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Wage and Hour 2016 Update: Avoiding Payroll Headaches

Wage and Hour 2016 Update: Avoiding Payroll Headaches. Paul R. Lynd, Arent Fox LLP October 6, 2016. New Potential for Headaches and Mistakes. Plenty of potential headaches: Minimum wage on the move again Exempt salary requirements changing Paid sick leave

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Wage and Hour 2016 Update: Avoiding Payroll Headaches

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  1. Wage and Hour 2016 Update: Avoiding Payroll Headaches Paul R. Lynd, Arent Fox LLP October 6, 2016

  2. New Potential for Headaches and Mistakes Plenty of potential headaches: • Minimum wage on the move again • Exempt salary requirements changing • Paid sick leave • Local ordinances add to challenges • New legislation • Court cases In 2016, the landscape keeps changing.

  3. Minimum Wage Issues

  4. Which Rate Applies? • Not always an easy question anymore. • California had state increases to $9.00/hour on July 1, 2014 and $10.00/hour on January 1, 2016 • SB 3 increases state minimum wage to $15.00 per hour by 2023 • Rate increases annually • But applicable state rate depends on whether 25 or more employees until 2023 • After 2023, rate will increase automatically every year • Growing number of local ordinances can have higher minimum wage

  5. Employers with 26 or more employees • January 1, 2017: $10.50 per hour • January 1, 2018: $11.00 per hour • January 1, 2019: $12.00 per hour • January 1, 2020: $13.00 per hour • January 1, 2021: $14.00 per hour • January 1, 2022: $15.00 per hour

  6. Employers With 25 or Fewer Employees Increases for smaller employers a year later: • January 1, 2018: $10.50 per hour • January 1, 2019: $11.00 per hour • January 1, 2020: $12.00 per hour • January 1, 2021: $13.00 per hour • January 1, 2022: $14.00 per hour • January 1, 2023: $15.00 per hour Don’t be too clever in trying to be a “smaller” employer: Law defines “employer” broadly. It does not look at only one location or geographic region, at any specific time period, or even just in California apparently to determine size.

  7. And then, automatic increases . . . • After 2023, California will increase minimum wage automatically on every January 1 • Increases will be the lower of either 3.5 percent or the rate of inflation based on California Consumer Price Index • Minimum wage cannot be reduced in event of no inflation Suspension of minimum wage increases through 2023? • SB 3 allows Governor to order suspension of minimum wage increases up to twice, if economic and budget conditions do not support • Not a realistic possibility, though, even if economy poor

  8. When State Minimum Wage Increases, Other Things Change, Too Other rates move higher with the minimum wage: • Minimum salary for administrative, executive, and professional exempt employees must be twice state minimum wage each month • Collective bargaining exemption from state overtime: Requires at least state minimum wage, plus 30 percent, per hour • Commission pay exemption: Pay must be 1.5 times the state minimum wage for each hour worked Now, these minimums may increase at the start of each year!

  9. Higher Local Minimum Wage Rates • Local minimum wage ordinances with higher rate continue to proliferate • Berkeley, El Cerrito, Emeryville, Long Beach, Los Angeles, Los Angeles County, Malibu, Mountain View, Oakland, Palo Alto, Pasadena, Richmond, Sacramento, San Diego, San Francisco, San Jose, San Leandro, San Mateo, Santa Clara, Santa Monica, Sunnyvale • Employers must comply with higher minimum wage • Careful: Employees who work temporarily, or part of the time in a place with a higher rate, may be subject to that rate. • 2015 change in law allows Labor Commissioner to enforce local wage rates, so expect any Labor Commissioner claim to apply them instead of state minimum wage

  10. Overtime Exempt Salary Changes

  11. Federal DOL Changes • New U.S. Department of Labor overtime rule effective on December 1, 2016 • Significant increase in minimum salary level for employees under the federal administrative, executive, professional, and highly compensated employee exemptions • Current rule: These exempt employees must be paid minimum salary of $455 per week ($23,660 per year) to be exempt overtime exempt under federal Fair Labor Standards Act (FLSA). • On December 1, 2016: Federal minimum salary increases to $913 per week ($47,476 per year) – more than double. • Compare to California: State’s current salary minimum is $41,600 per year ($3,466.67 a month, or $800 a week)

  12. Other Federal DOL Changes • Highly compensated exemption compensation level (which does not apply in California) increased from $100,000 to $134,000 • DOL now will allow some bonuses and commissions to meet up to 10 percent of the federal minimum salary requirement. But California does not allow it to meet state’s minimum salary level! • Initially, DOL proposed increasing minimum salary to $50,440 per year – but changed methodology. • Looking ahead: Automatic increases every three years, starting January 1, 2020.

  13. Other Points on DOL Rule • DOL did not make any changes to exempt duties • DOL did not redefine “primary” for determining amount of time that must be spent performing exempt duties to qualify as exempt; did not adopt California rule requiring majority of time in exempt duties • Lawsuits pending challenging DOL rule • Congressional action • The rule is here and now, though, and December 1 is not far away

  14. What to Do With New DOL Rule? • Do you want to increase an employee’s salary to keep the exemption? • Increasing salary not required, but only if you want to keep an employee exempt • Convert to non-exempt? • A good time to review whether an employee is, in fact, exempt – even if employer may be willing to increase salary • This change will result in a lot of reclassification • Things to address if converting to non-exempt: how to communicate the change, giving a California wage disclosure notice, timekeeping, and meal and rest periods

  15. Reconciling Federal and California Salary Levels • Overtime exemption requires complying with the applicable minimum salary level • To be exempt under federal and California law, employer must comply with the higher of the two minimum levels • Employee may be exempt under one, but not the other • Until now, California has had a much higher minimum salary level than under the federal FLSA • Not anymore . . . at least for a while

  16. Comparing Salary Levels • Federal minimum will be $913 per week ($47,476 per year) on December 1, 2016 – until at least January 1, 2020 • Meanwhile, for example, California’s minimum salary for employers with 26 or more employees will be: 2016: $41,600 per year ($3,466.67 a month, or $800 a week) 2017: $43,680 per year ($3,640 a month) at $10.50 2018: $45,760 per year at $11.00 2019: $49,920 per year at $12.00 2020: $54,080 per year at $13.00 2021: $58,240 per year at $14.00 2022: $62,400 per year at $15.00 • California lower until state minimum wage crosses about $11.42 an hour, or until 2019 for larger employers.

  17. Exempt Only Under California Law • Yes, it is a possibility! • Employer who meets current California minimum salary level (and duties test), but not the higher federal level, is overtime exempt under California law • Federal FLSA 40-hour weekly overtime rule still would apply • Employee would be exempt from California 8-hour daily overtime, 12-hour daily double overtime, and seventh day of the workweek overtime premiums • And, still exempt from California meal and rest period rules, or at least from the premium pay penalties! • This option something to consider, but be careful

  18. Paid Leaves

  19. Paid Sick Leavein California • SB 3 extended paid sick leave to IHSS workers in California • Remember: California law changed to clarify 2 methods allowed to pay paid sick leave under state law • Non-exempt employees calculated on one of two methods: (1) same rate as “regular rate” for overtime in week sick leave used; or (2) dividing employee’s total wages, not including overtime premium pay, by employee’s total hours worked in full pay period during last 90 days of employment • Exempt employees paid at same rate as other forms of paid leave time (usually same salary rate) • Local cities may be different: San Francisco, Oakland, Emeryville, Los Angeles, Santa Monica, and San Diego. • Be sure what applies and comply with most protective.

  20. It’s Contagious: Federal Contractors Face Sick Leave Mandate • In Sept. 2015, President signed Executive Order mandating paid sick leave for employees of federal contractors and subcontractors. • Effective with contracts commencing, amended, or renewed on or after January 1, 2017. • DOL proposed implementing regulations in March 2016. Final regulations expected in late September 2016. • Some provisions track California law, but some different or more generous.

  21. Coming Soon: Federal Contractors Must Give Paid Sick Leave • Federal contractors and subcontractors • Details in proposed federal DOL regulations • Similar to California paid sick leave law, but differences • Requires up to seven days or 56 hours of paid sick leave a year • Employees could use for family care, but different people covered than under state and local laws • Different dollar minimums apply for coverage • Purports to be limited to employees working on a federal contract – which is not always so clear • Federal contractors must reconcile federal, state, local rules

  22. Paid Family Leave • Federal Family and Medical Leave Act and California Family Rights Act require unpaid leave, but employees may use accrued paid leave. • FMLA/CFRA requires 50 employees. • California law has a paid family leave benefit through EDD • That leave is not job-protected, unless FMLA/CFRA applies • Paid family leave benefit amounts increasing

  23. SB 654 on Parental Leave • New Parent Leave Act – pending Governor’s action • Requires employers to grant up to six weeks a year of parental leave to bond with a new child within one year of birth, adoption, or foster care placement • Lowers coverage to 20 employees within 75 miles • Must have been employed 12 months and worked 1,250 hours • Employer must give guarantee of reinstatement when granting leave – or leave deemed not granted • Employer must continue group health coverage on same terms, including paying any portion it would have paid if employee kept working. No provision for recovery if leaves. • Employee may use accrued paid leave.

  24. San Francisco Paid Parental Leave Ordinance • First local ordinance, and first mandate that employers pay employees who take parental leave • Effective January 1, 2017 or July 1, 2017, depending on number of employees • Employer pays difference between California Paid Family Leave benefits and normal weekly wage • May apply even if employee does not always work in San Francisco • New leave and retaliation protections • A payroll mess in some cases!

  25. Piece Rate Pay

  26. AB 1513 and Piece Rate • Lingering problem for employers • AB 1513 imposed new requirements with piece rate pay • “Safe harbor” defense for dealing with past problem: Election deadline passed, payments coming due • Questions with how to calculate pay correctly • Labor Commissioner’s interpretations • Commissions: Similar issues, but still unresolved

  27. New Laws

  28. Itemized Wage Statements: No Hours Required for Exempt Employees • Assembly Bill 2535, signed and effective January 1, 2017 • Labor Code section 226 requires listing total hours worked • Has had an exception for employees paid solely based on a salary and covered by administrative, executive, or professional exemption • Bill overturns Garnett v. ADT, LLC decision, which required outside sales employees’ hours be listed • Total hours not required if exempt from overtime and minimum wage under wage orders • Added exceptions • Commission pay exemption may not be excluded

  29. Temporary agencies and security guards • AB 1311, signed and in effect now as urgency bill • Temporary agencies must pay employees weekly and by the regular payday of the following calendarweek • This bill requires security officers to be paid on the regular payday of the following workweek • Example of very industry-specific and narrow focus legislation

  30. Agricultural Employees and Overtime • Assembly Bill 1066, signed and effective January 1, 2017 • Phase-In Overtime for Agricultural Workers Act of 2016 • Federal law exempts agricultural employees from overtime • In California, Wage Order 14 has required overtime after 10 hours in a day or 60 hours in a workweek • This bill removes agricultural exemption from overtime under 8 hours a day and 40 hours per week rules, plus extends same meal period requirements and day of rest provision • Phases in overtime requirements starting in 2019 to 2025 • Governor could suspend, as with minimum wage increase • Labor Commissioner expects large increase in wage claims

  31. Overtime and Domestic Workers • Issue revisited • Earlier bill repealed overtime exemption for personal attendants • Law had a sunset date of January 1, 2017 • SB 1015 (pending Governor’s action) removes sunset date, making change permanent

  32. Giving Employees Notice of Right to Leave • Employees have right to leave related to being victim of domestic violence, sexual assault, or stalking • AB 2337, signed and effective January 1, 2017requires new notice • Employers must give written notice of right to the leave upon hire and upon request • Labor Commissioner will develop template notice that employers may use • Labor Commissioner has until July 1, 2017 to make notice available • Employers do not have to comply until notice available • Are other leaves next?

  33. Changes to Labor Code Private Attorney General Act requirements • Legislature failed to approve five bills that sought to reform PAGA, including amnesty for “commonplace industry practices” later held invalid and more chance to cure problems • Budget trailer bill enacted some changes that Administration wanted, effective June 27, 2016 • Employee or representative must file notices electronically, with $75 fee • Labor agency gets 60 or more days to review, instead of 33 days, before employee may sue • Copies of lawsuits, settlements, and judgments must be sent to the labor agency • Removed language allowing state to object to settlements,

  34. Expanding Sex-Based Wage Discrimination Protections to Race and Ethnicity • Last year, effective January 1, 2016, SB 358 expanded protection against sex discrimination in wages. • SB 358 changed focus to “substantially similar” work, not necessarily the same job title or classification • SB 358 also allowed looking beyond the same work location • Narrow category of defenses, with employer having burden • SB 1063 (pending Governor’s action) expands same protections to race and ethnicity • Duplicate of FEHA protections, but with possible double damages and a longer limitations period • Recordkeeping requirements

  35. Considering Salary or Pay History • In 2015, Governor vetoed bill that would have prohibited inquiries into applicant’s salary and pay history • Focus of bill was on possible sex discrimination in wages, but had broader impact • That idea enacted in other states • AB 1676 (pending Governor’s action) repackaged issues differently • Inquiries into prior salary or pay would be allowed, but “prior salary shall not, by itself justify any disparity in compensation” • Overwhelming support in Legislature

  36. Minimum Wage Bond • Minimum wage violations carry liquidated, or double, damages • Labor Commissioner may award unpaid wages and liquidated damages after hearing • AB 2899 (pending Governor’s action) would require an employer to post a bond in the amount of the award in order to appeal

  37. State-Sponsored Retirement Plan • SB 1234 (pending Governor’s action) • California Secure Choice Retirement Savings Program • State retirement plan for employees not covered by other plan • Certain employers would have to have agreements in place • Many unsettled issues

  38. Heat and Indoor Employees • Cal/OSHA has had heat standards for employees working outdoors • Employers required to give heat recovery breaks • SB 1167 (pending Governor’s action) requires Cal/OSHA to develop a heat safety standard for indoor employees by 2019 • Could it lead to recovery breaks for indoor employees? • What about wage orders’ existing temperature standard?

  39. Criminal Records:Juvenile Cases • Laws becoming more strict on employers considering criminal records • California prohibits an employer from considering arrests or cases that did not lead to conviction • AB 1843 (pending Governor’s action) prohibits considering adjudications while under the jurisdiction of the juvenile court • Health facility employers still could consider sex offenses and controlled substance convictions within last five years • Bill may not exclude a conviction just because someone was a juvenile, though, as some juveniles get prosecuted in adult court

  40. Prohibiting Certain Practices Regarding Eligibility to Work Evidence • California has been very expansive on prohibiting certain immigration-related practices • SB 1001 (pending Governor’s action) expands the list • Prohibits requiring additional documents beyond what shown and allowed to establish eligibility to work, not accepting offered documents at face value, or not accepting things with an expiration date • Takes federal issues and makes them a state violation • Allows up to a $10,000 penalty • Allows Labor Commissioner or private party to pursue • Somewhat unclear who gets the money or the time period to bring a claim

  41. What Failed in the Legislature • AB 67 – double time for working Thanksgiving (lost the second time) • SB 878 – Reliable Scheduling Act, modeled after San Francisco’s Retail Workers’ Bill of Rights and would have required “modification pay” when certain employers changed schedules or did not use an on-call employee. A real payroll headache! This issues likely will resurface again in the next session.

  42. New Cases

  43. New Rest Period Decision Due • Augustus v. ABM Security Services, 233 Cal.App.4th 1065 (2014) • Court of Appeal held that on-call rest periods are permissible, because not working on call • California Supreme Court heard argument on September 29, with decision due by end of year

  44. Combining Rest Periods? • Rodriguez v. EME, Inc., 246 Cal.App.4th 1027 (2016) • Employer combined two rest periods into one 20-minute rest period per day • Court focused on whether separate rest periods “practicable” • A bad decision likely to confuse the law and even mislead employers. • Court seemed confused by issues and wage order • Most likely, not a good idea to rely on the decision, at least for general idea that rest periods can be combined.

  45. Final Wage PaymentRules Apply to Retirement • McLean v. State of California, 1 Cal.5th 615 (2016) from the California Supreme Court • Labor Code’s final pay rules apply to state government as well, but state apparently had so trouble meeting them and other rules • Potential class action by employee who retired • Supreme Court held that retirement treated as a resignation for final pay purposes • Rejected state’s argument that no timing applies to retirements

  46. Employees’ Rights to Seats • Wages orders state: “All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.” • Kilby v. CVS Pharmacy, Inc., 63 Cal.4th 1 (2016), was case involving retail cashiers, but others can make a seating claim. • Must consider sets of tasks at a particular location, not look at job as a whole or at every task separately. • Reasonableness looks at “totality of the circumstances,” and whether feasible to perform duties while seated. • Why important? Civil penalties for violation. A popular claim in last several years.

  47. Class Action Decision: Timecards and Schedules • Cruz v. Sun World International, LLC, 243 Cal.App.4th 367 (2015) • Lack of commonality on off-the-clock, and meal and rest period claims, defeated class certification • Paying-to-the schedule: Time records reflecting schedule, or even hours or half hours, fine if that’s what employees worked

  48. Recovering Training Costs When Employee Leaves? • In re Acknowledgement Cases, 239 Cal.App.4th 1498 (2015) • Employee training costs • City trying to recover payment of police training costs when officer’s left employment • Decided under Labor Code section 2802, on whether the employer must cover the expense • Employer not required to reimburse for cost of state-mandate license and training • Employer must reimburse for training it requires, however. • Cannot require repayment of training costs if employee leaves employment

  49. Another Training Case: Recovery Allowed • USS-Posco Industries v. Case, 244 Cal.App.4th 197 (2016) • Employee signed agreement to reimburse part of training costs if employment ended • Court saw program as “strictly voluntary, optional training program” • Not an employer-imposed requirement, so employee could be required to pay

  50. De Minimis Time • Troester v. Starbucks before the California Supreme Court • Supreme Court will decide whether California law recognizes the de minimis time rule that federal law allows • The rule holds that certain small amounts of time do not have to be paid • Unclear whether California recognizes this rule • No California case has addressed the issue

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