Essential Employment Law Guide for Entrepreneurs

1. What Entrepreneurs Should Know About Employment Law Surviving an Employment Department Audit at the Justice League Featuring: The 15-Minute Lawyer – Legal issues explained in 15 minutes, followed by Q&A

2. Note: This is an introduction to legal issues that commonly affect start-up businesses This is not a substitute for working with a lawyer, which is always recommended.

4. Hiring? Be Sure to Register with the Feds and California. • To Get a Federal Employer Identification Number (EIN): • https://sa.www4.irs.gov/modiein/individual/index.jsp • To Register with the California Employment Development Department, and obtain a California Payroll Tax Account Number: • http://www.edd.ca.gov/Payroll_Taxes/Am_I_Required_to_Register_as_an_Employer.htm

6. Hiring – 3 Choices The IRS and CA put workers into three distinct categories: • Employee • Independent Contractor • Unpaid Workers (Interns and Volunteers) The DEFAULT is to assume an EMPLOYEE relationship – Which has the strictest requirements — ,

8. Employer Requirements – the 18 Point Checklist • (1) The employer has applied for and been assigned a federal employer identification number by the Internal Revenue Service (IRS). • https://sa.www4.irs.gov/modiein/individual/index.jsp • (2) The employer has registered with the California Employment Development Department (EDD) and secured an EDD account number. • See “How to Register with the EDD” and “Employer Payroll Tax Account Number” at http://www.edd.ca.gov/Payroll_Taxes/Am_I_Required_to_Register_as_an_Employer.htm ,

9. Employer Reqmts – the 18 Point Checklist, Contd. • (3) The employer withholds federal and state income taxes and federal social security, (FICA) taxes from taxable wages paid to employees, pays the employer share of FICA taxes, and deposits all such funds in a timely manner and with the appropriate IRS and EDD forms. • For information on California payroll taxes, see http://www.edd.ca.gov/Payroll_Taxes/. • (4) The employer withholds state disability insurance from taxable wages paid to employees, and deposits all such funds in a timely manner with EDD, or establishes a state-approved private disability insurance plan. • For information on California disability insurance, see http://www.edd.ca.gov/disability/Employers_and_Self-Employed_Information.htm. ,

10. Employer Reqmts – the 18 Point Checklist, Contd. • (5) The employer purchases workers’ compensation insurance through an authorized insurance company or from the State, or secures consent to self-insure. If the business has volunteers, the leadership has declared that the business’s volunteers are employees for workers’ compensation purposes, and the business has so notified its insurance carrier. • For information on California workers’ compensation insurance, see http://www.edd.ca.gov/disability/Employers_and_Self-Employed_Information.htm. • (6) The employer pays state unemployment insurance or elects the reimbursement method. ,

11. Employer Reqmts – the 18 Point Checklist, Contd. • (7) The employer pays any local city-imposed payroll tax. • (8) The employer obtains a completed federal Form I-9 from all new employees. • https://www.uscis.gov/i-9 • (9) The employer reports all newly hired employees to the EDD. • http://www.edd.ca.gov/payroll_taxes/new_hire_reporting.htm — ,

12. Employer Reqmts – the 18 Point Checklist, Contd. • (10) The employer notifies employees about the Earned Income Credit. • (11) The employer obtains a completed IRS Form W-4 and state Form DE 4 from each employee. • https://www.irs.gov/uac/about-form-w4 • http://www.edd.ca.gov/payroll_taxes/forms_and_publications.htm • (12) The employer furnishes each employee with a completed IRS Form W-2 by January 31 for the previous calendar year. • https://www.irs.gov/uac/about-form-w2 ,

13. Employer Reqmts – the 18 Point Checklist, Contd. (13) The employer posts or provides to all employees the required employment notices. (14) The employer complies with wage and hours laws, workplace safety laws, and nondiscrimination laws. (15) The employer complies with all employee benefit plan requirements. (16) The employer complies with all written personnel policies and procedures. ,

14. Employer Reqmts – the 18 Point Checklist, Contd. • (17) The employer prepares proper documentation of all independent contractor arrangements, and reports compensation to independent contractors on IRS Form 1099 MISC and California Form DE 542. • https://www.irs.gov/uac/about-form-1099misc • http://www.edd.ca.gov/Payroll_Taxes/Independent_Contractor_Reporting.htm • (18) If it employs greater than 50 employees, the employer offers affordable health care or pays a fee. • For additional help with employer legal compliance, see EDD’s Employer Services webpage at http://www.edd.ca.gov/Employer_Services.htm. ,

16. Exempt vs Non-Exempt Employees • —Exempt Employees are salaried executive, administrative, and professional employees making more than $913/wk • Includes Foreign Employees • —Distinctions with Exempt Employees: • EXEMPT from most wage/hour laws • Paid on salary basis (pre-determined amount of compensation) • Non-Exempt Employees are employees that don’t fit the above criteria

18. Offer Letter vs Employment Contract • California is an at “Employment at Will” State: • = Either the employer or the employee can terminate for any lawful reason. • Using an Offer Letter helps maintain employment at will status. • If you use an Employment Contract instead: • Can only terminate for good cause • Best to use employment contracts only with key staff (e.g., CEO)

19. Usual Process: Hiring Using an Offer Letter • To Hire Using an Offer Letter: • include essential terms – wage, hours, start date, duties • require adherence to personnel policies • include signing of NDA/Invention Assignment • —Employee reviews the offer letter & the personnel policies, then signs • This preserves Employment at Will status.

21. What is an independent contractor? Typically, someone who is: • Hired on a part-time, as needed basis • Paid based on hours worked or per project • Expected to provide own supplies, workspace, travel expenses, etc. • Receives no formal training from the employer • Has their own independent business serving other clients

22. What if you need to use an Independent Contractor? • Give the contractor LOTS OF CONTROL over their work. • Pay the contractor per each project, not by salary • Don’t pay the contractor’s out-of-pocket expenses • Allow the contractor to work for others • Allow the contractor hire their own workers • Don’t require use of company equipment or uniforms • Don’t use contractors to provide CORE services or products of your business (Employees must do this) • Always put the contractor agreement IN WRITING - !

23. What to Include in the Independent Contractor Agreement: • Services Provided • Compensation • Non-Disclosure Requirement • IP/Invention Assignment • Requirement to Obtain Insurance and Proper Permits • Additional Statements Showing Independent Contractor Status: • Can work for others • Not required to wear uniform • Not being eligible for disability insurance, unemployment • Can hire others to assist as needed

25. Employing Minors – California Law ALL Minors must get a work permit from their school district prior to job start Minors usually can only work non-hazardous, non-manufacturing jobs • 12-13 Year Olds: Cannot work on any school day – only holidays, vacations, and weekends (40 hours per week in summer) ; Maximum hours acc. to permit • 14-15 Year Olds: Can work no more than 3 hours per school day, or 8 hours per non-school day, or 18 hours per week while school is in session (40 hours per week in summer) 16-17 Year Olds: Can work no more than 4 hours per school day, or 8 hours per non-school day, or 48 hours per week

27. Requirements for Unpaid Internship Unpaid workers can work for For-Profits ONLY if they qualify as “Interns” : • Training is similar to training that would be given at vocational school • Training is for benefit of trainees or students • Trainees or students do not displace regular employees • Employer does NOT derive immediate advantage from activities of trainees or students - Employer may actually be harmed occasionally • Intern is not necessarily entitled to a job at conclusion of training • Intern understands that s/he is not entitled to wages

29. Interviewing – What NOT to Ask • Applicants have rights even BEFORE they become employees • —Federal and state laws prohibit discrimination during the hiring process • —AVOID questions that inquire as to any of the protected categories: • —Race, Religion, Sex / Gender Identity, Sexual Orientation, —Age, —National Origin, —Marital, —Military, Disability, Medical / Genetic Info, and —Pregnancy

31. Recommended – USE A PAYROLL SERVICE • Keeping track of employer requirements take time and money • There are many deadlines and filings to keep track of, with serious consequences if missed • Unless you like accounting, we highly recommend using: • Accountants • Payroll Services, like Paychex or Zenefits • These are deductible business expenses – and essential for peace of mind.

33. REMEMBER – The 3 Choices for Hiring The IRS and CA put workers into three distinct categories: • Employee • Independent Contractor • Unpaid Workers (Interns and Volunteers) The DEFAULT is to assume an EMPLOYEE relationship – Which has the strictest requirements — ,

36. For More Information Contact: Bill Kell, Supervising Attorney wkell@law.berkeley.edu (510) 642-4050 Kevin Xu, Deputy Attorney khxu@berkeley.edu (510) 859-4486 www.law.berkeley.edu/new-business-practicum

37. Employment Law Appendix- Additional Details -

38. Included in the Appendix: • Employer Requirements – Summary • Paystubs – Required Contents • Non-Exempt Workers • Wage and Hour Requirements • Break Requirements • Employer Personnel Policies • Termination- Additional Guidance • Antidiscrimination Requirements: • FEHA vs. Title VII – What’s Covered • ADEA – Age Discrimination • ADA – Disability Accomodation • Whistleblower Retaliation • Unpaid Workers – Additl. Guidance

39. Employer Requirements - Summary • = A Combination of Federal, State, and Local Laws, and Sound Business Practices • Note: California is an Employment-at-Will State (as are most states) • How to Set Up: • What Government Requires: 18-pt Employer Checklist. See appendix • What’s also Important: Application, Interview, Check References, Offer Letter, Supervision, Personnel Policies • For more help:Access CA Chamber’s HR California online employment law resource center (subscription required).

40. Employer Requirements – Summary, Continued • Hiring: carefully craft online & offline hiring materials, interview questions, personnel policies/employee handbook • Wage & Hour: complete pay stubs, give breaks, track hours to avoid overtime violations • —Discrimination: mind the protected categories - be careful about interviewing, hiring, pay, discipline, and termination • Termination: document everything! Stick to business reasons or bad performance

41. Pay Stubs - Required Content • Gross wages earned • Total hours worked • All deductions • Net wages earned • Pay period dates • Employee name AND last 4 SSN OR employee ID number • Employer name and legal address • All applicable hourly rates & hours worked for each rate

42. Wages and Hours for Non-Exempt Employees • Wages: California’s minimum wage is currently: $10.50/hour • Note: municipalities can set minimum wages too • worker gets the highest minimum wage of federal, state, and local. • Hours: • One day of work is defined as 8 hours for non-exempt employees • If working more than 8 hours in a day or 40 hours in a week • = Employers must pay overtime at a rate of 1.5 x base pay • If working more than 12 hours in one day • = Employers must pay overtime at a rate of 2 x base pay CA Labor Code Section 510

43. Breaks for Non-Exempt Employees • Lunch Breaks = 30 Minutes • Cannot start later than the 6th hour unless waived • Must relieve employee of all duties • Rest Breaks = depends on hours worked • 3.5 - 6 hours = 10 minute break • —6 - 10 hours = 20 minute break • Standard 8 hour shift = two 10 min breaks • 10 - 14 hours = 30 minute break Labor Code 512(a) and 8 Cal. Code of Reg Section 11050(11)(A) & 8 Cal. Code of Reg Section 11050(12)(A)

44. Employee Personnel Policies • Strongly recommended all employers use employee handbooks/personnel policies manuals • Once agreed to, the Personnel Policies become a Contract, enforceable under state law • Helps Employers maintain consistency in treatment of worker issues, e.g. - • Employee Leave/Break Policies Workplace Privacy • Sexual Harassment • Supervision

45. Termination – Additional Guidance • Employer Liability for Termination – (Cotran Standard) • Best to Require Good Cause (not needed if Employment-at-Will) • Best to do Adequate Investigation Beforehand Always recommended: • Have a third party present when terminating an employee • Keep good records about what was said

46. California Standard for Termination - Cotran vs Rollins case —Employer can terminate if: • Acting in Good faith • After adequate investigation • With reasonable grounds (if at-will, for a LEGAL reason)

47. What is Good Cause for Termination? • Fair and honest reasons, regulated by good faith on the part of the employer • Related to business needs or goals • Not pretextual (based on discrimination/retaliation) • Not trivial, arbitrary or capricious

48. Requirements - Adequate Investigation, Pre-Termination • Noticeprovided to employee of problems/reasons for termination • Substantial evidence gathered through an investigation • Chance for the employee to respond • Investigator should be a non-interested party

49. FEHA vs Title VII - What’s Covered

50. ADEA - Age Discrimination • Applies if 20 or more employees • —Protects employees aged 40+ • —Unlawful activity: • Failure to hire • Discharge • Limiting, segregating or classifying employees that deprives of employment opportunities • Reducing wages