Unpaid Time Off

“I let my full-time employees have one week of paid vacation and two weeks of unpaid time off. Is there any reason I need to actually track that time off since it’s not paid?”

Your HR Survival Tip

There are times when a company can’t afford to pay for as much time off as employees may want. This may result in allowing employees to take additional time off unpaid but we usually find the company hasn’t bothered to track that unpaid time off. However, there are important reasons why you might want to allow unpaid time off but also want to track it in your payroll system.

Why might you want to allow unpaid time off? Perhaps that new employee had a vacation scheduled prior to accepting a job with you and can’t change it. Perhaps you don’t offer as much vacation as other companies and your employees prefer having the time off rather than the pay (it happens!). Perhaps you like to offer the flexibility.

Whatever the reason, we are seeing employees more concerned about having time off than getting paid for it. Of course, that’s assuming they earn enough so they aren’t living paycheck to paycheck.

Why do you want to track it in payroll? You want to avoid discriminatory practices, don’t you? If you aren’t tracking Sam’s unpaid time off, how do you know or justify that Sam isn’t receiving more benefits (holiday pay, paid time off, sick time, or insurance) than those employees actually working 40 hours per week? Is it fair that Sam gets the full benefit package even though he takes an extra 2 weeks off unpaid each quarter? Doesn’t that actually make him a part-time employee in comparison to the other employees? And is he even still eligible for benefits?

When you look at the numbers, you might notice where your lost productivity or wasted dollars are going. Then you need to ask yourself if this is working as it should. Don’t forget that someone else is picking up Sam’s work whenever he’s gone so those employees might be feeling a bit resentful and unappreciated, which could lead to turnover.

It’s easy to have your payroll provider set up an extra code for unpaid time off (UPTO) so you can enter any unpaid time each pay period. This will also let you run labor reports that are more accurate when forecasting future costs. It really boils down to being fair to all your employees and knowing your headcount projections are accurate.

Commission Tips

“I found a sales rep who wants to work for me for just commissions. I have nothing to worry about because he won’t cost me anything, right?”

Your HR Survival Tip

We all need a way to sell our products or services. However, there are several things to worry about when considering commissions.

First, let’s make sure this is someone who qualifies to be commission-only. Is this person spending at least 51% of his day “knocking on doors” to sell your service or product? You can’t count time spent in an office, time on the phone, time emailing, or time installing something… it must be time physically out there trying to make sales.

If he does qualify, then you need to agree on how he’s getting benefits offered to other employees. Yes, he still gets paid sick leave and any other benefits your company provides.

In California, it’s legally required to have a written commission plan. You need one that’s simple to understand but very clear about several things. It must include when/if an advance is provided, when a commission is actually earned, how it’s calculated, when it’s paid, and what happens to those commissions at termination. Keep in mind that a commission is a percentage of the sale.

In case you’re thinking you’ll just hire this guy as a 1099 contractor, think again. The only sales reps that might qualify as a contractor are those who have a business entity and are also selling products or services for other companies, in addition to yours. If you want to keep this sales rep all to yourself, he needs to be an employee.

Really good sales reps can be hard to find. Keep him happy by offering a commission that has unlimited potential… after all, he has to be making sales for you to be earning that big commission so you both win.

Retroactive Ruling

We have all seen or heard about the changes occurring due to the 2018 California Supreme Court decision on independent contractors. The Court’s ABC test resulted in most businesses turning those contractors into employees.

This ABC test was a blow to many but now it just got worse for some companies. A recent appeal by workers at Jan-Pro, a janitorial service, has resulted in the federal appellate court stating the Dynamex decision (which started the whole independent contractor legal battle) applies retroactively to cases decided before Dynamex as well as cases going forward. So even companies that changed the status of their contractors after the CA Supreme Court decision can’t assume they are safe.

In case you aren’t familiar with the ABC test, the Court stated a legitimate independent contractor must pass all three tests (A, B, and C):

  • A. The worker is free from control and direction by you in connection with the performance of the work, both under the contract for the performance of the work and in fact. — This means you are hiring expertise you don’t have in your business. The contractor should require no training or tools from you.
  • B. The worker performs work that is outside the usual course of the your business. — This test is often a killer because many contractors are performing services you provide to your clients. If what that contractor does is ultimately for the client instead of just for your company operations, they should be an employee.
  • C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. — If the contractor has established a legitimate business, they will have other clients, marketing materials, a business name or entity, liability insurance, and all the other trappings you have for your own business. Just because they are an S corp doesn’t mean they are actually operating like a normal business and that’s where they could fail this test.

If you need help determining the legitimacy of your independent contractors, contact us or an employment law attorney. We would like to see this situation loosen up but it will take legislation, not hoping, to make that happen. Don’t try to wait it out because the law may not change enough to help you avoid expensive litigation.

No Match Letters

“I received a letter from the Social Security Administration stating I have several employees that don’t match what they have on file. What do I do with these?”

Your HR Survival Tip

We haven’t seen these letters in several years but the Social Security Administration (SSA) announced they were re-starting the program and companies are beginning to receive them. Basically the letter is telling you that an employee’s social security and name in your payroll system doesn’t match what the SSA has on file. This mismatch is the result of comparing the W2s issued in January.

This letter is not pointing fingers. The mismatch might be something as simple as a typo. Begin by reviewing your employee records and compare the information with what you have in your payroll system because the W2s were issued by your payroll processor. Make sure someone doesn’t have two last names that are showing up in your system as a middle name and last name. Check for typos against the employee’s social security card, if you have it.

Go to the website listed in the letter and follow instructions there to begin the formal process of managing this situation. Contact an employment law attorney or HR consultant for help in proceeding. There are several things you will need to do before you’ve resolved this.

While you don’t want to ignore this letter, you also don’t want to jump into action without assistance. Documentation throughout the process is important. Keep in mind that, if you approach your employees too soon with this issue, they may get scared or worried and quit. Complete what fact-finding you can before talking with the affected employees and then make sure you have a plan for how you will do it.

In the end, you’ll want to correct any mistakes. If needed, you should also review your I-9 compliance and data entry processes to limit any problems in the future. At this time, we don’t expect these letters to lead to an immigration audit but it’s better to fix things now and determine how to avoid receiving any of these letters in the future.

Who’s Signing?

“As the owner of my company, I’m the only person who can sign checks. Am I required to have a second signer?”

Your HR Survival Tip

Many small companies have only one person authorized to sign company checks. This may not be a problem most of the time. However, you need to think about alternatives.

Situations where a check must be signed pop up in business:

  • An employee turns in their resignation or is fired while you’re on vacation and their final paycheck must be delivered on their last day of work.
  • An employee walks out and, legally, you have only 72 hours to deliver that final paycheck.
  • Repairs or supplies are needed by your business and payment is needed.

If you have a trustworthy relative or friend who could hold a blank signed check in your absence, you’d at least have a way to ensure your business has money when or if needed. Some business owners keep a few blank signed checks in the company’s safe or with their accountant.

Decide what your “what if’s” might be and what the consequences would be if money weren’t immediately available because you’re on vacation or otherwise indisposed. Also decide on either who else might sign that check or who could hold one for you. As your company grows, you’ll realize you can’t make everything wait on you so prepare now.

Fined Things

It’s always good to have a sanity check and realize you’re not going to the trouble of being compliant for no reason. Here are a couple of recent cases.

Car Wash in Culver City CA

The Labor Commissioner’s Office issued over $2.36 million in wage theft citations… the largest ever against a car wash business. They also named the president and general manager of Centinela Car Wash, Inc. as jointly liable. What did they do wrong? Hopefully, none of this sounds familiar to you:

  • Failed to pay minimum wage (cited for $487,045);
  • Failed to provide, or properly pay for, required breaks to 64 workers ($258,394);
  • Told workers to be in the alley before work each day and they selected that day’s workers from the group without paying the others waiting/reporting time pay ($15,638);
  • Told workers to take extended lunch breaks without paying split shift premiums ($49,400);
  • Had employees working up to 10 hours a day without paying overtime ($146,129);
  • Charged illegal deductions for towels used at the car wash ($19,000);
  • Managers regularly altered timecards to reduce total hours worked ($293,000); and more.

Restaurant in San Jose CA

A PAGA complaint resulted in a Mexican restaurant having to pay 239 workers $1 million in unpaid wages, with an additional $100,000 in civil penalties. If you remember, a PAGA claim takes only one person filing on behalf of themselves and the other employees. This company had similar issues:

  • Failed to pay for overtime or split shifts, which resulted in the workers making less than minimum wage;
  • Failed to provided required meal breaks;
  • Often paid workers in cash; and
  • Did not keep accurate payroll records.

If you are doing any of these things, you are at risk. Give us a call to learn how to become compliant so you’re not a target.

Bad Timing

“I’m using paper timecards but people keep telling me I should switch to a phone or computer app. What’s the difference?”

Your HR Survival Tip

The biggest differences between timekeeping methods are how they are used and their accuracy. There are a few basics any timekeeping system should provide, particularly in California. Keep in mind the whole point of a timecard is to record time worked so the employee is paid correctly.

HR Jungle

You want exact times, not rounded times (even if you later round). A timecard showing they started work each day at 8:00am and left for lunch at noon, etc. will not save you from claims. No one is that timely and the courts know this means they weren’t using “real” times. A normal employee is more likely to clock in at 7:58am or 8:02am and take their lunch at 11:50am or 12:10pm. Anything other than specific times can and will be questioned.

Are they entering the information each time they stop for the meal break and return to work? California has very specific rules about the timing and length of that meal break. If the timecard doesn’t show exactly when they started and stopped the meal break, you could be subject to penalty pay. This is one hour of pay the employee receives if you can’t prove they started the meal break before the 5th hour of work or if they take less than 30 minutes. Again, just popping 30 minutes in there won’t prevent claims.

The California Supreme Court recently gave their ruling on de minimus time. This is those few seconds or minutes that aren’t actually on the timecard. Do they pick up your emails or messages after they’ve clocked out for the day? Do they need to do a couple of work-related things on their way out the door after they’ve clocked out? In California, the decision was made that this is paid time and possibly even overtime.

Unless you ensure your employees are using your timekeeping system correctly and you can show proof of all time worked (and paid), you are at risk for claims. A digital method for timekeeping is typically more accurate than a paper timecard. However, you may also find more missed “punches” by the employees. Regardless of which method you choose for timekeeping, you can’t just implement it and ignore it. Regularly review the reports and/or timecards to ensure you’re still compliant. It can be very costly to just assume you’re protected.

Working Interviews or Interviewing Work

“I like to have candidates work along side of me for a day to determine if they have the skills for the job. If the day goes well, I hire them. If not, I give them some cash for the day’s work. Are there any problems with this?”

Your HR Survival Tip

When you are interviewing candidates for your job opening, you must still follow all the normal employment laws. While the candidate is not yet an employee, there are still protocols.

HR Jungle

If the candidate doesn’t do well after working for you for a day, you’re paying them cash for their time. However, both IRS and California would object strongly to this because they didn’t get their piece of that money. When it comes to the workplace, you can’t just hand out cash and walk away. You needed to put them on payroll, even if it’s only for the day. That’s the legal way to pay for that time.

If you need the candidate to work a whole day before you can tell whether or not you want to hire them, you need to work on your interviewing skills. Not only are there a lot of questions you can ask to help determine just what this candidate does and doesn’t know, there are other ways to test their skills.

We love to see interviews that include a “physical” testing component. Examples include:

  • Administrative – Provide a letter with several formatting challenges and have the candidate duplicate it on the computer. Looking at the digital version will tell you how well they know the software you use.
  • Electrician – Provide an electrical plan and ask the candidate to identify the parts.
  • IT Help – Loosen a computer cable and ask the candidate to create a document on the computer. Learn whether they understand the protocol for determining why a computer isn’t working.
  • If a candidate needs to know specific software, create a test with that software and watch how well they can use the program.

When using these tests, make sure they are very job specific and you are consistent by using the test for every candidate you interview. It only takes some imagination and thought to develop better questions and a legal test you can use. Learn to go deeper and deeper into how the candidate did something so you can tell if they were merely a part of the process or truly understands how it worked.

No matter how well the interviewing goes, you may not know how good of an employee this person will be until you have them on the job for several weeks. If things don’t work out, use that experience to determine what else you could have asked during the interview to have made a better choice. Interviewing techniques should be refined with each new hire so, over time, you are making much better hires.

Social Media Nightmare

“I just terminated an employee and she has taken over our social media accounts so we can’t get in. What do I do?”

Your HR Survival Tip

This can truly be a nightmare and it’s not the first time we’ve heard of a terminated employee taking over control of something belonging to the company.

Here are a couple of examples of this type of “hostile” takeover:

  • Social media — You’ve made someone the admin for your social media accounts so they can monitor it and add posts. Now, when terminated, that employee goes into each account and removes all other users. Now you’re seeing posts slamming your company. You can’t find a way to even contact the social media people to try to fix this.

  • Cell phone — You have a company phone number and your employee is using the cell phone connected to it and has access to that account. Your employee, when terminated, has called the phone company and switched the account to a personal one under their name. The phone company tells you the employee had the authorization for this change so there’s nothing you can do. The clients are still calling “your” number and your ex-employee is stealing them for his/her new company.

It’s much harder, if not impossible, to regain control once it’s gone. Your best chance at this point is to have an attorney write the ex-employee a letter demanding return of control. However, unless you are willing (and can afford) to follow this up with a lawsuit, it may not work.

Plan ahead and develop best practices to avoid this. Make sure an owner is the originator on accounts, not an employee. Some accounts will let you set up a user who can do what is needed but does not have the authorization to make drastic changes or change ownership of the account. Go into each account regularly to ensure you still can. We often choose the easy route and let someone who knows more about these things become the administrator and that can work well… until it doesn’t.

If you’re planning to terminate this employee, have someone change those passwords while you are meeting with the employee. If you need to change the passwords yourself, do it the moment the meeting ends. Waiting may be too late so be proactive by having a plan in place.

The Cost of Choosing Wrong

Imagine having to pay $1.1 million because you “chose” not to follow California’s wage and hour laws. It’s not just a scary thought for one San Jose company.

HR Jungle

New companies often don’t even know there are tons of California laws they must follow. However, you become subject to many of the laws once you have 5 people in your company… and the bigger you are, the more laws there are on that list. In the state’s view, when you haven’t taken the steps to learn what CA’s laws are so you’re compliant, you are actually choosing to be non-compliant.

San Jose is home to the Burrito Factory’s 4 restaurants and 239 workers. The Labor Commissioner’s focus is on ensuring workers get all the money due them. In October 2017, a PAGA claim started their investigation. As you may remember from a prior article, a PAGA claim is a one-person class action lawsuit that automatically pulls in all other employees in a similar situation. The Labor Commissioner’s Office found several problems:

  • Overtime wasn’t paid in accordance with the law (remember, it’s over 8 hours in a day or 40 in a week in most industries);
  • Split shifts weren’t paid in accordance with the law (a split shift is a required break of more than one hour and requires the company to pay, based on a calculation, for any extra time off between shifts on the same day);
  • Meal breaks weren’t provided when employees worked more than 6 hours (you can’t waive the meal break if the shift is over 6 hours so, if missed, the company must pay a penalty to the employee when this happens);
  • Workers were often paid in cash (all income must go through payroll so appropriate taxes are paid); and
  • Accurate payroll records were not kept

Starting this July, the company will pay those workers $1 million for unpaid wages due them and also pay $100,000 in civil penalties.

The Labor Commissioner’s Office looked back 3 years but can legally go back 4 years. The settlement reached was part of mediation talks because the company demonstrated a willingness to comply with state laws. That may have helped lower the penalties but there is no discount on the amount of unpaid wages.

Choosing to ignore wage and hour laws comes with high risk. It only takes one employee to start an investigation and there is no escaping the penalties that will follow. It’s hard enough to grow a business… why bother if you don’t want to do it right? If you’re still choosing the “dark” path, make sure you’re putting plenty aside for fines, repayments, and attorney fees. If you want to know how to be compliant, give us a call.