“I have a college student who would like to intern with my company. She needs to acquire service learning hours but the school doesn’t have an internship program set up for this. Is it possible to still have her as an unpaid intern?”
Your HR Survival Tip
We have always stated unpaid interns must be associated with an internship program through their school so the student gets credit in exchange for participating in the program. Otherwise, the “intern” needed to be an hourly employee. However, earlier this year the US Department of Labor (DOL) decided to abandon the old test used to determine if someone qualified as an unpaid intern.
The new test isn’t that different except it doesn’t require an accredited school internship program and, instead, focuses on who the primary beneficiary of the internship may be. Bottom line, an unpaid intern should truly benefit from time spent as an intern with you… more than your company does. Here are the points in the new test:
- The internship training should be similar to training received in an education environment.
- The experience is focused on benefitting the intern.
- No regular employees are displaced because you have an intern and the intern is closely supervised by your existing staff.
- The training the intern receives from you doesn’t immediately help your company and may, on occasion, even impede your normal business operations.
- The intern is not entitled or even expecting to receive a job offer at the end of the internship.
- Both the company and the intern fully understand the internship is unpaid time.
As mentioned above, most of this was really part of the old test. However, now the strongest focus will be on ensuring the intern truly benefits from spending time as your intern. Many companies felt they could have interns doing all the grunt work and the intern benefitted just from seeing the activity around them. But that wasn’t and isn’t true. Make sure your internship program provides real training for the intern. You’re giving back by helping students learn more about the jobs that caused them to go for that major and developing more skills to help with their studies.
While the federal rule (DOL) has changed, keep in mind that California’s description in the IWC Orders still require the training to be supervised by a school or disinterested agency. Don’t assume CA will drop that but, so far, it appears CA may be fine following this new test. Talk with an employment law attorney to be sure your plan will work.
Make sure your interns are part of an accredited college internship program or you are providing similar training to advance that intern’s skills and knowledge. This new test is most helpful for those companies that want to help students but haven’t found (or developed) an internship program with the schools. If you can’t commit to the training, hire the intern at minimum wage and you can have them doing whatever you need on the job.
“I have a bookkeeping company and use independent contractors to service my clients. These are usually part-time people working from home. Does the new court decision change how I do this?”
Your HR Survival Tip
The California Superior Court recently issued a ruling about a delivery company’s truck drivers who were classified as independent contractors. This court ruling was specific to these drivers being eligible as part of a class action lawsuit but it may be the start of changing the qualifiers for independent contractors in general.
In the past, the Borello test was used and looked at numerous factors when EDD was deciding if someone was an independent contractor (IC). This new ruling used only three items in their test. These aren’t new but it does add focus:
- The worker is free from the control and direction of the hiring company in connection with the performance of the work. — Often a company wants to provide training, lock down work hours, or have other forms of control that aren’t allowed when using ICs.
- The worker performs work that is outside the usual course of your business. — If you have a bookkeeping company, you can’t use ICs to provide that bookkeeping to clients. The type of services your ICs could provide might be human resources, marketing, part-time CFO, or even bookkeeping. However, this bookkeeping is someone taking care of your books, not a service you offer to clients.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. — This is the easiest to review. Your IC should have other clients that are using their services. If you are the only client, this is an employee. They must look and act like a business with multiple clients.
None of above is new… these are things that EDD has always looked for when determining misclassifications. What is new is there were so few factors reviewed. The CA Supreme Court said failure to prove all three items were true is sufficient to consider that worker an employee.
The net is tightening and it’s time to take a hard look at anyone working with you who is not an employee. Can they easily pass this 3-point test? Even if you’re thinking “maybe” you may be at risk. The financial cost of misclassifying even one person has a big price… fine and penalties, 3-4 years of back pay for overtime and missed meal breaks, and state and federal payroll taxes that weren’t paid.
“I have a sales rep who is commission only. Recently I heard something that makes me wonder if I should also be paying a salary. What is the rule?”
Your HR Survival Tip
California has very specific rules about sales reps so it’s good that you’re asking. We often see sales reps misclassified and this can be very costly to the company.
Outside Sales Reps
An outside sales rep must spend at least 51% of their time out and about visiting prospects. We call this “knocking on doors.” They cannot conduct sales from their home or office; they must be hitting the streets. You can’t count time spent delivering the product, setting it up, etc. toward that 51%. If they still qualify as a true “outside sales rep,” the following applies:
- This position can be paid commissions only. No minimum salary is required.
- Paid sick leave must be accrued based on the assumed or agreed-upon time the sales rep is working. Other benefits, like vacation, are calculated the same way.
- You must have a commission plan in place that meets California law. This law states specific things that must be written into the plan to eliminate confusion about how commissions are earned, how they are calculated, when they are paid, and what happens upon termination of employment.
- These laws have not kept up with technology. Your sales reps may find they are much more productive when doing screen shares for demos or Skyping prospects. However, this time does not count toward the 51% needed to qualify as an outside sales rep.
Inside Sales Reps
An inside sales rep is usually the sales person who doesn’t qualify as an outside sales rep. They spend more time in an office or on the phone than they spend knocking on doors. Your inside sales rep:
- Must be paid hourly for all time worked. This does not qualify as a salaried position unless they are also a manager. You cannot count commissions toward meeting minimum wage unless you pay that period’s commissions at the same time you are paying for that period’s time.
- There is a possible exemption that would allow you to avoid overtime but the sales rep must be paid at least 1.5 times minimum wage to qualify. The exemption is only for overtime; the sales rep would still need to follow meal and rest break rules.
- You must have a commission plan in place that meets California law.
Commissions only work if the amount is a percentage of the sale (net, gross, etc.). If you pay a flat amount, that’s a bonus rather than a commission. In addition, the person earning the commission must be actively involved in making the sale… or we’re back to bonuses.
Misclassifying an inside sales rep as an outside sales rep is fairly common but can be very expensive. If that sales rep who is working from the office hasn’t been receiving meal and rest breaks, you may have a lot of penalties and fines in your future. Think about it this way… if they’re sitting down, that time probably won’t count toward the outside sales’ 51%.
“I received a notice that an employee needs to provide insurance for a dependent. What do I do with this?”
Your HR Survival Tip
There was a law enacted years ago with the nickname “deadbeat dad law.” The law’s primary use is to help collect child support and/or provide healthcare for dependents. Once an agency knows you’ve hired someone on their list, they send out paperwork requiring you to help them.
A few things to remember:
- Governmental agencies always mail everything. They don’t call and they don’t email. If it didn’t come in the mail, question what you received.
- You want to comply with this request as soon as possible because there is a deadline.
- You absolutely must do what the notice says, even when the employee tries to tell you the situation has changed. The only time you do something else is when you have received (in the mail) an updated notice. Meanwhile, tell the employee you are legally required to do what the notice says.
There are always very specific instructions provided on every type of notice but the package you receive can be overwhelming because they often send you multiple copies. Give one copy to the employee right away. Pull one copy for yourself so you can follow the instructions. You will have to complete parts of the document and return it to the agency. If you’re really stumped, the notice will include a phone number and name of the person handling this case and you can call them for help in complying.
If you received a garnishment, it will tell you how to calculate the amount to deduct from the employee’s paycheck and where to send it. This must be done every pay period until the total amount they cite has been paid. In addition to being used to collect back child support, garnishments are also used by IRS to collect back taxes. Talk with your payroll provider to find out if they will send the money to the agency or if you need to do it.
If you received a notice regarding a child’s healthcare, it’s probably a National Medical Support Notice (NMSN). This notice also requires you to provide information about your insurance plan. If your employee did not enroll in your insurance, the NMSN will require you to enroll both your employee and their dependent.
Most notices can be a bit confusing and scary at first but you’ll do fine if you just stop and read the document. Unlike so much other paperwork we receive from governmental agencies, they actually try to make it fairly easy to comply.
“I have an employee who has used up all his sick time. However, he continues to have a lot of absences but does provide doctor’s each time. What should I be doing?”
Your HR Survival Tip
When you have an employee who is sick a lot, the first thing you want to do is confirm how much sick time they had available and how much they used in the current plan year. The plan year could be calendar year or some other 12-month period you designated when you first created your paid sick leave policy.
You also want to make sure your sick leave policy is compliant. In addition to California’s 3 days, there are about 29 local laws with different amounts of sick leave and they all provide more than the basic state law.
Once you know you are calculating the sick leave correctly and are sure how many sick days/hours the employee has taken, forget the amount that was protected sick leave. We use the word “protected” for a reason… you can’t use this time against the employee for attendance issues.
How much additional time has the employee taken off due to illness after they ran out of sick time? Is that amount sufficient to fire the employee for attendance issues? Or would a termination at this point look like retaliation for the employee’s use of the protected sick leave?
You also need to consider what other protections might be out there for the employee. The list of protected disabilities continues to grow and doesn’t have to be noticeable to you for it to be protected so you want to be sure you’re not dealing with one of them. Smaller companies don’t need to worry about the federal Family Medical Leave Act (FMLA) or CA Family Rights Act (CFRA). However, a work-related illness or injury has certain protections and anything related to a pregnancy is very protected in CA.
You need to sit down with the employee and discuss the issue. Although you don’t really want to know the actual medical issue, you can ask if the employee knows how much more time off may be necessary or is there a way they can work more hours with certain restrictions listed by their doctor. Ideally, the employee is also looking for a way to get back to work on a regular basis as soon as possible. Document the conversation and give some thought to your next steps.
As a rule, you want to be very careful about terminating an employee when absences are medically related. While non-work-related injuries and illnesses have far fewer protections, you want to be sure you’ve looked at everything before making any big decisions. You’re dealing with medical issues on top of the potential loss of a paycheck… sympathy will always be on the side of the ill or injured employee. Now is the time to call a professional to discuss your options.
“I’ve heard hourly wages being called both base wages and regular pay. Is there a difference between them?”
Your HR Survival Tip
Usually there is a difference between base pay and regular pay. California is quite fond of its calculations when it comes to employee pay. Regular pay is frequently used in laws but it doesn’t mean the same as a base wage. Here are a few of the various terms used for different employee pay:
- Base pay — This is the hourly rate of pay for an employee when nothing else has to be considered or calculated.
- Regular rate of pay — While many of you may assume this is an employee’s hourly rate, it’s not. This is a calculated pay rate that is an average for the week based on hours and earnings and is used in most calculations for overtime and even sick pay in some areas.
- Premium pay — This is the term for that one-half bump employees get for overtime pay (as in one and one-half for overtime). You add the premium to their regular rate for the amount paid as overtime. This is often a calculated amount based on total earnings for the period.
- Overtime pay — In California, this is paid for any time worked over 8 hours in a day or over 40 hours in a week. You look first at the daily overtime. The 40 hours calculation is looking at only the first 8 hours in any day since you are already paying for the over-8 time on a daily basis.
- Prevailing wage — If you are a government contractor or sub-contractor, you are usually obligated to pay a higher wage for work hours on those projects. In addition, you are also typically required to pay a certain amount toward the employee’s benefits… even if that is above what your other employees receive.
- Discretionary bonus — This means you are not promising or automatically paying a bonus to employees. Discretionary bonuses are used when the bonus availability is dependent on certain factors, such as the company performing at a certain level, followed by other goals or milestones for employees. The timing and amounts may vary.
- Non-discretionary bonus — Typically, you have this type of bonus if you provide a bonus on a regular basis without much in the way of qualifiers. This bonus becomes part of their expected compensation and shouldn’t be stopped on a whim.
- Flat-rate bonus — This bonus amount doesn’t change based on other factors. For example, you pay an employee $15 extra each weekend day they work or $10 each time a contract is signed, regardless of the value of the contract.
- Commissions — A commission is a percentage of the net or gross amount of a sale. The employee earning the commission must be actively involved in making the sale. In California, you are required to have a written commission plan that clearly spells out the whole plan. If your employee isn’t bringing in the sale, you should call it a bonus instead.
We know these calculations and definitions can drive you crazy. However, you can’t ignore them or they’ll drive you straight to the Labor Commissioner… who will be happy to explain the error of your ways. We know California doesn’t make it easy to be an employer. Ask questions rather than assume you’re compliant. Take time to figure out the best way to do the calculations and document your process so you can duplicate it easily.
We know how much you enjoy hearing about what the California legislature has been considering that would affect your business or employees. The following is a sampling of the bills currently being discussed but have not (yet) passed:
Your HR Survival Tip
- AB2841 — increases the state paid sick leave from 3 to 5 days.
- AB1938 — prohibits inquiries regarding familial status. (Basically, this will be about who an employee can take time off for… and you probably won’t be able to ask the relationship.)
- AB2482 / AB2484 — authorizes scheduling flexibility through increased access to “compensatory time off,” and allow for individual “alternative
workweek schedules.” (I believe this would be a very useful set of laws.)
- AB1976 / SB937 — updates and expands workplace lactation accommodation requirements.
- AB2478 — enables employers to assist employees with student loan repayments. (This may be related to expensing that help instead of showing it as compensation to the employee.)
- AB2069 — amends the FEHA (Fair Employment and Housing Act) to regarding “discrimination” against medicinal marijuana users.
- SB1038 — amends the FEHA to impose individual liability upon employees who engage in post-complaint retaliation. (If an employee can be personally sued for retaliation against an employee who has filed a claim, this may make it easier for companies to get employees to comply.)
Sexual Harassment and Discrimination:
- AB1870 — extends the statute of limitations for pursuing sexual harassment claims to 3 years (rather than the current 1 year).
- AB1876 — requires new record-keeping rules for sexual harassment complaints.
- SB1300 / SB1343 / AB3081 — expands the scope of currently mandated harassment training to additional employers, and for non-supervisory
employees. (This likely will require many more levels of employees to be trained.)
- SB224 — expands current sexual harassment prohibitions to additional business, service and professional relationships. (This one is a bit scary because it takes sexual harassment out of the workplace and adds the risk to other interactions.)
- AB2366 — requires companies to provide time off work for victims of sexual harassment and immediate family members.
- AB2770 — extends immunities from defamation claims related to sexual harassment allegations.
- SB820 / SB1300 / AB3057 — imposes new limits on settlement agreements regarding sexual harassment claims, including prohibitions
regarding confidentiality provisions.
We’re not surprised the legislature has been thinking about sexual harassment because it’s been in the news for several months. However, does that mean we need to have even more laws around this topic… or just more consistent application of the laws we already have? We’ll let you know which of these proposals survive to become law in the months ahead.
“I’m not sure I have enough money available to make payroll next week. Can I pay my employees later, after a client pays a big invoice?”
Your HR Survival Tip
No! Absolutely not! If you don’t think you’ll be able to pay them completely AND on time, have them stop working immediately.
California is very clear and very protective about employees being paid in full and at exactly the same time every pay period. Of course there are laws about this:
- The employee must receive their pay within 7 days of the time worked. For example, if you are paying every 2 weeks, you only have 7 calendar days after that 2-week period ends to get a check in their hand.
- If you are using semi-monthly pay periods (twice per month) of 1-15 and 16-last day, the latest you can pay is the 26th and 10th, respectively. If your semi-monthly pay periods are on another schedule, such as 10-26 and 27-9, you must pay within 7 calendar days.
- You must post your pay day and the rules about it. If the pay day falls on a Saturday, Sunday, or holiday, you may pay the next business day. However, you need to state what your policy is… you can’t fluctuate from month to month. There is a part of every employment law poster to fill in this information. You can only delay a paycheck on holidays listed in the Government Code but this includes the standard holidays.
- If an employee has failed to turn in a timecard, you must pay for the scheduled time and then reconcile it later.
- Overtime from one pay period may be paid in the next pay period but absolutely no later than that. I’d save this for overtime worked that you didn’t know about.
Look at the dates from when the work period ended to the time you must submit your payroll. Don’t make it so tight you don’t have time for the unexpected. If you are late or cannot pay employees for all time worked, you are subject to penalties and fines… and the Labor Commissioner can force payment. But, really,a big concern is that your employees will feel they aren’t important to you if you can’t even get them paid on time.
Plan ahead. Business owners have to watch the money… but employees are watching the business owners.
“I have a few employees who I consider friends. However, I’m noticing they don’t take me as seriously as my other employees do. How do I change this?”
Your HR Survival Tip
We see each other at work almost more than we see our family so it’s no wonder that coworkers become friends. Some of these friendships last much longer than the job itself. However, there is a difference when you are the owner or the manager.
As you mentioned, “friends” often don’t take you as seriously as other employees. This makes it much harder to be a good manager. If you neglect to discipline the friend in the same way you would another employee, two things happen. One, you potentially have a discrimination claim and, two, your management style and policies are altered to accommodate the friendship instead of protecting the company.
If you do treat everyone the same when they don’t do what you say or in accordance with your policy, the friend will be upset because they aren’t getting special treatment due to the friendship. In the end, for the good of your business, you need to let employees-who-are-friends know they will not be treated differently in the workplace and they will be expected to follow all your rules, policies, and direction. The same applies to friends and family you are considering hiring. If they don’t understand this concept, you will either lose the employee or the friend or end up in a big fight.
It’s a tightrope you’re walking. And, as the saying goes, it’s lonely at the top. You do want to be friendly and accessible… and fair. But you may need to discipline, fire, or promote these employees in the future and must be able to fully justify your actions to them and others. Choose your priority… being a good manager/owner or being a good friend. It’s very hard to be both successfully.
“I’m trying to plan ahead and think about how I can prepare to sell my business one day. Are there things I can do now or should I wait until I’m ready to make a move?”
Your HR Survival Tip
It’s really never too early to start prepping your business for the future. Whether you plan to have someone take it over or sell it, the business will have more value if you keep that future in mind. After all, we’re all going to exit our business in some manner. We may not always be able to choose when but we can certainly make it easier for ourselves and others when that time arrives.
I’ve met a few business brokers and they all agree you need to start preparing your business at least 2-5 years in advance. What does this prep look like? Here are just a few examples:
- Document your processes — Stop rolling your eyes and realize this is critical. You can do short videos if writing your processes down is too much. However, anyone taking over the business needs to know what you’re doing to make it successful so they can keep repeating the process.
- Pull yourself out of the picture — If you are holding all the expertise and knowledge that keeps the business going, no one will find value in the business. Can you leave for 2-4 weeks and know the business will continue to operate as well as when you’re there?
- Hire good people — Instead of worrying that someone knows more than you, celebrate your good luck! Having great people work for you only makes you and your business look better. Make sure you’re taking steps to ensure they stick around. This often means you need to create a career path for them, if possible. You don’t want your employees leaving once someone else is at the helm.
- Maintain focus — We’ve all followed that shiny object at some time or another… that big distraction from our goals or plan. Figure out what your business is best at and how you can keep that momentum going. Flitting from one idea to another isn’t going to build a solid business.
- Lock down your customers — Most businesses rely on customers continuing to buy your product or service. What are you doing to ensure your customers will continue to use your business… regardless of who’s running it?
It doesn’t really matter if you want to eventually sell your business to a stranger or turn it over to family, the process is similar. If selling, you’ll have a much better chance of getting the best price if they can see what it will take to run the business. If turning the business over to family, they’ll thank you for providing a solid operation. Let us know if you would like an introduction to a business broker and explore what you can do to build value in your business.