WAGE & HOUR MISTAKES COMPANIES STILL MAKE AND WHAT TO DO ABOUT THEM

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1 WAGE & HOUR MISTAKES COMPANIES STILL MAKE AND WHAT TO DO ABOUT THEM Mel Cole and Alice Wang, Littler January 11,

2 Presented By Mel M.C. Cole Attorney At Law, Littler, San Francisco Alice H. Wang Attorney At Law, Littler, San Francisco 2

3 Important Wage Hour Reminders 3

4 On Call Breaks: Augustus v. ABM Security Services, Inc. Court essentially concluded an employer cannot satisfy its obligation to relieve employees from duties and employer control during rest periods when the employer nonetheless requires its employees to remain on call. Settled: $110,000, [sic]

5 On Call Breaks Augustus v. ABM Security Services, Inc. An employee on call cannot take a brief walk five minutes out, five minutes back if at the farthest extent of the walk he or she is not in a position to respond. Thus, one would expect that employees will ordinarily have to remain onsite or nearby. This constraint, which is of course common to all rest periods, is not sufficient to establish employer control.

6 Paying By Piece Rate Affects a Host of Issues Paystubs Overtime Rest Breaks

7 Piece Rate & Paystubs Additional paystub requirements for those paid on a piece rate basis: Rest Breaks Recovery Periods Nonproductive Time

8 Piece Rate & Overtime Overtime often calculated wrong when piece rate is paid Piece rate (and commission) payments are earned over the total hours worked, not just 40 so two calculations required Salary divided by 40 Piece rate divided by total hours worked

9 Piece Rate & Rest Periods Must separately track rest break time and rest break time must be paid at the average hourly rate for each week Non-productive v. Productive (piece-rate) time Piece rate time is construed narrowly Limited to the actual activity Non-productive time must be compensated at minimum wage (or higher) Gonzalez v. Downtown LA Motors waiting for next job must be paid separately from piece rate

10 Meal Period Deductions Risky Practices Automatically deducting unpaid meal periods from a nonexempt employee s pay Best Practices Require employees to clock out and back in for meal periods Require employees to certify that they took their meal periods

11 Timekeeping Practices Risky Practices Paying employees based on their scheduled shift Exception time reporting (defaulting the time record to an employee s scheduled work hours unless the employee reports working more or fewer hours) Best Practices Electronic timekeeping Require employees to punch in and out when they begin and stop working Pay to the punch, without rounding Require employees to certify their work hours

12 Overtime Calculations Failure to include all remuneration in the regular rate

13 The Regular Rate All remuneration for employment paid to an employee in a workweek divided by all hours worked in the workweek

14 All Remuneration Remuneration means wages and other economic benefits that an employee receives for work UNLESS: The remuneration is explicitly excluded under Section 7(e) of the FLSA* The regular rate can change every workweek if employee receives compensation in addition to hourly wages or salary *California follows the FLSA in this regard.

15 Bonuses and Commissions Risky Practices Not paying the additional overtime due on bonuses and commissions The formula: (Bonus $ / All Hours Worked in the Bonus Period) * 0.5 * Overtime Hours Worked in the Bonus Period. Best Practices Audit your payroll system to ensure: Bonus and commission pay codes are flagged as includable Tied to the workweeks over which it was earned 15

16 Worker Classification Misclassifying employees as independent contractors or overtime exempt 16

17 Independent Contractors Red Flags: IC is a former employee IC performs same work as employees IC agreement includes a noncompete IC is paid salary or by the hour rather than by the project 17

18 Independent Contractors Red Flags: Company provides training Company controls hours worked Company provides tools or equipment Company reimburses IC for business expenses 18

19 Three Prongs for Exemption Tests Salary Basis Is the employee paid on a salary (as opposed to hourly) basis? Salary Level Does the employee s salary meet the minimum requirements? Duties What are the employee s primary duties? 19

20 Salary Tests 20

21 Minimum Salary Level Exempt employees must be paid at least $880 per week on a salary basis Exceptions: Outside sales Doctors, lawyers and teachers Computer employees Commissioned employees of retail or service establishments Administrative and professional employees may be paid on a fee basis 21

22 Highly Compensated Test Compensation Rate of at least $880 Duties Office or non-manual work Customarily and regularly perform any one or more of the exempt duties identified in the standard tests for the executive, administrative or professional exemptions 22

23 Salary Basis Test Predetermined amount of compensation each pay period The compensation cannot be reduced because of variations in the quality or quantity of the work performed Must be paid the full salary for any week in which the employee performs any work Need not be paid for any workweek when no work is performed 23

24 Permitted Salary Deductions 1. Absence from work for one or more full days for personal reasons, other than sickness or disability 2. Absence from work for one or more full days due to sickness or disability under a bona fide plan, policy or practice of providing wage replacement benefits 3. To offset any amounts received as payment for jury fees, witness fees, or military pay 4. Penalties for violating safety rules of major significance 5. Unpaid disciplinary suspension of one or more full days for violations of workplace conduct rules 6. Proportionate part of an employee s full salary may be paid in first and last weeks of employment 7. Unpaid leave taken pursuant to the Family and Medical Leave Act 24

25 Salary Basis Violation? Paying additional pay for working more than 40 hours Deductions from paid leave accounts for partial day absences Requiring exempt employees to record their hours worked Four hour deduction for attending parent-teacher conference Deduction when the employer was closed due to snow storm Requiring employee to pay for lost security badge Reducing bonus to pay for damage to company computer 25

26 Effect of Improper Deductions An actual practice of making improper deductions from salary will result in the loss of the exemption: During the time period in which improper deductions were made For employees in the same job classifications Working for the same managers responsible for the actual improper deductions Isolated or inadvertent improper deductions, however, will not result in the loss of exempt status if the employer reimburses the employee 26

27 Safe Harbor Federal Yes, CA No CA State Law No "safe harbor" CA has very strict rules re: permissible and impermissible salary deductions Recent opinion letters from DLSE are slightly more favorable for employers, though Federal Law The exemption will not be lost if the employer has a clearly communicated policy prohibiting improper deductions and including a complaint mechanism Employer must reimburse employees for improper deductions and make a good faith commitment to comply in the future Unless the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints tm 27

28 Duties Tests

29 Duties Tests : Independent Discretion and Judgment The exemptions for executive, administrative, and professional employees and, in California, computer professional employees, depend on the range and level of an employee s decision making authority the exercise of independent judgment and discretion. Many attributes make an employee valuable but do not make and employee exempt good communication skills, attention to detail, follow through, able to work unsupervised Job titles or positions do not determine if an employee is exempt. Individual job duties and percentages of time spent in each duty must be evaluated to determine exemption status. All employees should be considered non-exempt unless the employer can prove all requirements for a specific exemption.

30 Independent Discretion and Judgment IS: Customarily and Regularly Independent choice Free from immediate direction or supervision With respect to matters of significance NOT: the use of skill in applying techniques, procedures, or specific standards making decisions relating to matters of little consequence

31 Duties Tests Executive Employees Exercise independent judgment and discretion, which should be implicit in managerial work Primary duty is management of the enterprise or of a customarily recognized department or subdivision Customarily and regularly directs the work of two or more other employees Authority to hire or fire other employees or recommendations as to the hiring, firing, advancement, promotion or other change of status of other employees given particular weight California requires exempt employees to spend more than 50% of their time each week, as if measured by a stopwatch, in exempt work

32 Duties Tests Administrative Employees For Wage Order 1, California relies on the definitions provided in the Federal Regulations from 2000 available online at California requires exempt administrative employee to customarily and regularly exercise independent judgment and discretion. Primary duty must be: the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer s customers (as distinguished from the core business of the employer) One of three capacities: Regularly and directly assists a proprietor or exempt executive or administrative employee Performs under only general supervision work along specialized or technical lines requiring special training, experience, or knowledge; or Executes under only general supervision special assignments and tasks California requires exempt employees to spend more than 50% of their time each week, as if measured by a stopwatch, in exempt work.

33 Reclassification Considerations How you reclassify is largely context specific. Call counsel. 33

34 Commissions Commissions Minimum wage must be paid for each hour worked during the payroll period Commission agreements must be in writing Generally, paid to employees who sell and paid as a percentage of or proportionate to value of sales. Commissions must be paid in the pay period earned. Cannot delay payments unless amount not capable of calculation. Forfeitures prohibited. Must have a written contract with employee that sets forth method of computation and payment. Signed by company and employee. Note, all California employment contracts must have CA choice of law. 34

35 Questions 35

36 Thank You! Mel M.C. Cole Attorney At Law, San Francisco (415) Alice H. Wang Attorney At Law, San Francisco (415) Proprietary and Confidential 36 Littler Mendelson, P.C. 2017

37 Thank You! This information provided by Littler is not a substitute for experienced legal counsel and does not provide legal advice or attempt to address the numerous factual issues that inevitably arise in any employment-related dispute. Although this information attempts to cover some major recent developments, it is not all-inclusive, and the current status of any decision or principle of law should be verified by counsel. 37

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