California Businesses Must Reimburse for Employment-Related Use of Personal Vehicles, Phones and More

A California employer must reimburse the expenses its workers “necessarily” incur as part of their jobs (Labor Code Section 2802). On the other hand, a business generally has no such obligation for an employee’s costs that enables him or her to appear for work.

For example, a company is required to pay a worker for his/her use of a personal car for work-related purposes (travel to and from a business meeting) but not for commuting to or from the job. An employer would have to reimburse an employee for covering the expense of food and drink served at a scheduled, required staff meeting. However, a business does not have to pay a worker for his/her grocery bill even though eating meals would likely enable that person to perform more efficiently on the job.

Of course, an employee’s cost of operating his or her car for job-related actions is not limited to the fuel required. Insurance and maintenance are also included. Yet, an attempt to fairly apportion each such item of operational expense could become an administrative nightmare. California practice simplifies the process, recognizing that employers meet their obligations to reimburse business-related related use of a worker’s vehicle by paying the acceptable rate for the mileage thus traveled. The published current federal IRS mileage rate is the commonly accepted measure.

As long as a company provides such mileage reimbursement, that company will normally not be considered responsible for an employee’s damage to or loss of his/her vehicle during that such business-related operations. The worker is expected to carry the requisite insurance and to cover repair or replacement costs with the aid of such mileage reimbursement.

California Labor Code 2802 is not limited to reimbursement for vehicle use. Employers must cover an employee’s “necessary” payment for business-related telephone and computer usage, internet connections, tools, office supplies, etc. An employer may also be obligated to pay a fair allocation of an employee cost to maintain his/her living space if a portion of that home or apartment is dedicated exclusively to perform employment duties.

This means that a policy that absolves a company from reimbursing an employee who failed to obtain advance approval for his/her payment of a necessary job-related expense is unenforceable and unlawful. A company can issue a policy requiring such pre-approval where advance requests are foreseeable, but the consequence for violation should be possible disciplinary action rather than non-payment of the monies spent.

Employers who fail to reimburse for legitimate job-related expenses are subject to legal action, including payment of the worker’s attorney fees and costs incurred in collecting such monies. California Labor Code 2802(c).

What is “necessary” does not usually include what can fairly be considered extravagant. Thus, employers can and should issue sensible policy and guidelines setting expense level standards, for example an acceptable range and maximum for repayment on hotel rooms, rental cars, etc. A worker that chooses to exceed such reasonable limits would then be on notice that he/she will have to personally cover that excess.

It is also within a business’s prerogatives to require adequate documentation of claimed work-related expenses and to decline payment for unsupported reimbursement requests. Obviously, such rules should be specified in written policy to limit the potential for later disagreements and successful legal claims.

An experienced employment law attorney can help draft the written guidelines that will properly balance a company’s required reimbursement when fairly due with the needed deterrence for irresponsible and excessive employee spending in the course of job performance.

Time Off Work for Illness is No Vacation, or Is It?

California businesses with 50 or more employees must comply with the federal Family Medical Leave Act (FMLA) and the California Family Rights Act (CFRA). For eligible employees, both acts are essentially “you will have your job waiting for you” laws. Neither FMLA nor CFRA provides for paid leave. However there are some circumstances where an employer may require a worker exercising such leave rights to expend available paid vacation benefits during his or her absence.

Each of these leave laws requires such employers to provide an eligible worker with a maximum of 12 weeks unpaid leave in a 12 month period. (FMLA also directs a covered employer to provide an eligible employee with up to 26 weeks of unpaid leave to care for certain relatives injured or ill in the course of military service.)

An employee is “eligible” for a FMLA or CFRA leave if: 1) he or she works at a site with 50 or more employees within a 75-mile radius; and 2) he or she has worked for that employer for 12 months or more (need not be consecutive) and at least 1,250 within the past year. While the rules can be involved, an eligible employee may take a FMLA or CFRA leave for his or her own “serious medical condition” (as defined by law), for the care of a family member or domestic partner so afflicted, for pregnancy-related disability (FMLA only), or for bonding with a newborn or adopted child.

Paid vacation time to employees is not a requirement in California. However, the practice is common as it usually promotes worker morale and productivity. Once a business provides such a benefit, it is subject to certain rules. See, Vacation Pay in California, No Picnic for Employers Who Don’t Know the Rules. With clearly stated written policy, a company may also require employees to use such vacation benefit during an otherwise unpaid FMLA or CFRA leave, but only in certain situations.

Federal law establishes the general rule. An employer “may require the employee to substitute accrued paid leave for unpaid FMLA leave…. [as] determined by the terms and conditions of the employer’s normal leave policy.” See, 29 Code of Federal Regulations (CFR) section 825.207(a), Substitution of Paid Leave.

However, if the subject employee taking such a leave qualifies to receive disability benefits (for example, if he or she is eligible to receive paid California’s State Disability Insurance [SDI] for a serious health condition), then “neither the employee nor the employer may require the substitution of paid leave.” 29 CFR section 825.207(d).

On the other hand, employer and employee may agree to use such accrued vacation benefits to supplement amounts received under state disability. For example, state-insured and provided disability pay might only replace up to two-thirds of an employee’s salary. In that case, that worker and his or her employer can agree to apply accrued vacation benefits to make up the difference.

As situations and circumstances can be varied and complex, seeking the assistance of qualified legal counsel to assist on creation and application of appropriate FMLA/CFRA leave policies is of course a good idea. It is also good practice for employers to review the workplace policy manual regularly to confirm compliance with applicable federal and state regulations.

Basic Rules and Rates for Weekly or Daily Hours

California requires employees who are not “exempt” receive overtime pay for time worked beyond forty hours in any one workweek or after eight hours in a workday.

A “workweek” is any seven consecutive days, starting with the same calendar day each week beginning at any hour on any day, so long as it is fixed and regularly occurring. It is thus a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods.

A “workday” is a consecutive 24-hour period beginning at the same time each calendar day, but it may begin at any time of day.

California’s overtime (“premium”) rates range from 1.5x to 2.0x an employee’s regular rate of pay. “Regular rate” is generally that worker’s total compensation for the workweek (including wages, piecework pay, bonuses and commissions) divided by the number of working hours in that week. In no case may the regular rate of pay be less than the applicable minimum wage.

The rules include:

● Hours worked over 40 hours in a workweek are compensable at 1.5x regular rate;

● Hours worked over eight, but less than 13, in a workday are also compensable at 1.5x regular rate;

● Hours worked over 12 in a workday are compensable at 2.0x regular rate;

● The first eight hours worked on the seventh consecutive day in a workweek are compensable at 1.5x regular rate; and

● Hours worked over eight on the seventh consecutive day in a workweek are compensable at 2.0x regular rate.

These are some of the basic rules. There are many other applicable laws and regulations an employer must also grasp and apply. For instance, an employer may establish different workweeks for different employees, but once an employee’s workweek is established, it remains fixed regardless of his or her working schedule.

California also provides detailed rules for workers who qualify for exemption from overtime pay. See, e.g., “California’s Exemptions from Overtime”, “Administrators and Overtime Pay in California”; “The California Administrative Exemption”; “The California Executive Exemption”; “Is Your Commissioned Inside Sales Representative Exempt From Overtime?” and “The California Computer Professional Exemption.”

Navigation through and compliance with California’s overtime standards is best accomplished with the help of experienced legal counsel.

California’s workplace overtime rules do not apply to those workers who qualify for exemption under one or more categories, including:

● Executive Exemption: Executive employees are exempt from overtime if paid on a salary (current minimum is $640 per week; $2,773.33 monthly) and if primarily (over 50%) engaged office or non-manual management of at least two personnel below them in the chain of command and with authority to exercise discretion and independent judgment on the post. “Management” means having and exercising the authority for full responsibility over the planning, recruiting, work priorities and allocation, coordination, documentation (e.g., statistics, evaluations of personnel performance) and production results of a company or a distinct area of a company. See also, “The California Executive Exemption”;

● Administrative Exemption: Administrators are exempt if paid on salary as above for executives and if primarily (over 50%) engaged office or non-manual work on planning, organizing, or enabling production concerning, for example, creation or execution of the management policies or general business operations of his/her employer or his/her employer’s customers. An exempt administrator must regularly and customarily exercise independent judgment and discretion in his/her position. See also, “Administrators and Overtime Pay in California”; “The California Administrative Exemption”;

● Professional Exemption: An individual is an exempt professional if paid on salary as above and primarily (over 50%) engaged in one of several specified licensed occupations (including law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting) or in an “occupation commonly recognized as a learned or artistic profession.” As above, an exempt professional must regularly and customarily exercise independent judgment and discretion in his/her position.

A worker is exempt from California’s overtime rules if he meets the detailed duties and compensation requirements for an inside salesperson; an outside salespersons; or an computer employees. There are a host of other avocations (for example, interstate truck drivers) that may be exempt from California overtime rules because of the preemption of federal or other laws.

Classification of a worker as exempt from overtime is a detailed, sometimes complex process, best accomplished with the aid of a skilled employment law attorney.

Clearly Written Agreements are the “Ounce” of Prevention

Commissions payable to former employees present a special set of issues for California business. The importance of actions to prevent disputes increases over 2012 as the state will require all employee commission agreements to be in writing by December 31. See, “Employee Commissions”

California requires that all earned compensation must be paid at least twice per month. An employer also must usually pay a worker all earned compensation immediately upon termination or be subject to penalty for each day of delay up to a 30 day maximum. However, an employee may not have earned a sales commission at termination if, for instance, the company requires the customer’s actual payment of funds before commission on those funds is owing. The employer must pay such a commission earned after termination immediately upon the receipt of the funds.

Determination of just when a commission is “earned” can become quite contentious at or following termination unless there is a clear written guideline. What of the commission for a particular account a salesperson was instrumental in securing but which did not actually close until shortly after that employee has departed the company? Is a commission earned when the customer agrees to do business, makes an order, pays for an order, or receives and is satisfied with the order?

The answer can legitimately be any of these, depending on the scope of the salesperson’s responsibilities to ensure completion of the transaction. However, that proper “earning point” could be anyone’s guess if there is no written standard. It also could be a litigation nightmare if a salesperson leaves employment before the employer considers one or more commissions have been earned and the stakes are high enough.

Actions that can reduce the potential for such post-termination disputes include:

● Unambiguous contract terms with each salesperson establishing the worker’s responsibilities for a successful complete transaction and a corresponding point in that transaction when the commission is earned and payable; and

● Where possible, forthright and constructive communication between management and the salesperson at termination to confirm or reach specific written resolution on the latter’s rights to commissions on pending transactions.

Skilled legal counsel can almost certainly help anticipate and deal with the grey areas on commission rules before any problems actually arise.

For more information, see the DLSE’s FAQ on Paydays, Pay Periods and the Final Wages.

Termination for Absence or Lateness

As “at-will” status permits either the employer or the employee to freely end the relationship even with no advance notice and for no reason at all, obviously a business can legitimately terminate an “at-will” worker for not showing up or for being late. However, there are some practical considerations.

Normally, management should not be moved to make such a significant move on a single instance or a few isolated occurrences. Termination is rarely the first solution since a company has usually gone through some expense and time to train an individual worker. The majority of absent or tardy employees are willing and able to improve their reliability by a discussion alone.

It also matters why the worker has been absent or late. If the employer is aware the employee was injured on the job but must fill the person’s position to maintain operations, that company should take care to document the business necessity of having to lay off that injured worker. An individual may have a discrimination claim if he can show that management terminated him or her because he/she has filed or who intends to file for workers’ compensation insurance recovery.

Similarly, certain workers unable to work due to any illness, injury or temporary disability may be entitled to unpaid leave and reinstatement to their old or a comparable position. Such rights depend on the size of the company among other factors. For instance, in California, any business with five or more persons on its payroll must provide up to four months unpaid leave for an employee unable to work due to medical complications of pregnancy, childbirth or newborn care.

While an employee exercising a right to any such unpaid leave is entitled to have his or her former job back or a comparable position as long as he/she returns to work within the legally specified time limit, such worker is entitled to no greater protection against a business-related termination than if he or she was not out on a leave. For example, if a company must for business reasons lay off a significant number of workers, those out on leave are entitled to no greater protection than if they were still working at the time.

Thus, again, management must take particular care when laying off a worker currently out on a protected leave. This is a situation where a company should almost certainly seek the guidance of skilled legal counsel. Among the many precautions, an employer should document the business reasons for the decision to the greatest extent reasonably possible. Even then, management should communicate forthrightly with the person on leave and seriously consider offering that worker severance pay in exchange for a signed release document.

See also, “Written Employee Attendance Policy,” “Pregnancy Disability Leave, Employers’ Obligations,’ “Disability and Leave of Absence Policies, Keeping Up with Changing Employment Laws,” and “Termination Of Employees, How To Fire A Troublesome Worker Without Getting Burned.’

Proceed with Good Judgment

The best handling for workplace theft is to prevent it in the first place. Suspected or alleged employee thievery – and an employer’s twin obligations to protect the group against an actual thief and to protect the accused from false charges — is a delicate challenge. A company’s much more straightforward task is to implement policies and security measures designed to deter the criminally tempted.

Yet, stealing can occur regardless. A clearly written and regularly updated employee handbook should thus include standards and rules for conduct, reporting, investigation, fair hearing and discipline that discourage as well as address such alleged bad behavior. Company executives as well as policy must promote the purpose of reporting and investigation: to maintain a safe, just and trusting work environment. It is leadership’s responsibility to ensure that staff are not altogether intimidated out of raising a theft or other crime problem to management. Leadership must also assure that employees are not reduced to apathy from unfair procedures that prevent the full airing of accusations and discourage justice.

California and many other states maintain “employment-at-will” as the presumed working relationship between employer and workers. “At will” means that either side may end the relationship at any time, with or without advance notice and with or without any reason for the termination.

However, “at will” employment is not any manager’s or worker’s license to treat fellow employees harshly or unfairly. While an employer may fire someone for no reason, that company may not terminate for an unlawful reason. Thus, if management lets someone go for an unsubstantiated accusation of theft, the incident could lead to an action for defamation by the accused against the company as well as the individual accuser. If management summarily fires an employee for having mistakenly reported an innocent co-worker’s embezzlement, that now-former employee might well have a claim for unlawful retaliation over the incident.

In the face of alleged workplace theft, it is thus a good idea for management to consult with a skilled employment lawyer for guidance on the conduct of an impartial investigation and on any ensuing steps for discipline or termination.

Clear, Written Workplace Policies are Essential

There is no California law requiring a business to pay its employees for time off work, whether for vacation, holidays, sick time, or any other reason. However, employers do commonly have policies and plans that provide such compensation. Once a company opts to provide any such benefits, California does have applicable law depending on just what sort of “time off” is involved.

California defines “vacation pay” as a form of wages that an employee earns (“accrues) as the working year progresses. For example, if an employer has a policy granting a worker two weeks of paid vacation per year, that employer will have earned half of that benefit (one week of paid vacation) after having worked six months of that year. This means that a business must on termination pay an employee all of his or her accrued but unused vacation pay (no “use-it-or-lose-it”).

On the other hand, California defines “sick leave” as a non-accruing benefit. For example, a company policy that specifies four paid sick days per calendar year obligates the business to pay that benefit only to the extent that an employee actually uses it in that year. Come the next calendar year, the potential benefit renews but it does not accrue (mount-up) over time. Thus, sick pay in California is “use-it-or-lose-it.

Some employers opt to combine sick leave and vacation benefits into a single time block commonly referred to as “paid time off” or “PTO.” Such policy permits the employee to choose when and for what purpose he/she will utilize the allotted paid time away. However, California requires that all such PTO time is an accruing, earned throughout the year” wage-benefit. Thus, as with a straight vacation policy, an employer must pay pay an employee on termination all of his or her accrued but unused PTO (again, no “use-it-or-lose-it”).

There is much more to a sound vacation pay or PTO policy on which a knowledgeable employment lawyer can help. For instance, a company’s written rules can (and should) define a maximum limit for such accrued benefit, after which the employee must actually take such paid time off before he/she can resume earning such vacation pay or PTO. Otherwise, a company could face an employee leaving after, say, 20 years of service with a legitimate claim for immediate payment of an equivalent duration of accrued vacation that the person never bothered to take in all those years. See, “Vacation Pay in California, No Picnic for Employers Who Don’t Know the Rules.”

IRS Increases Rate by One Cent to 56.5

The IRS updates annually the reimbursement mileage rate for an employee’s business use of his or her vehicle. The rate has increased from 55.5 cents in 2012 to 56.5 cents per mile in 2013.

The government determines the mileage rate by a study of the fixed and variable costs of operating an automobile, including of course gas prices.

For more details on required reimbursements to employees for business purposes, visit IRS.gov. That site includes the statement: “Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.”