In a ruling last month, the owner of San Diego’s Antique Thai Cuisine was ordered to repay $20,000 in “stolen wages and tips” to 6 workers, plus was sentenced to 2 years in jail for grand theft and labor violations. This criminal conviction in a jury trial for felony grand wage theft by false pretenses is a first in California:
How did this happen? The owner hired mostly immigrants and promised hourly wages but usually only paid them tips instead of their wages plus tips. Even then, some of those tips were kept by the owner because she charged the workers $5 each shift for “glass breakage” to offset her operating costs. Kitchen staff often had to work through their rest and meal periods and received as low as $4 per hour. The result:
- 2 Felony counts of grand theft of labor for failing to pay workers as promised;
- 1 Felony count of grand theft of tips;
- 2 Misdemeanor charges for refusing to pay wages when she had the ability to do so;
- 4 Misdemeanor charges for failing to provide itemized wage statements;
- 2 Years in jail; and
- $73,234 in Labor Commissioner citations and other assessments and civil penalties.
How can you avoid this? Make sure all employees receive at least minimum wage. Understand tips are additional income to employees and it belongs solely to the employee. Remember employees have a legal right to rest and meal breaks that are completely free of any work-related duties and, if your employees don’t get those work-free breaks, they should receive penalty pay. Recognize that California throws a lot of things into “the cost of doing business,” including breakage and loss of Company property. Ensure your wage statements (pay stubs) meet the exacting specifications of the law.
Having a business means you’ll have expenses. “Theft” of money due your employees isn’t the path toward a successful business. Let us know if you need help ensuring you are compliant.
It’s a new year and, as always, there are certain things that must be done immediately to be legally compliant:
- New I-9 form — If you haven’t already switched to it, start using the new I-9 Form for new hires. The deadline is 1/22/2017 and, if you’re using the old form at that time, you would be subject to penalties. Current employees do not complete the new form. Each time a new I-9 form is issued, you begin using the new form for new employees hired after the effective date. Exceptions might be if a current employee needs to have their ID re-certified. Read the instructions to determine how to handle that or other particular situations.
- New employment law poster — You definitely need the employment law poster. We saw a lot of updates last year that will now be incorporated into the new poster. Review the other items you have posted and take down any that are duplicates of laws on the 2017 poster.
- Higher minimum wages — Minimum wage increased to $10.50/hour in California and increased to $11.50/hour within the San Diego city limits. There are at least 22 localities within California with minimum wages higher than the state minimum so you need to see if you are within one of those areas and what the specific rules are for you. For example, the California law has an exception for companies with less than 25 employees but the San Diego law affects all employers, regardless of size.
- Higher minimum salary — The new California minimum salary for exempt employees is $43,680/year ($3,640/month or $840/week). This is a calculation of “2 X state minimum wage X 2080 hours (full-time).” This minimum does not change regardless of how few hours the employee might work. Higher local minimum wages do not affect the minimum salary. The higher Federal salary was indefinitely postponed so, for now, the California minimum is the number you must meet.
- Updated Wage Theft Prevention notice — If you increase or change any California hourly employee’s wages, you must provide them with an updated NonExempt Wage Theft Prevention notice.
- Coming in March — All gender bathrooms: If you have any single user restrooms, the signage must be changed to show both genders can now use it. Although this law doesn’t go into effect until March, now is the time to review the situation and order new signage so you’ll be ready.
Act now to take care of everything this week so you aren’t starting the new year with risks that are easy to eliminate. Also, completing your HR to-do’s now lets you focus on your business goals going forward. Let us know if you need help.
“I did well this year because my employees worked really hard. How do I provide bonuses?”
Your HR Survival Tip
Congrats on doing so well that you can afford to share with your employees! There are several things to remember to ensure the bonuses are viewed as a great benefit.
First, keep in mind that a bonus is a form of wages and, therefore, taxable income. Bonuses can also be subject to overtime. Yes! California seems to have a love affair with weird calculations and this is one of them. You look at any overtime worked by non-exempt employees over the period the bonus covers, then you do a calculation to determine how much overtime must be paid on the bonus. If you choose to ignore this, an employee could choose to collect that money through the Labor Commissioner if they know it should be paid.
Next, bonuses have a special earnings code in payroll. Most of the time it feels like half the bonus amount goes to taxes… which deflates the excitement of a bonus. You can avoid much of this by setting it up in payroll differently:
- Plan to pay the bonus with a separate check. I prefer a “live” (paper) check for the impact and excitement.
- Set the bonus checks on a different pay cycle. Your pay cycle is probably currently set to weekly, biweekly, or semi-monthly. Change it, for the bonus checks only, to the longest pay cycle available (monthly, 9 weeks, etc.). This tricks the system into thinking this employee makes only this amount [i.e., the bonus amount] each month, 9 weeks, etc. so it uses a lower tax bracket.
- Temporarily turn off the non-required deductions, if possible. You need to consider all the deductions active on regular checks… find out which you can or can’t stop for the bonus check.
- Once you’ve processed those checks, make sure the system reverts to your usual pay cycle and deductions for the next payroll check.
You must decide which of the two types of bonus you are giving, discretionary or non-discretionary. This isn’t typically a last minute decision but can be the first time. Going forward, now’s the time to set up your plans for next year’s bonus.
Discretionary bonuses should be considered a surprise bonus. Employees shouldn’t expect it, don’t know why they “earned” it, and isn’t provided regularly or at regular times. If you just like to toss money to employees for the holidays, this is typically the bonus for that. You don’t have revenues, goals, or anything else tied to this bonus or it can legally lose its discretionary status.
Non-discretionary bonuses are my preference because I don’t like providing employees money without their understanding of what they did to “earn” it. Yes, non-discretionary bonuses are legally payable every year (or whatever period you have set) if goals are met but you are the one who sets those goals. Obviously, the first goal is meeting or exceeding the necessary company revenues or growth needed to even have a bonus pool that period. Other goals can be broken down by departments, locations, and individuals. Even your lowest-level employee should have goals based on objective criteria, such as hours worked, productivity or efficiency.
- If you choose a non-discretionary bonus, you really need to create a written bonus plan that employees also sign. A few of the critical factors in the plan should be, for example:
- Employees must be actively employed at the time bonuses are paid out.
- Employees who have been actively working for only part of any plan year will receive a pro-rated (or no) bonus.
- New employees must be actively working at least X months to participate in the bonus plan that year/quarter/etc.
- Determination of whether a goal is met is at the owner/CEO’s sole discretion and their decision is final.
Employees talk and, legally, you can’t prevent them from discussing their bonuses. Make sure your bonus plan, discretionary or non-discretionary, is developed in a way you can explain why each person received the bonus they did. You don’t want this great benefit tarnished by concerns of discrimination in how the bonuses were given or the amounts received. Let us know if you need help with this!
“I know some things are changing soon but can’t remember what… help!”
Your HR Survival Tip
The first of January each year does seem to be the date many new laws or regulations go into effect. In the past couple of years we’ve seen paid sick leave laws with varying effective dates, depending on the city.
There were more laws passed than I’ve listed below but they either aren’t for everyone or they go into effect later in the year. Below are things to prepare for by January 1, 2017:
- California minimum wage increases to $10.50 per hour ONLY for those companies with 25+ employees. (If you are not yet at 25, you get a break but you will need to pay the $10.50 the moment you have 25 employees or by 1/1/2018.)
- California minimum salary for exempt employees increases to $43,680 per year ($3,640 per month or $840 per week). The minimum salary is based on state minimum wages, not city minimum wages. This minimum must be paid to exempt employees regardless of how few hours they may actually work.
- San Diego minimum wage increases to $11.50 per hour. This affects employees working within San Diego city limits, regardless of where your company may be located. While San Diego is the only city in San Diego county with a separate minimum wage, many other cities throughout the rest of California have minimum wage increases so please check your locality.
- Internal Revenue Service (IRS) mileage rates dropped slightly to 53.5 cents per mile for business, 17 cents per mile for medial or moving purposes, and 14 cents per mile in service of charitable organizations.
- AB1978 requires janitorial companies to register annually with the DLSE (Dept. of Labor Standards Enforcement) to protect janitorial employees from wage theft and sexual harassment.
Don’t forget to give hourly employees an updated CA Non-Exempt Wage Theft Prevention Notice reflecting any wage change you might make. This is also a great time to review your exempt employees to ensure you have them properly classified.
“I have 3 exempt managers who work a lot of hours. I’d like to give them time off to compensate for those extra hours. How do I do this?”
Your HR Survival Tip
You don’t… at least not in California. California does not allow “comp” time for non-exempt (hourly) or exempt (salaried) employees.
If an employee is non-exempt, you must absolutely pay that employee for all time worked. We have both daily and weekly overtime, rather than just the 40 hours per week most states follow. You can’t allow a non-exempt employee to swap an hour off today for working an hour longer tomorrow. You definitely must pay overtime for that extra hour the next day.
Exempt employees have different rules. They agreed to certain responsibilities and tasks in exchange for a specific amount of pay. In concept, you should not care whether that employee can complete all their work in 30 hours or 60 hours each week. You look only at the performance and decide whether or not they are performing as expected and handling all their responsibilities.
Generally, exempt employees do not track their time but it’s not illegal to require a timecard. Comp time, however, isn’t the purpose of exempts using timecards. Exempt time tracking is most often seen in companies that have their accounting set up for job costing… they want to know how much of their payroll (and other costs) went toward each project.
If you start tracking an exempt employee’s hours and providing comp time for the extra hours they work, you could easily be viewed as turning that employee into a non-exempt employee. You never want to compensate them with time off for each extra hour worked. It’s a legal disaster waiting to be discovered.
That’s not to say you can never provide an extra day off to an exempt employee; just be careful how and when you do it. You don’t want to be discriminatory nor do you want employees to expect it. Therefore, think of the time off as a special bonus for an effort “over and above” during a particularly busy time or for completing a special project that required unusually long hours. Make them wow you before considering it. Even then, you can’t reward them hour for hour.
Tell them you really appreciate their extra effort and to take Friday off. Don’t use this for someone who is consistently putting in a lot of hours even when there’s nothing special going on… this could just be a slow worker or a sign you need to adjust the amount of work they have if they can never keep up. This is not a replacement for a higher salary or a substitute for overworking your employees.
Rewarding someone who has put in a special effort is always appreciated by employees. However, think through your plan (or discuss it with us) to make sure it won’t come back to bite you.
“I heard a new I-9 form is available. Do I need everyone to complete the new form?”
Your HR Survival Tip
Over the years, we’ve seen several versions of the I-9 form. One of the constants has been the rule that you begin using a new I-9 form when it becomes available. However, you do not replace your employees’ older versions just because a new one has been issued.
The new I-9 Form can be used immediately, but you must be using it by 1/22/2017. I don’t know a good reason to wait so please begin using this new version.
- Which form to use — You must use the current form available at the time of hire. That form will usually remain valid for the length of that employee’s employment.
- When to use the form — You must receive the employee’s identification to be used on the form within the first 3 days of employment. If the employee delays in getting you the proper ID, have them stop working until they provide the ID.
- Employee’s requirements — The employee completes Section 1 and provides you with proper identification.
- What ID can be used — The page after the form itself has a chart showing what identification is allowed. The employee must either provide 1 item from List A… OR 1 item from List B plus 1 item from List C (yes, that’s 2 forms of ID when using Lists B and C). Please pay attention to List A because some items, if expired, are not valid.
- Your requirements — You have 3 days from date of hire to complete your Section 2 of the form, which includes the certification just below the area you enter the employee’s ID. Do NOT leave any blanks and add your full business address.
- Using e-Verify — Do not use the online e-Verify system unless you are a federal contractor and required to do so.
They have expanded this version so now the form itself is 3 pages, but page 3 is just the recertification section. You typically only have to use this section when idenfication from List A has been updated. The 4th page of the form is the list of acceptable ID. Instructions are now a separate document but you must still make sure the employee has access to these instructions.
In summary, stop using your old I-9 form and begin using the new one. You don’t have to replace the old ones. Complete all the questions/blanks… you can be fined for missing information even when it’s something as simple as your zip code. We’re available if you have questions!
This will be the shortest newsletter you’ll probably ever get from me but… hot off the presses… the new $47,476 salary minimum has been POSTPONED! That law has been blocked for now so you will not have to meet that minimum on December 1st!
“I know the bill passed to legalize recreational use of marijuana in California. Does this mean I’m going to have employees stoned while working?”
Your HR Survival Tip
Even with recreational use of marijuana legalized in California, this doesn’t mean you’ll have to manage stoned employees.
As long as marijuana is still on the Federal illegal drugs list, your company can be drug-free. Of course, you’ll want a policy stating that so everyone understands. This is the same as allowing or disallowing medical marijuana in the workplace. ANY use of marijuana by employees is a company decision because Federal law says you can prohibit it.
The tricky part is that recreational use of marijuana over the weekend means they’d probably fail a drug test on Monday. Unlike alcohol, drugs stay in your system longer than the time period the person is feeling the affects of the drug. Therefore, you’ll probably hear arguments that they are no longer stoned on Monday even though a drug test would say differently.
If you really want a drug-free work environment, your employees have to understand that (for now) this means they shouldn’t even be using on a recreational basis.
It helps to present the arguments from the company’s view of this:
- Policy — There’s a reason you decided to have a drug and alcohol-free work environment. Those reasons haven’t changed just because a law did.
- Company Liability — Bottom line is that any work-related accident or incident creates a big liability for your company. The liability increases dramatically when testing after an accident is conducted and the employee is found to have been working while under the influence.
- Employee Liability — Even though the company takes the first legal hit, employees can be individually sued by outside parties. If the employee was driving and in an accident, do you really think an attorney will ignore the fact that the employee tested positive for drug residue in their system?
- Safety — Both the employee and others are at risk if reflexes are slowed while driving or operating equipment. This is why employees on prescription drugs should notify their managers… they need to be pulled off that work while on that prescription if it makes them drowsy or clumsy.
- Productivity — You need your employees to be using their full abilities or your productivity levels and revenues could drop.
By the time the Federal government legalizes marijuana, we can hope they will have a way of testing that shows the level of drug in the system (like alcohol levels). That will make it much easier to determine who is and is not still being affected by the drug when working. However, until then, understand your risks and be very clear about your drug policy.
“I believe a couple of my employees might be involved with drugs. We don’t use a pre-employment drug test but I’d like to have everyone tested now. How do I set that up?”
Your HR Survival Tip
Testing your employees often involves advance notice of some kind. When creating a policy, you also want to decide on what you’ll do with the results. There are a few steps to take between the idea and actually being ready to conduct drug and/or alcohol testing.
If this is a new policy and you intend to have current employees tested, you’ll need to provide sufficient notice. The notice should outline your new policy, the requirement to have everyone tested, and provide at least 60-90 days’ notice before the policy and testing will take effect. Basically, you’re giving your employees the time to get any drugs out of their system before being tested.
Your notice and policy should also inform employees about your stance on medical marijuana. Regardless of state law making it legal, marijuana is still on the federal list of illegal drugs. Therefore, you are able to prohibit use (or the effects of) medical marijuana during working hours. Since using marijuana over the weekend would still result in a failed drug test on Monday, it’s very important employees understand the policy.
You’ll need to contract with an agency who handles the whole testing process for you. Also add “Drug and/or alcohol screening is conducted” on the first page of your job application. This is one of the first notices candidates get that your company does testing. You’ll need a Drug and Alcohol Policy providing employees with your guidelines and expectations. Once you’re ready, here are the usual types of testing:
- Pre-employment testing: If your plan is to have everyone tested when they are hired, timing is important. You must (1) make an offer (contingent upon the test results), (2) send them for testing, and (3) get the results before they start working. While you must make an offer before the candidate goes for testing, it’s not absolutely required you get the results before they start working. However, if the candidate doesn’t pass the testing, it can be awkward to terminate them after they’ve been working for 2-3 days because then you have other employees asking questions you can’t answer due to confidentiality. Avoid discrimination by ensuring every candidate offered any position goes through the same testing. Yes, even executives.
- Random drug testing: This is intended to allow you to test employees on an irregular schedule. However, this isn’t an option for most of you because random testing in CA is not allowed except in very specific cases, such as when operating D.O.T.-regulated (Dept. of Transportation) vehicles.
- Reasonable suspicion testing: Your policy should state you may require an employee to be tested if management has noticed behaviors attributed to drug or alcohol use. Again, be careful here and get another manager’s or HR’s opinion about the behavior. I also prefer a conversation with the employee about the behaviors so you can determine if there is another reason.
- New policy testing: You have implemented a new drug/alcohol testing policy and have given employees a lot of advance notice so they’re prepared. Everyone can be required to be tested and you then take appropriate action with anyone who fails testing or refuses to be tested.
When a candidate or employee fails a drug/alcohol test, the usual action is termination of employment. This is why you want to have everything clearly spelled out.
When deciding whether or not to implement a drug and alcohol policy, keep in mind your reasons for it. Safety, job performance, company liability in case of an accident, and attendance or punctuality are all strong reasons. I’m an advocate of testing because, just like background checks, it shows you did your due diligence when hiring.
Correction: The city of San Diego minimum wage will be $11.50 on 1/1/2017 (not $11).
You only have this month to complete the analysis of your salaried positions. Federal law is overriding all state laws and declaring exempt (salaried) employees must be paid at least $47,476 per year ($3,956.34/month or $913/week) by December 1st, 2016. This affects companies of all sizes.
If you haven’t yet done any thinking about this, it’s not too late. However, you want to make those decisions soon so you have time to implement any needed changes.
Is the position itself worth $50K to your company? Let’s face it… some positions cap out at a certain level and if you keep increasing the pay, you’ll be paying more for that position than everyone else. This is easier if you ignore the person and just focus on the job. In the end, even a great employee won’t make it worthwhile to keep paying higher and higher salaries. Things to consider:
- You can’t pay less even if they don’t work full-time.
- The $47,476 minimum is the minimum… if you pay only the minimum, they could never have an unpaid day even if they were out of available sick and vacation time.
- This minimum will potentially go up each year so I prefer to make decisions based on paying $50K or more.
You also need to look at those duties and determine if they are “exempt” level duties. The salary minimum is only one part of the qualifications for an exempt position; the duties are harder and more subjective. Are the duties significant enough? For example:
- Does this position manage at least 2 other people or a department?
- Does this position have the ability to sign or agree to something that could cost your company a significant amount of money?
- Can this position make policy or hire and fire?
- Does this position require specific licensure or certification?
Outside Sales Reps are the exception to this law so you are not required to pay this minimum salary to them because they should be earning commissions.
What happens if you do nothing? If you have qualified exempt employees who are not paid the legal minimum, you will owe the employee all monies due plus fines for late payment of wages and both state and federal taxes. If you have exempt employees who shouldn’t be, those employees will be owed for every hour of overtime they say they worked, penalty pay for missed or late meal breaks, etc. for the last 4 years. If you don’t have proof otherwise, California will believe anything the employee says.
This new federal law is actually working to your benefit at the moment. It gives you a great reason to move exempt employees to non-exempt without having to mention they might have been misclassified previously. Use this to your advantage and clean up your employee classifications this month. It can be very costly any other time. Please let us know if we can help.