wage differentials when they are based on: (1) Seniority System, (2) Merit System, (3) Systems that pay based on quantity or quality of production, and (4) Factors such as education, training, or experience, but only if pay differential is a “business necessity”, job related, and not derived from a sex-based differential.

CANNOT RETALIATE AGAINST AN EMPLOYEE WHO ASKS FOR A DISABILITY OR RELIGIOUS ACCOMMODATION

An appellate court said that asking for an accommodation based on religion or disability was not protected.  A new law makes retaliating against an employee asking for that type of accommodations an illegal, and, if an employer does retaliate, the employee may sue.

EMPLOYERS HAVE THE RIGHT TO CURE MINOR PAY STUB VIOLATIONS.

Recently, employers have faced huge penalties for not putting accurate pay period dates and employer addresses on pay stubs.  Employers now have the right to “cure” those types of pay stub inaccuracies.  Specifically, if the pay period dates or the employer address is not accurate, then employers may fix those inaccuracies without penalty, but they may only do so once in any 12-month period.

MINIMUM WAGE IS $10 PER HOUR

            A law passed in 2013 increased the minimum wage to $9 per hour in 2014.  The second half of that law came into effect on January 1 of this year, and made the minimum wage $10 per hour throughout California.

CANNOT RETALIATE AGAINST FAMILY MEMBERS OF WHISTLE BLOWERS

When one family member blows the whistle on an employer, the employer may not retaliate against a non-complaining family member who also works for that employer.  Further, employers who contract for labor face the same family member retaliation liability as any other employer faces.

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Discrimination, Harassment, Holiday Parties, Minimum Wage

Holiday Parties and the Law

The holiday party season is upon us, so, do employers and employees have any special concerns with holiday office parties?  Of course they do.  Luckily, employers can take steps to limit their liability exposure, and employees can keep an eye out to protect themselves.

Around holiday time, alcohol often influences how people behave.  As a rule, employees should watch how much they drink, and employers should contain the influence of alcohol during their company sponsored parties.  Common types of cases related to office holiday parties include: third party claims against intoxicated employees, sexual harassment claims, worker compensation claims, and wage claims.  As you can probably guess, the first three categories often have alcohol consumption involved with them.

For example, in Harris v. Trojan Fireworks Co., (1981) 120 Cal.App.3d 157, an intoxicated employee caused a terrible car accident while driving home from his employer’s party.  The people in the other car were terribly injured.  In fact, one person died in the accident.  The appellate court said that California laws generally bar liability for social hosts when a guest gets into a car accident after a party.  However, the court found that the work party situation was different, at least in this case, because, among other things, the party was held at the work place and during work hours, the employer paid the employee to attend, and that employee was encouraged to drink excessively.

Watch out for naughty Santa Clauses at holiday parties.  In one California case, Brennan v. Townsend & O’Leary Enterprises, Inc., (2011) 199 Cal.App.4th 1336, the plaintiff sued partly because of activities at two different parties.  At the first one, the Santa had female employees sit on his lap.  He then proceeded to ask them about their love lives.  At the second party, a different Santa wore a cap with vulgar words.  Ultimately, the employer was able to escape liability, but only after convincing an appellate court to overturn $250,000 jury award.  Employers, make your Santa’s behave!

When an employer requires attendance at a party, the employers may be exposing itself to wage claims.  Often the Courts find that required attendance is a function of employer control.  When an employer exerts control, usually the employee must be paid for the time under which he or she was being controlled.  My advice: Do not require attendance at a holiday party.

The following is a list of things that an employer can do to help contain liability for holiday parties:

  1. Attendance should be voluntary.
  2. Limit the amount of shop talk at the party.
  3. Don’t ask employees to perform special functions at the party.
  4. Invite the families of the employees.
  5. Hold the party away from the work site.
  6. Make sure that sexual harassment training is up-to-date.
  7. Make clear that sexual harassment at the party will not be tolerated.
  8. Harassment policies should cover off location events.
  9. Hold the event after hours or on a weekend.
  10. Don’t take attendance.
  11. Provide plenty of non-alcoholic beverages.
  12. Investigate complaints about party events as seriously as you would investigate other work place complaints.
  13. Choose to not serve alcohol
  14. If the employer chooses to serve alcohol, limit the amount employees can drink.
  15. Have a professional alcohol caterer screen for intoxication.
  16. Only give out a limited number of drink tickets.
  17. Have employees pay for the drinks they consume.
  18. Arrange for alternative transportation.
  19. Provide discounted rates at the hotel where the party is located.
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Sick Leave

PAID SICK LEAVE IN CALIFORNIA

California’s new sick leave law went into effect on July 1 of this year.  It applies to all employers, no matter how many employees an employer has.  There are very few exceptions, so all California employers need to know the law.  The limited exceptions to the new sick leave law are: (1) Certain union employees, (2) State in home care workers, (3) Some air carrier employees.

Employers must give sick leave to employees who have worked at least 30 days within the employment year.  The sick leave accrues at the rate of 1 hour for every 30 hours worked.  Employers may provide only 24 hours (3 days) of sick leave per year if the employer offers its employees three sick days at the beginning of the employment year.  Barring that, an employer must allow its employees to accumulate up to 6 days of sick leave per year.  Nevertheless, an employer may still limit sick leave to just 3 days per year.  In that case, unused leave must be carried over to the next year.  After 90 days of employment, employees may begin to use accrued sick.

Employers must track sick leave accumulation either on employee wage statements or on separate sick leave statements.  An employer can avoid the tracking headache by creating a policy in which employees receive at least 24 hours of sick leave at the beginning of each year.  In that case, the only thing to track is the amount that the employee uses during the year.  Employers must maintain records that track the accumulation and use of sick leave for a period of 3 years.

If tracked separately from vacation or PTO, California will not consider sick leave as a wage.  In that case, an employer will not need to pay remaining balances to a terminated employee at the time of termination.  However, if an employer includes sick leave with either vacation or PTO, then the sick leave will become a wage and will need to be paid out as wages at the time of termination.

Sick leave may be used for an employee’s health condition or for the health condition of a family member of an employee.  The code defines “family” very broadly: Child, Parent, Spouse or registered domestic partner, Grandparent, Grandchild, and Sibling.  An employee can also use sick leave for preventive care, domestic violence, sexual assault, and stalking.

No employer may retaliate against an employee for requesting sick time off or for attempting to enforce sick leave rights.  The employer may require employees to us a minimum amount of sick leave, but that minimum amount may not be greater than 2 hours.  Nevertheless, employees have the right to determine how much sick leave to use as long as they use at least the minimum amount.  An employer must display a poster describing the requirements of the law.

The associated fines are very stiff.  An employee can collect up to $250 for each withheld sick day, up to a maximum of $4,000.  If the employee suffers other related harm, such as a wrongful termination, then the employer can suffer civil penalties of $50 for each day the violation remains uncorrected, up to $4,000.  In addition, if an employer does not promptly comply with the law after receiving notice of its violations, then the state can collect a daily penalty of $50 with no limit.  The Private Attorney General Act will allow collective penalties to accumulate.  The prosecuting party can get fines, special damages for the employee(s), costs of suit, and attorneys’ fees.

Employers must be aware of this law.  Ignoring it, or the rights conferred, can come at a hefty price.

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Tips

Employer Required Tip Pools: Are they Legal? How are they taxed?

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Are tip pools legal when required by an employer?  The quick answer to that question is yes.  But under both California law and federal law, the pool must meet certain legal requirements.

As a general rule tips are optional, freely given payments for service above and beyond the cost of the products being sold.  The customer has the complete right to set the amount of the tip and may choose not to tip at all.  The employer should have no say in the amount of the gratuity.

California Labor Code §§350-56 lays the legal foundation for tip pool requirements in California.  The law forbids the employer from taking or sharing in tips (Labor Code §351), and employers must track all tips that they collect for employees (Labor Code §353).  Employer mandated tip pooling is legal, but the house cannot share in the pooling arrangement.  The tip pool must be fair and reasonable.  Only those who are in the chain of service can be in the pool.  For instance, an employer cannot require servers to include cooks and dishwashers in the pool.

Tips are taxable income.  When tips are shared, who must pay the tax?

Technically, all persons who receive tips or a share of the tips must report it as income.  However, a common practice is for the employer to allocate the entire tip to the server who waits on the table.  In that case, even when the server shares the tip, the server is the only person who pays tax on the entire tip.  The employers records do not show any other employees in the service chain as persons who receive tips, even though they actually do in tip pooling arrangements.  Presumably, those employees who share the server’s tip as part of the chain of service escape tax liability because the employer’s records do not show them collecting any tips.  In that case, the server unfairly pays tax on the portion of the tip that he or she did not actually take home.

 

S. Ward Heinrichs, Esq.
BACKSTROM & HEINRICHS
Attorneys at Law
A Professional Corporation
4565 Ruffner Street, Suite 207
San Diego, CA 92111
(858) 292-0792
(858) 408-7543 (fax)

http://bestemploymentattorneysandiego.com/

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