New Somethings from Newsom

California’s Governor Newsom must have writer’s cramp from signing so many bills into law. All the laws below are scheduled to go into effect on January 1st, 2020, unless someone manages to stop or change them. We have:

  • AB51 Mandatory Arbitration Agreements — The agreements have been seeing some changes but now we won’t be able to require employees to sign one to keep their jobs. Without the ability to force arbitration agreements, companies may see more lawsuits.
  • AB707 Arbitration Fees — Steep ramifications may be seen if the party initiating an arbitration agreement fails to pay the appropriate fees within 30 days.
  • AB5 Independent Contractors — This bill has already been discussed in the last two articles so we won’t waste your time repeating the information.
  • AB749 No-Rehire Provisions — Often settlement agreements include a provision that the company will not rehire that employee. However, this bill prohibits that option so the ex-employee will no longer be automatically prevented from being rehired.
  • AB9 Claims Extended 2 Years — The deadline for filing a complaint with the DFEH (Department of Fair Employment and Housing) has been extended to 3 years from the previous 1-year deadline. The DFEH handles all types of California’s harassment claims.
  • SB142 Lactation Accommodation — We have had a lactation location law on the books for a while but this law now provides more specifics. The location cannot be a bathroom, must be in close proximity to the employee’s work area, and be shielded from view and free from intrusions while the employee is there. The room itself must be safe, clean, and free of hazardous materials; have a surface for the employee’s breast pump and personal items; have a place to sit; and, have access to electricity or extension cords so a breast pump can operate. Finally, there must be access to a sink with running water and, close to the employee’s workplace, a cooling device (like a refrigerator) for storing the milk. There are exceptions in the law for multi-employer worksites where a shared location is used and when the location is temporary or not possible due to financial resources, size or structure of the employer’s business. However, be prepared to prove you need the exception because it will be assumed you are able to provide a lactation location in accordance with the law. In addition to all this, you must create a policy that includes your process for requesting a lactation accommodation, the employer’s obligation, and information about filing a claim for violations with the Labor Commissioner. Whew!
  • SB188 Protects Hairstyles — Discrimination against individuals based on hairstyles that are historically associated with specific races is now prohibited. In general, this includes braids, locks, and twists.

California employment law continues to make it challenging to run a business. All we can do is take it one step at a time and work harder to be compliant. Please let us know if we can be of help!

New Rules for Contractors, Part 2

Our previous article reviewed the testing options that will be used for independent contractors going forward. The default will be the ABC test but AB5 provided the following exemptions. These exemptions will be tested by the more flexible Borello test.

Occupations

When a profession must be licensed to be exempt from the ABC test, you want to be very careful that you are not including people who are practicing but do not yet have a license. That group must be employees until they are licensed and have a business of their own.

  • Contractors who are a licensed insurance agent or broker
  • Contractors who have a current CA license as a physician, surgeon, podiatrist, psychologist, dentist, or veterinarian
  • Contractors who have a current CA license and are practicing their profession as a lawyer, architect, engineer, private investigator, or accountant
  • Contractors who are licensed by CA or registered with the SEC or FINRA as a securities broker-dealer, investment adviser, or their agents and representatives
  • Commercial fishermen
  • Direct sales salespeople who meet the exclusions under Unemployment Code §650. (These are the multi-level marketing people, like SendOut Cards, Arbonne, Mary Kay, Tupperware, etc.)

Professional Services Contracts

Examples of service providers include marketing professionals, HR administrators, travel agents, graphic designers, still photographers, freelance writers, estheticians, electrologists, manicurists, barbers, and cosmetologists. Criteria include:

  • Business location (separate from the hiring entity)
  • Business license, in addition to any required professional licenses or permits
  • Negotiates rates for the services performed
  • Sets own hours, within the scope of work and due dates
  • Provides same services to other clients or makes themselves available to potential clients
  • Customarily and regularly exercises discretion and independent judgment in the performance of the services

Business to Business Contracts

Contracts must be in writing. Other requirements include:

  • Have a business location;
  • Advertise their services;
  • Have any equipment needed to perform the work;
  • Negotiate their own rates;
  • Set their own hours; and,
  • Maintain control over the performance of their work.

Construction Contracts

The status is determined using the Borello test AND Labor Code §2750.5. The subcontractor:

  • Must be licensed;
  • Must have the authority to hire and fire;
  • Maintains a business location; and,
  • Assumes financial responsibility for the services provided.

While AB5 makes the business a bit easier, always default to employee status if you are not absolutely certain the appropriate test can be passed. Take note that gig workers are not listed so they will likely end up as employees.

New Rules for Contractors, Part 1

We’ve been waiting for more than a year to hear more information about independent contractors. Last year the California Supreme Court created the ABC test, which made it difficult to justify using independent contractors.

The decision to hire someone as an independent contractor lies with the hiring company. If your company misclassifies that worker, your company will be the only one held legally responsible. The contractor holds no liability so it’s important you do your due diligence. The default is they are an employee and they are subject to the ABC test.

The passing of AB5 clarifies who will be exempt from the ABC test. If they are exempt from ABC, they must instead pass the Borello test. Let’s first look at the parts of each test.

ABC Test

The workers must pass all 3 points. If they fail any of these, they must be an employee.

  • A — You can’t control the services or how the worker performs the work (this means you can only tell them the outcome you want, not how they get there).
  • B — The work performed must be outside the usual course of your business (this means the work they do doesn’t touch your clients, it’s just for the business itself).
  • C — The worker must have a real business (this means they have liability insurance, marketing collateral, other clients, etc.).

Borello Test

The Borello test is more flexible because it looks at all 11 points so the worker doesn’t necessarily need to pass each one. However, some points carry more weight than others.

  1. The person performing services is engaged in an occupation or business distinct from yours;
  2. The work cannot be part of the regular business of the hiring company;
  3. The worker supplies the equipment, tools, and location for doing the work;
  4. The hiring company cannot provide the equipment, materials, or helpers required to complete the project;
  5. The worker provides the hiring company with a special skill;
  6. The work is typically completed without supervision;
  7. The worker’s opportunity for profit or loss depends on their skills;
  8. There is a limit to how much time is spent on services to be performed;
  9. There is an end date for the work to avoid a degree of permanence of the working relationship;
  10. The method of payment is related more directly to the work than the clock; and,
  11. There is an agreement specifying the relationship and scope of work to show this is not an employer-employee relationship. However, this is only one point so it’s very risky to assume a contract will protect your company.

Anyone working as an independent contractor must be tested by either the ABC or Borello test. As mentioned, AB5 makes it clearer regarding who will be tested by the more flexible Borello test. We’ll go into more detail about the ABC test exemptions in the next article.

Rigid Policies

“We have new employees who are pushing back on some of our long-term policies. How do I deal with them?”

Your HR Survival Tip

Before dealing with employees who aren’t following your policies, first, stop and think about those policies. Are they outdated? Do they still fit the situation? Can you fully explain the intent of the policy so it makes sense to your employees?

We often see companies continuing a policy without even remembering why they created it…or whether it’s still relevant. Companies change and policy reviews ensure your policies are changing and keeping up with the company.

Example 1: You have a consulting firm and require a retainer when new clients sign up. However, you have now started hiring consultants who are bringing their clients with them to your firm. Many of those clients may not be happy to learn they need to pay you a retainer when they already paid a retainer at your consultant’s old firm. You may want two different policies regarding the treatment of new clients based on how you obtained that client.

Example 2: A new employee has an eligibility period for various benefits. That’s standard. However, what about rehires? Do they start over from scratch? While some of this is about your policies, it’s also about what your insurance carrier or 401(k) plan allows.

As a business owner, it’s your responsibility to review and update your policies. You also need to be able to clearly and logically explain why you have each of your policies. Yes, some will be just because you legally need that policy. However, all your other policies should have a reason…one that makes sense for the business, clients, and employees you have today. Once you have and can explain your reasons, you’ll find it much easier to get your employees to follow them.

Where is Your Proof?

“I have an ex-employee asking to see which days off she had while working for me. She believes I owe her more vacation. What do I have to provide her?”

Your HR Survival Tip

Technology can be our friend or a pain, depending on what you’re using and what you need from it. Payroll processing is much easier now that it’s online and doing those calculations for us. However, we still need our backup.

Everyone seems to love using cell phone apps for timekeeping. They can certainly eliminate a lot of data entry but you also may be losing something. Test yourself: stop right now and pull a detailed report of each employee’s hours and time off for this calendar year.

Was it difficult? Did you even know how to do it? This is one of the problems. You are legally obligated to retain at least 3 years of payroll records. However, do you actually make sure you have those records? When you change payroll companies, there’s a very good chance you let previous payroll history disappear unless you made an effort to pull those reports yourself.

The other problem with the tech is that most of these timekeeping apps don’t allow you to add a disclaimer. It’s to your benefit to ensure your employees agree that all workplace accidents or injuries have been reported and they have taken their rest breaks. True, this isn’t the only way to ensure this but it does help to have them agreeing to that statement every pay period.

Review your processes and technology. Do you have a request for time off from your employees for every day you entered a vacation day in payroll? You should. Worked time and vacation time equal money to the employee. Supervisors can edit an entry but they need backup to do it…otherwise, you may have a legal battle on your hands. You want to be very careful about what you put into payroll and confident you can prove the employee actually requested that time off and was paid for all hours worked.

The Good and The Bad

As is so often the case, we nervously await the votes and decisions of our legislature each year. Usually, in California, the bad outweighs the good. And some bills chugging through the legislative process are just downright scary. Here are a few things to consider:

The Good

  • We have another whole year to finish our sexual harassment prevention training. They have moved the deadline out to the end of 2020. This doesn’t mean you should put it off but at least you don’t have to end 2019 in a manic rush to complete the training.
  • AB5 has information that keeps changing, but several professions have been given clearance to be independent contractors. Real estate agents and insurance producers are a couple of them. It adds several more new exemptions so other professions can be added to the list. However, don’t assume. Wait for changes to be completed before moving anyone to contractor status.

The Bad

We like to mention the crazy job-killer bills out there. We prefer to assume these are proposed by a legislator who heard something and wanted to fix it…however, they usually didn’t think it through or pay any attention to the potential unintended consequences of their bill. Here are a few:

  • AB51, if passed, will not allow us to make signing the company’s arbitration agreement a condition of employment. This would mean you have to request (nicely) that an employee give up their right to a trial in exchange for mediation. This is the second year in a row a bill like this has been introduced.
  • AB1066 was passed and allows striking workers to receive unemployment if the strike is more than 4 weeks. Not only will it affect the unemployment pool (which could eventually lead to higher unemployment taxes on payroll), but it encourages strikes.
  • AB1478 was passed and adds job protection for more leaves of absences, such as jury duty, victims of a crime, and stalking. We can only hope the details of this law will limit the amount of time.

We’ll let you know when we find out how to implement any new laws once they are in effect. Meanwhile, this is a good time to start reviewing your handbook for changes to your practices and processes, then we can follow that up with a legal review.

Discriminatory Offers

“I think I’ve found a fabulous candidate for a position. However, he’s asking for an extra week of vacation each year. Do I just add that to the offer letter?”

Your HR Survival Tip

When you have a hard time finding good candidates, it’s easy to feel you must bend over backward to give them everything they want. However, before you bend, sit and think about how that wish list plays out.

Discrimination can hit many different areas within the workplace. When you look at the various equal pay laws, you see how much both the state and federal governments are trying to level things out. Even the Affordable Care Act (aka “Obamacare”) originally required all levels of employees to be offered exactly the same coverages for the same premiums.

When you are considering offering different levels of any benefit, you need to make sure the employees offered each level are clearly separate and identifiable. For example, you can create differences based on length of employment, field vs. office, management vs. non-management, etc.

When you choose to offer or give one employee more vacation time, you are creating a case for discrimination. Are you prepared to provide the same level of employees that extra week, too? Eventually, other employees will notice the amount of vacation this employee takes and will start asking questions.

Consider changing your offer to something that might not be discriminatory. Perhaps offer a signing bonus equal to that extra week of pay. Or maybe he just wants the time off and doesn’t even need to be paid for that week…did you ask? Or have you tried explaining how it wouldn’t be fair to others? If you’re really considering that extra vacation, maybe it’s time to review your policy and raise it for everyone.

Remember the hiring process is a negotiation. Just because a candidate is asking for something doesn’t mean they absolutely must have it. However, your candidate will never get anything extra if he doesn’t ask so don’t hold it against him for asking. If you made a fair offer and your company is a good place to work, there’s a very good chance your candidate will accept your non-discriminatory offer.

Lacking Policies?

written policy picture

Employment law and lawsuits continue to challenge employers in California. While an Employee Handbook isn’t legally required, it is the best method for ensuring all employees are receiving the same information. A Handbook also eliminates a lot of questions from employees and could be a training tool for supervisory personnel who don’t fully understand California’s laws.

Even without an Employee Handbook, there are a few policies you are either required or need to seriously consider having in writing (with a signed receipt):

  • Sexual Harassment Prevention
    • A written policy has been legally required for at least a couple of years. California issued fairly detailed guidance about what the policy must include. In addition, this was really the first policy that included a translation requirement.
  • Meal and Rest Breaks
    • A recent lawsuit brought up the fact that the employer did not have a meal and rest break written policy. The company, instead, told employees not to work more than 5 hours without taking a break. In this case, the court initially granted judgment in favor of the employer. However, the employees are appealing on the basis that merely telling employees isn’t sufficient to meet California law.
    • When something new comes up in court where there isn’t a direct precedent, the court can refer the case (or specific question) to the California Supreme Court. This issue is now awaiting the CA Supreme Court’s response but we don’t have a timeline.
  • Paid Sick Leave
    • California has required paid sick leave for several years now and about 30 localities have expanded on the state law with their own version. We know companies are able to limit usage each plan year to 24 hours (CA) or whatever the local minimum might be. However, there is a legal possibility that you might not be able to enforce that minimum without a written policy stating your minimum. This would mean employees could use everything they accrue, rather than be restricted to a more limited number of hours.
  • Commission Plan
    • For years, California’s Labor Commissioner received numerous complaints from sales reps about underpaid commissions. Several years ago, a written commission plan became a legal requirement for anyone earning commissions. The plan must be easy to read and understand so everyone fully understands exactly how commissions are calculated and when they are earned and paid out.

Badly written policies may work against your company in court and attorneys often say no policy is better than a badly written or illegal policy. However, a well-written policy frequently carries weight in court and can help reduce your risks and potentially save you legal fees. We can create written policies or a customized Employee Handbook for your company so let us know if you would like to become more compliant!

I’m Resigning…Someday

“One of my employees told me she plans to resign and is looking for another job. Can I hire someone now?”

Your HR Survival Tip

i quit sign

While you might feel you can move forward with replacing your employee, you’ll want to wait. You don’t have an actual resignation at this point and she could change her mind…or take months to find another job.

This is the one time when the employee is holding all the cards. And you dropped the ball by not locking down the resignation. Legally, until the employee gives you a resignation date, you’re on hold.

How do you control this situation? Be prepared. Here are a few examples:

  • Employee: I don’t like working here and I’m going to resign as soon as I find a new job. You: Let’s talk about an actual date so we both can plan for your transition.
  • Employee: I’m so mad, I should just resign! You: I’ll accept your resignation and will consider this your two-week notice.
  • Employee: I’m planning on retiring one of these days. You: Let’s talk about this and set up a schedule so we’re both prepared.

Whenever possible, lock down a resignation date. If you change the date the employee gives you, you are turning that resignation into a discharge (firing or termination)…and made them eligible for unemployment. You can avoid that by waiting for that resignation date or by paying out their remaining work days.

Don’t forget to have the employee put their resignation in writing so you have the backup. Once you have an agreed upon resignation, you can start searching for that employee’s replacement. If the employee wants to change that date, you don’t need to agree but you can re-negotiate if it works for you.

Have a POP

“I just started offering health insurance to my employees. Now my broker is trying to sell me something called a POP. Do I need it?”

Your HR Survival Tip

First, congratulations on providing health insurance for your employees. We know that’s a big financial hit but it does make your company better able to recruit and retain employees.

Yes, you want a POP. This is a “Premium-Only Plan” that allows you to deduct an employee’s share of the premium on a pre-tax basis. Without having a POP in place, you must deduct from the after-tax, net pay. Since a POP is typically only about $150 per year, it’s a very low amount to spend to ensure your employee’s save money when they elect your insurance.

A POP is one part of what the IRS allows under Section 125 in the Internal Revenue Code. The other parts are usually just called Section 125 plans or Flexible Spending Accounts (FSA). These allow employees to set money aside on a pre-tax basis for healthcare expenses that may not be covered by insurance, such as over-the-counter medications, eyeglasses, contact lenses, etc. Another portion can be used to pay for childcare with pre-tax monies.

While employees may like the sound of implementing an FSA, do so very carefully and after you fully understand it. Since the IRS rules this, there are pros and cons for your company and for your employees with the healthcare FSA. For example:

Sam wants to set aside $1,500 so you divide that between all his paychecks for the plan year. Sam could use the whole $1,500 in January and the company is covering that…and waiting to be paid back throughout the year by Sam’s deductions. However, if Sam quits in March, the company has no way to recover the full amount used by Sam. On the other hand, if Sam didn’t have the medical needs he thought he would have and only has $200 in eligible expenses to submit, Sam would lose the excess he set aside and it reverts to the company.

The IRS feels the healthcare FSA balances out because sometimes the company is the loser and sometimes it’s the employee. However, if the plan is explained to employees carefully, they are less likely to lose much money. The IRS sets the maximum allowed for use in this plan but the company can set a lower maximum to lessen the risk.

The dependent care FSA is much simpler. The employee cannot submit a receipt for more than they have already put into the plan. Therefore, the company doesn’t provide any advance. If the employee understands the plan and knows their expected expenses, this works great for them, too.

While the FSA plans can be very good, you want to fully understand the risks and limit your exposure. Buy the POP because you and your employees will save on taxes. Don’t assume you have one just because you are taking those deductions pre-tax or you may end up paying back taxes. Ask your broker to be sure.