Some companies develop a habit of paying employees partially or fully in cash. This is a dangerous practice that can violate various laws, particularly if the company is not properly documenting the payments.

While it is not outright illegal, there is no compelling reason for employers to compensate their workers in cash. Doing so can give the immediate impression of an attempted irregularity, such as the employer or the employee not wanting to report the income or pay any required taxes. Paying taxes is of course a cost of doing business and it needs to be part of any company’s budget.

There are concrete reasons not to pay cash other than just conveying the wrong impression to an outside observer. State and federal laws require an employer to:
(a) keep records of all wages paid to employees; (b) make tax filings showing what the employees were paid; and (c) provide the employee with a pay stub. Federal law specifies that employers:

• Maintain several pieces of information on an employee’s pay.See, Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standard Act (FLSA).
• File reports of wages paid to each employee and resulting employment taxes.See, Depositing and Reporting Employment Taxes.

In California, employers must:

• Keep pay records and permit employees to review them.See, Personnel files and records.

• Provide detailed pay stubs to employees.See our article, California’s Itemized Pay Stub Requirements.
• Make tax filings showing what employees have earned.See, Reporting Your Taxes.

Paying by check or electronic means facilitates the maintenance of this required documentation. Ideally, all businesses, no matter how small, should have a computerized program where they record all information concerning employee wages and/or a payroll service that does so for them so that if an employee wants information about past pay or sues the company, or a government agency wants to do an audit, you have full and defensible records.

If you have been paying in cash, it’s a good idea to switch over to a well-documented system of paying employees that enables you to show clearly company compliance with applicable laws.

For more information, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin
June 3, 2016

The U.S. Department of Labor (DOL) has issued this month its Final Rule raising the minimum salary amounts for certain workers to qualify for overtime exemption under the Fair Labor Standards Act (FLSA).

While the FLSA guarantees most employees an overtime premium equal to at least one and one-half times the employee's regular rate of pay for hours worked over 40 in a workweek, it also provides exemptions for administrative, executive, professional, outside sales, and computer employees, as well as “highly compensated employees.”

To qualify for these national FLSA “white collar” exemptions, an employee’s principal job duties must meet certain requirements and the employer must pay him or her a salary equal to or exceeding certain minimums stated in the regulations. The new regulations do not change the required principal job duties. Rather, they increase the lowest salary that an employer must pay an otherwise-qualified white collar employee in order to classify the employee as exempt. The new number that the DOL adopted is equal to the “40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region,” i.e., the South.

Under the current FSLA regulations, adopted in 2004, in order for an employer to classify an employee as an exempt professional, executive, administrative, or computer worker, it must pay the employee at least $455/week, $1,972/month, or $23,660/year. See DOL Fact Sheet #17A. When the new regulations take effect on December 1, 2016, an employer will need to pay a qualified employee a minimum of $913 per week, $3,957 per month or $47,476 annually in order to classify the employee as exempt from overtime. The Final Rule also provides for these numbers to be updated every three years.

Some states have their own laws on this subject. For example, California requires that exempt white collar workers be paid a salary at least double the minimum wage for a 40-hour week. Thus, at the current minimum wage of $10.00/hour, California requires a minimum salary of $41,600 annually ($10.00/hour x 40 x 52), $3,467 monthly ($41,600 ÷ 12), or $800 weekly to qualify a worker who is otherwise eligible by job duties as exempt.

The new regulations also raise the minimum annual salary for the “highly compensated employees” exemption from $100,000 to $134,004 annually. This amount is the 90^th percentile for full-time, salaried workers nationally. See Final Rule.

All employers with salaried, exempt executives and administrators need to work out by the December 1, 2016 effective date how the Final Rule will affect their workforces. Some employees otherwise validly classified as exempt may already earn more than the required amount. For those that do not, the issue will be whether it will cost more to increase salary to $47,476 or more per year (or at least $3,957/month, $913/week) than to shift such persons to hourly (and overtime) wages. The challenge will of course be far greater for companies currently employing a great many exempt employees at salaries under the new minimums.

If you need assistance with working any of the issues raised by these new regulations, our attorneys, Tim Bowles, Cindy Bamforth or Helena Kobrin, can help.

Helena Kobrin
May 26, 2016

As we reported in last December’s Piece Work Compensation is a Wreck Waiting to Happen, The Perils of New Labor Code Section 226.2 (Piece Work), California has implemented detailed requirements for production-based compensation systems beginning January, 2016. This new law affects whole industries that have grown around such piece work (“by-the-piece”) arrangements, benefiting workers and management. For instance, at levels that on average far exceed the applicable minimum hourly wage, it has been the norm for trucking companies to pay drivers for miles driven or deliveries completed, for auto shops to pay mechanics for repairs accomplished, and for service companies to pay technicians for jobs finished and paid for.

As Piece Work and our April, 2016 article California’s Itemized Pay Stub Requirements explain, Labor Code 226.2 now requires businesses operating with such pay systems, among other things:

• to compensate affected workers at least the applicable minimum wage for each specific hour worked (no averaging permitted)
• to accurately calculate and pay affected workers separately for each daily rest and recovery period; and
• to include in each affected worker’s stub for each pay period detailed information showing the calculations and sub-totals for each component of the compensation system. These requirements also apply to companies that only use production as one of several factors in their compensation scheme

However, section 226.2 provides an important protection to companies that have operated with such piece work systems for any length of time prior to 2016, the so-called “safe harbor” provisions. As explained in Piece Work, two 2013 California Court of Appeal decisions (Gonzales v. Downtown L.A. Motors and Bluford v. Safeway) directed that an employer is in violation of California’s minimum wage law – which requires such compensation for “every hour worked” – unless that business paid its piece workers separately for rest periods and for payable “non-production” time (for example, staff meetings, training time). Section 226.2(b) permits such businesses to avoid any potential past liability for such underpayments of minimum wage and other piece work-related obligations by fairly calculating a 3% - 4% amount from the gross wages of affected workers between July 1, 2012 and December 31, 2015 and by paying all such amounts, with accurate accounting documentation, by December 15, 2016.

However, in order for an affected employer to take advantage of this “safe harbor” protection, it must by July 1, 2016 give written notice to the Department of Industrial Relations (DIR) that it is engaged in such back pay calculations and payments. The DIR has posted a specific notice form for businesses to utilize by that deadline. The DIR will then post the name of the company giving notice on its public website until July 1, 2017.

An affected company that has missed this July 1, 2016 deadline will thus be subject to claims from any employee(s) who may have been underpaid minimum wages under the Gonzales and Bluford rules extending back as far as four years prior to the date such claim is filed with the DIR or with the courts. Particularly in alleged class action claims, the potential liability posed upon an employer who has missed that July 1, 2016 notice deadline may well be far in excess of the 3% - 4% payments deemed sufficient under the safe harbor rules to resolve all such issues.

Thus, any California employer that has utilized a piece pay plan at any time since 2012 should place careful attention on Labor Code 226.2 and how it affects operations. The matter is urgent as the July 1, 2016 safe harbor notice requirement will soon be upon us and then gone. Our lawyers Tim Bowles, Cindy Bamforth, or Helena Kobrin are available for more information.

On May 4, 2016 California Governor Brown signed a series of legislative amendments effective June 9, 2016 which extend smoke-free workplace protections, re-define tobacco products to include e-cigarettes and vaping devices, and raise the legal minimum smoking age from 18 to 21.

Although current law prohibits the smoking of tobacco products at a place of employment or in an enclosed space, the new legislation broadens the definition of employer to include an owner-operated business (i.e., one without employees), eradicates the formerly lawful use of designated smoking breakrooms in the workplace, and defines “enclosed space” to include covered parking lots (in addition to lobbies, lounges, waiting areas, elevators, stairwells and restrooms).

Under newly amended Business and Professions Code sections 22950.5(c) and (d) “smoking” now includes the use of an electronic smoking device that creates an aerosol or vapor, in any manner or in any form, and “tobacco product” includes an electronic device that delivers nicotine or other vaporized liquids to the person inhaling from the device, including, but not limited to, an electronic cigarette, cigar, pipe, or hookah.

Employers should update their company policy and procedures to expressly prohibit e-cigarettes and vaping in the workplace and take steps to notify all employees of the above restrictions by the June 9 deadline.

For more information, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth
May 18, 2016

Employers should take proper steps to generate and protect complete and accurate payroll records. In addition to being legally obligated to compile such records, employers can also use these documents to refute a worker’s claim for unpaid overtime, off-the-clock hours worked, and/or missed meal breaks. Under federal and California law, employers must maintain and preserve payroll records that include hours worked, wages paid, pay dates, and gross and net pay.

As more specifically described in the California wage orders record-keeping requirements and other state regulations, each employer must keep accurate employee information including:

• Full name, home address, occupation and social security number.
• Ages of all minors.
• Time records showing when the employee begins and ends each work period.
• Meal periods, split shift intervals and total daily hours worked except for (i) any meal periods during which all operations cease and (ii) any authorized paid rest periods.
• Total wages paid each payroll period, including value of board, lodging, or other compensation actually furnished to the employee.
• Total hours worked in the payroll period and applicable pay rates. This information must be readily available to the employee upon reasonable request.
• Total balance of sick pay benefits.
• As covered in our blogs Piece Work Compensation Is a Wreck Waiting to Happen and California’s Itemized Pay Stub Requirements, Ignoring the Needed Details Poses Trap for Unwary Employers, other details regarding piece rate production and compensation for all applicable employees.

The above-listed records must be in English; written in ink or other indelible form; and properly dated, showing day, month, and year. Payroll records should be kept either at the employee’s place of employment or at a central location within California for at least four years to comply with employment-related records retention requirements. Employers should consult with their tax advisors for any additional IRS-mandated retention periods.

Employers should safeguard all such employee records from unauthorized use, disclosure, removal or destruction. Restrict access to such files to trusted human resources and/or accounting personnel only and always keep the records in a secure, locked location. After all, when it comes to wage and hour claims, the best defense is a good set of payroll records.

For more information, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

Continuing the trend in California and elsewhere in this country, the Santa Monica City Council has adopted an ordinance providing annual minimum wage increases for eligible employees to a maximum $15.00 per hour by 2020.

The measure covers any worker who performs at least two hours of labor within the city limits in a given workweek. While the ordinance thus applies to all companies employing such eligible individuals, those with no more than 25 persons on payroll need not implement the changes until July 1, 2017. The initial increase will be to $10.50 on July 1, 2016. This is $.50 higher than the current state minimum wage. See our previous blog, Amended Minimum Wage Notice Must Be Posted by July 1, 2014.

The Santa Monica minimum wage increases are the same as those recently passed by the City of Los Angeles and the County of Los Angeles. It provides for further annual increases each July 1, to:

$12.00 in 2017;

$13.25 in 2018;

$14.25 in 2019; and finally

$15.00/hour on July 1, 2020.

Employers who have 25 or fewer employees must begin implementing the increase in July 2017, and have until 2021 to reach $15.00/hour. An employer may pay specifically defined “learners” at 85 percent of minimum wage for up to 160 hours. Non-profits with more than 25 employees may apply for a waiver if they meet certain conditions.

After $15.00/hour is reached in 2020, Santa Monica will be following LA city’s and county’s lead, raising minimum wage annually based on consumer price index.

Santa Monica has also enacted a living wage ordinance for hotel workers, directing a $13.25/hour minimum wage starting July 1, 2016, then matching the City of Los Angeles hotel worker rate, starting at $15.37/hour as of July 1, 2017.

As discussed in our recent blog on the new state minimum wage law, if you have employees working in more than one municipality with its own minimum wage standard, this may mean different rates between them.

For further information, contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

All U.S. employers must complete and retain a Form I-9 for each individual hired for employment in the U.S., including citizens and noncitizens. You may have noticed, however, that the version in use reflects an expiration date of March 31, 2016.

U.S. Citizenship and Immigration Services (USCIS) is in the process of refining Form I-9 by the changes originally published November 24, 2015 in the Federal Register. The new form will be downloadable from the USCIS website for use on a company computer.

Until USCIS completes that final new form, the Office of Management and Budget approves it, and USCIS posts it online, employers should continue to use the existing version of Form I-9, available on USCIS’s online I-9 resource center.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin for more information.

On February 1, 2016, the Pasadena City Council enacted Ordinance No. 7278 to boost the city’s minimum wage to $15, following similar actions recently taken by Los Angeles and San Francisco. See, City of Los Angeles Minimum Wage Increasing Annually from 2016 to 2020 and San Francisco Minimum Wage. Also see UC Berkeley’s compilation of the growing number of California municipalities adopting minimum wage laws.

Commencing July 1, 2016, many employers (regardless of where located) must pay at least $ 10.50 per hour to all adult and minor employees who work two or more hours in Pasadena in a given workweek more specifically:

(A) Employers with 26 or more employees shall pay:

1. From July 1, 2016, a $ 10.50 hourly minimum wage.
2. From July 1, 2017, a $ 12.00 hourly minimum wage.
3. From July 1, 2018, a $ 13.25 hourly minimum wage.

(B) Employers with 25 or fewer employees shall pay:

1. From July 1, 2017, a $ 10.50 hourly minimum wage.
2. From July 1, 2018, a $ 12.00 hourly minimum wage.

By April 1 of each year, Pasadena shall publish a bulletin announcing the adjusted minimum wage rate to take effect on July 1 of that year. Employers in turn shall give written notification to each applicable current employee as well as each new employee at time of hire.

Any further increases depend on the City Council’s further review of local economic conditions, including costs of living.

For further information, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

California’s long-established Equal Pay Act (the Act) requires California employers to pay their employees of the opposite sex the same for equal work.

As previously covered in Fair Pay Act Aims to Level the Playing Field, the Act’s amendments effective January 1, 2016 make it harder to justify unequal pay between male and female co-workers. For example, the amended Act eliminates the requirement that the comparative jobs in question must be located at the same establishment and it replaces a comparison of “equal” work with a comparison of “substantially similar” work.

To help understand the amendments, on April 6, 2016, California’s Labor Commissioner's Office prepared answers to frequently asked questions about the Act (FAQs).

The newly issued FAQs define the term “substantially similar work” as mostly similar in skill, effort and responsibility and performed under similar working conditions. “Skill” refers to required experience, ability, education, and training. “Effort” refers to the necessary amount of physical or mental exertion. “Responsibility” refers to the degree of accountability or duties required in performing the job. “Working conditions” mean the physical surroundings (temperature, fumes, ventilation) and hazards. A “bona fide factor other than sex” must be job related, consistent with business necessity, and not based on or derived from a sex-based factor. Examples include education, training or experience.

These FAQs also describe what an employer must do to defeat an Equal Pay Act claim; i.e., prove that a pay differential for “substantially similar work” was due to seniority, merit, a system that measures production, and/or a “bona fide factor other than sex.” Additionally, the employer must show that it applied the above factor(s) reasonably and that such factor(s) account for the entire difference in wages.
The FAQs also explain how, when and where an employee may file a claim to enforce the Act.

In addition to carefully studying the FAQs, employers should ensure they base all compensation decisions -- including salary, bonuses and commissions -- solely on objective criteria that comport with the amended Act. Employers should also consider reviewing their employees’ current or prospective pay structures with the help of a competent employment attorney.

For more information, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.