California Peculiarities Employment Law Blog

The California Regular Rate Of Pay: Not So Peculiar

Posted in 2016 Cal-Peculiarities, Case Update, Sick Leave Series, Wage Order Series

Counting moneyWe normally write about how California law differs from American law generally. Today, though, we highlight a recent California case that rejected the notion that California law should deviate from analogous federal wage and hour law. That case is Alvarado v. Dart Container Corp. of California. More detailed information appears here.

In Alvarado, the California Court of Appeal ruled that an employer complies with California law when it uses the federal method of calculating the regular rate of pay in determining the overtime premium pay owed on a “flat sum” bonus.

Why are we writing about this? Well, under both California law and federal law, employers must pay overtime premiums based on the regular rate of pay. The regular rate is also important in California because it is the rate at which benefits under the California Paid Sick Leave Act must be paid to non-exempt employees (unless the 90-day lookback method is used). Therefore, knowing how to calculate the regular rate is important to ensure that employers make these payments properly.

Calculating the regular rate includes all items of remuneration paid to non-exempt employees, except for those items that are specifically excludable. The regular rate thus includes almost all payments, including non-discretionary bonuses. Employers, in paying those bonuses, sometimes forget to add overtime premium pay. The employer in Alvarado remembered to make that payment, but used a method of calculating the regular rate that an employee then challenged

The employee was paid a $15 attendance bonus for working weekend shifts. The employer calculated the overtime pay due on this bonus by using the FLSA method of calculating the regular rate of pay. Under the FLSA regulations, an employer may derive the regular rate of pay by simply adding the bonus to the other includable compensation paid and then dividing the sum by the total number of hours worked. The regulations provide an example: an employee works 46 hours in a week, earns $12 an hour, and receives a $46 production bonus for the week.  Under the FLSA formula, the regular rate of pay would be $13 an hour [(46 hours x $12/hour) + $46 bonus] / 46 hours].

California statutes do not specifically address how to calculate the regular rate of pay in computing the overtime pay due on a non-discretionary bonus. Thus, like many employers, the employer in Alvarado used a formula that was consistent with the FLSA formula.

The California Department of Labor Standards Enforcement, meanwhile, has taken a different, peculiarly Californian position: the DLSE has opined that the regular rate must be the sum of all compensation divided by only the regular (non-overtime) hours worked.  Otherwise, the DLSE has reasoned, the regular rate would be diluted in a way that would conflict with a general California public policy discouraging the use of overtime hours.

The Alvarado court, noting the absence of specific statutory guidance on this subject, rejected the DLSE’s position. The Court of Appeal held that the DLSE’s view was not valid and that employers do not violate California law when following the federal standard.

Now, California employers who pay “flat sum bonuses” in the same pay period that they are earned should be able to rely on the FLSA regulations for calculating overtime payments.  It turns out that, in this particular respect, California is not so different after all.

What’s A Blog To Do?

Posted in 2016 Cal-Peculiarities

iStock_000019738366_LargeAs we have expressed many times, we could not achieve the successes we have nor continue to entertain and educate without our beloved and loyal readers. For this reason, we want to make sure we continue to deliver a blog that is relevant to you! We were hoping you could take a moment to provide some input as to how you’d like us to spend our time in 2016. If you think all’s well the way it is, then great! We’ll keep it up. But if you feel like there’s a topic we haven’t tackled (lately or at all) or something we could do to make you keep coming back for more, we invite, encourage, and beseech you to take a moment to tell us your thoughts by clicking on the survey link below. We promise that we will report back on the feedback we get from you and tune our posts to your wavelength where possible.

LINK TO OUR SURVEY

Holiday Madness: What are the Rules Again?

Posted in 2016 Cal-Peculiarities, Vacation Series

iStock_000034281440_LargeEarlier this week, on Martin Luther King, Jr. Day, many employees got the day off from work. It is, after all, one of the ten annual federal holidays. California state employees get additional holidays: Lincoln Day (February 12), Cesar Chavez Day (March 31), Admission Day (September 9), and Good Friday afternoon. And California considers every Sunday a “holiday” for purposes of transacting official business.

On holidays, many businesses, including manufacturers, distributors, stores, restaurants, gas stations, and movie theaters usually remain open . . . and require workers. These workers may or may not receive extra “holiday pay” for time worked—or not worked—on the holiday. Why is that? For California employers, work holidays can raise a sometimes confusing tangle of questions, such as:

Is holiday time off mandatory? 

In California (except for the arcane “one day’s rest in seven” rule), there is no law requiring private employers to provide any specific days off work. Therefore, the law does not require employers to grant time off for any holidays at all. Of course, many employers either close for the day or permit at least some employees to enjoy the holiday time off, either paid or unpaid. But holiday benefits are granted either under a collective bargaining agreement or an employer policy, and not the law. Under the “one day’s rest in seven” rule, employees are usually not supposed to work more than six days in a row. However, the law recognizes that sometimes seven or more consecutive days of work will be reasonably required. In that case, as long as over the course of a month an employee gets one day’s rest in seven, then properly paid overtime is deemed to be sufficient compensation for the successive days of work.

Is pay required?

There is no California peculiarity here. Like the federal Fair Labor Standards Act, California does not mandate any special premium rate of pay for work performed on holidays. Nor is there any law requiring that non-exempt employees be paid for holidays that are not worked. Exempt employees, who are paid on a salary basis, may enjoy de facto pay for any holiday that falls in a workweek in which they do any work, unless (as rarely happens) the employee chooses not to work for personal reasons, and not because it is a holiday. However, for employee morale purposes, most private employers provide paid time off for specified holidays, at least for full-time employees. And some also provide a premium rate of pay for employees who work holidays. But again (like granting vacation or PTO), the rule is according to employer policy, or a CBA, and is not mandated by California statute.

How does holiday pay affect calculation of overtime? 

Because holiday pay for a day off is not pay for hours worked, it is not included in the regular rate calculation for purposes of overtime worked that week. However, if a non-exempt employee works on a holiday, then those hours may result in overtime being owed. In that case, the time worked on the holiday is included when calculating the premium rate of pay.

What if the regular payday falls on a holiday?

The Labor Commissioner tells us that when a payday falls on a holiday, an employer has the choice to either pay employees in advance, or on the first business day after the occurrence of the holiday.

Is unused holiday pay due when an employee terminates? 

Generally, no. But let’s not forget the fairly common practice of employers granting “floating holidays.” Floating holidays (sometimes called personal days) permit employees, with advance notice, to take off any day they choose, for any reason. In California, if use of the floating holiday is truly unrestricted and does not depend on the occurrence of any other event, then the floating holidays are treated the same as vacation, meaning that any unused floating holiday pay is due upon termination. However, holiday pay that is tied to the occurrence of a specific event (such as the employee’s birthday, or the day after Thanksgiving, or any other future event) is not due upon termination. This is because the right to be paid for the holiday that is tied to the happening of a specific event does not spring into being until the event to which it is tied occurs.

Who determines which employees work on a holiday?

Again, there is no California statutory mandate here. Employers that require workers to work on holidays just have to be fair and non-discriminatory in the way they assign the work. In some workplaces, having to work a holiday is viewed as a negative, while in others (especially if working the holiday involves overtime or employer-granted premium pay), getting to work the holiday is viewed as a positive.

Please reach out to any Seyfarth Shaw California Labor & Employment lawyer with your questions or comments. In next week’s post, we will solicit your input on future topics for discussion in this space. Please let us know your thoughts, and thank you for checking us out.

No Peace for Piece Rate Employers

Posted in 2015 Legislative Updates, 2016 Cal-Peculiarities

As 2015 drew to a close, the DLSE issued several publications regarding California’s new piece-rate legislation, AB 1513, reminding California employers that it is now even more difficult to pay employees on a piece-rate basis.

As we previously blogged here, AB 1513 added Section 226.2 to the Labor Code, effective January 1, 2016. This new law imposes significant new burdens on employers that pay employees on a piece-rate basis. Those employers now must:

  • Pay piece-rate employees for rest and recovery breaks (and all periods of “other nonproductive time”) separately from, and in addition to, their piece-rate pay. The new law specifies a formula for calculating the required pay rate for rest breaks.
  • Provide piece-rate employees with wage statements that include the employee’s total hours of compensable rest and recovery breaks, the rate of pay for those breaks, and the gross wages paid for those breaks during the pay period.
  • List the total hours of other non-productive time, the rate of compensation for that time, and the gross wages paid for that time during the pay period, if the employer does not pay a base hourly rate for all hours worked (in addition to piece-rate wages).

The DLSE’s new Fact Sheet and Frequently Asked Questions are here and here. While the DLSE’s guidance is likely not the last word, it offers some further direction (and creates new questions) for employers seeking to comply. Here are some highlights:

  • Employers may not realize they have “piece rate” employees. The DLSE seems to think the new law applies to employers that pay employees only partly on a piece-rate basis. For example, an employer may pay piece rates on certain days of the work week, and pay an hourly wage on the remaining days. The DLSE’s wage-rate calculation examples indicate that during a week where an employee performs piece-rate work on some days but not others, the employer must (1) include earnings from days in which no piece-rate work was performed in calculating the average hourly wage for the week, and (2) pay the average hourly wage for all rest breaks during the week, even if the employee performed no piece work on a given day. This guidance arguably deviates from the intent of the statute, because on days where the employee performs no piece-rate work, there should be no need to have rest breaks paid at a higher hourly rate.
  • Commissions are (mostly) not “piece rates.” The DLSE offered some comfort to employers by clarifying that the new law does not apply to commissioned employees. Employers with commission plans should still consult counsel, however, as the DLSE warns that some payments labelled as “commissions” may actually constitute piece-rate pay, such as where the employee receiving “commissions” is not principally involved in selling the product or service or where the payment is not a percentage of the product or service sold.
  • Another “regular rate” trap for the unwary. The DLSE’s guidance on how to calculate the “total compensation” for the work week both creates a potential pitfall for piece-rate employers. The DLSE advises that all “remuneration” that is included in calculating the regular rate of pay for purposes of overtime premium pay (e.g., the value of meals, lodging, and other non-monetary remuneration) should also be included in determining the total compensation and average hourly rest-break rate for piece-rate employees. This DLSE advisory adds a further layer of complication to employers that were hoping to look only to the total hourly and piece rate pay in determining the average hourly rest break rate. Employers may, however, exclude payments that are not included in the regular rate of pay, such as vacation payments, gifts, and travel expenses.
  • Rest period time need not be separately tracked. Providing some relief to employers from the potential burdens of the new law, the DLSE advises that employers need not separately track actual rest break time taken by piece-rate employees. Instead, employers must pay for all compensable (legally required) rest breaks at the specified rate, and record these minutes on the wage statement. The employer need not record the actual number of minutes taken as rest break time by the employee or report the actual minutes on the employee’s wage statement.
  • New “safe harbor” election form. The DLSE issued a new form for employers to submit to the DLSE by July 1, 2016, if they wish to qualify for the “safe harbor” affirmative defense. This “safe harbor” would protect employers against claims for wages, damages, and penalties for a failure to pay for rest and recovery breaks and other nonproductive time. To come within this safe harbor, the employer would have to use one of the specified formulas for compensating piece-rate employees for all previously uncompensated rest and recovery breaks and other nonproductive time for the period from July 1, 2012 through December 31, 2015. This payment would have to be made to current and former employees by December 15, 2016.

The DLSE’s focus on the statute’s “safe harbor” provisions highlights the compliance challenges for piece-rate plans and underscores the point that employers should carefully consider this option for avoiding potential back-pay liability. If you have questions regarding these issues, then please contact a member of Seyfarth’s Labor and Employment Group.

Edge of Our Seats: Oral Argument on “Suitable Seats” Cases

Posted in 2016 Cal-Peculiarities, Wage Order Series

Girl in black suit takes stool up.The countdown begins to receiving some clarity on the suitable seating rule from the California Supreme Court. On January 5, 2016, the Court heard oral argument in the consolidated matters of Kilby v. CVS Pharmacy, Inc. and Henderson v. JP Morgan Chase Bank. These putative class actions claim that the employers violated Section 14 of Wage Orders 4-2001 and 7-2001 (the “suitable seating” rule), providing that “[a]ll working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of the seats.” In the present proceedings, the Court is responding to a question certified by the Ninth Circuit for guidance on the meaning of the rule.

CVS and JPMorgan both argued for a “holistic approach” in which the factfinder should assess the nature of employees’ work by looking at the whole range of tasks they perform, the workplace’s layout and other factors, including the employer’s business judgment in requiring employees to stand to deliver the expected level of customer service.

In contrast, the employees argued for a task-oriented approach, and contended that if the tasks they are required to undertake can be done sitting down, then they should be provided seats. They also argued that an employer’s business judgment should never be taken into account. According to the employees, the suitable seating rule conveys a minimum labor standard, like meal and rest breaks, that cannot be compromised based on perceived customer preferences and expectations for a standing employee.

Questions from the justices  indicated that some were not wholly sold on either side’s argument. Although statements by Justice Goodwin Liu suggested that CVS and JPMorgan’s proposed approach was not unreasonable, others asked whether the holistic approach would contemplate any circumstance where an employee would be entitled to sit. Overall, the Court appeared concerned that if a holistic approach were adopted in applying the suitable seating rule, then there would never be a situation where an employee would be entitled to sit, because an employer’s business judgment would always weigh in favor of making the employee stand.

The Court also took issue with the employees’ contention that an employer’s business judgment should not be considered at all. Justice Liu questioned whether the use of the term “reasonably” necessarily requires consideration of an employer’s business judgment. A few comments indicate that some justices think employers are in the best position to determine what works for their business and whether the nature of the work permits the use of seats.

The Court has 90 days to issue its decision. Based on the questioning, it is difficult to say whether the decision will be a slam dunk win for either side. Will the Court adopt the holistic approach advocated by CVS and JPMorgan, write off the business judgment of an employer, as advocated by the employees, or come up with a different interpretation altogether?  Stay tuned to this space for further analysis when the decision comes down.

OUT WITH THE OLD; RING IN THE NEW

Posted in 2015 Cal-Peculiarities

Quintessential early adapters and always on the go, we Californians love change, and we start trends. That’s good. There has been plenty of change this past year in the world of California labor and employment law. As Father Time prepares to tender his timekeeping duties to Baby New Year, let’s take a moment off the clock to look back at the old year’s most significant legal developments.

2015 saw changes in wage and hour law (notably how to compensate piece rate workers), the continued battle over enforceability of arbitration agreements, and expanded kin care leave rights. But the biggest news was an increase in fundamental employee workplace rights and protections, such as equality in pay and entitlement to paid time away from work. The State Legislature also gave us a new definition of what it means to be a “joint employer” (as opposed to a contractor or other user of task or project-based services), which will likely have long-term ramifications.

What is not new is that California remains the most challenging jurisdiction in which to employ workers. Read on for a brief round-up of what we see as the most trend-making changes of the past year.

California Fair Pay Act

Effective January 1, 2016, the California Fair Pay Act, which commentators have called the nation’s most aggressive equal pay law, will require employers with California-based employees to increase their vigilance to avoid discriminating in pay and benefits based on sex. Discussed previously in more detail here, the Fair Pay Act expands upon existing state and federal laws that prohibit gender-based pay discrimination, and essentially blows the discriminatory intent and disparate impact tests out of the water.

The Fair Pay Act permits the direct comparison of pay of employees of different genders who work in different locations, even if they do not hold the same or substantially equal jobs. As long as workers are engaged in “substantially similar work, when viewed as a composite of skill, effort and responsibility, and performed under similar working conditions,” their pay and benefits must be the same. Unless, that is, the employer can demonstrate that any pay differences are based on seniority, merit, quality or quantity of production, or on a bona fide factor other than sex (such as education, experience, or training, so long as the other factor is job-related and consistent with business necessity).

Note: The phrases “job-related” and “consistent with business necessity” are familiar to most employers from the state and federal protections for disabled employees. That is, an employer can inquire about a disabled employee’s medical condition or require a medical examination to determine ability to perform a job only if it is “job related and consistent with business necessity.” We could conclude that the California Legislature intended the fair pay analysis to use the same meanings of these terms when considering whether a “bona fide factor” other than sex is sufficient to avoid a finding of illegal discrimination.

In any event, if you have not already done so, now may be the time to conduct a fair pay audit to ensure appropriate distribution of your company payroll among the workforce.

Paid Sick Leave Implementation and Amendments

Beginning on July 1, 2015, California employees began using the new mandatory paid sick time and many employers began experiencing nausea over it. They discovered, as many had feared, that if you give employees a right, they will use it. Whether the paid time sick is conferred in an annual grant or per the accrual method, employees are tending to use it as soon as it becomes available, wreaking havoc on work schedules, especially in occupations or industries that rely heavily on shift workers.

California is hardly alone in implementing mandatory paid sick time (now required in several other states and cities), but it was still one of the first. Eventually, we will forget that there was ever a time when employees did not get paid sick time. But until then, it is one more item to consider in the already heavy cost of doing business in the Golden State.

Joint Liability with Labor Contractors

2015 also brought us a statutory change in the manner in which companies that either are, or who do business with, temporary staffing agencies relate to one another and their employees. As of January 1, 2015, Labor Code section 2810.3 requires “client employers” to share liability with “labor contractors” (e.g., payroll, temporary staffing, or employee leasing agencies) for payment of wages of non-exempt workers, and for providing them with workers’ compensation insurance. The California Legislature was concerned that workers supplied by shady or underfunded agencies would end up getting stiffed for work they performed. But the new law has left some “client employers” wondering exactly what benefits or protections they get from using contingent workers rather than direct hires. Contractual indemnification clauses are on the rise.

What about 2016 and beyond?

Time will tell what else the California lawmakers and courts will dream up for 2016. We predict renewed efforts to increase the minimum wage, grant additional leave rights to all employees, and improve the lot of the unemployed. We can also always count on the plaintiffs’ employment bar to be cooking up some new theories of liability for workplace class actions. Until then, we wish you each a very happy and successful New Year, and look forward to sharing next year’s California peculiarities with you.

Happy Holidays! And a Toast to Our Dear Readers

Posted in 2015 Cal-Peculiarities

This time of year gives us a chance to look back on what we’ve accomplished in the last twelve months. Our legislators and judges have kept us busy reporting on the ever-changing landscape that comes with employing folks in California. We saw our readership continue to grow and, with your support, won the very exciting Best Legal Blog – Labor & Employment for 2015 from The Expert Institute.

We know we couldn’t have happy holidays if no one bothered to read our blog. (Our mothers keep telling us we’re funny, but their support isn’t enough to keep us afloat.) So to our loyal readers, we wish you a lovely holiday season and want to sincerely thank you for your support during 2015. Here’s wishing you the very best in 2016! We promise to keep tossing our stories about the peculiarities of California your way if you promise to keep reading. Lots of holiday-sprinkled good wishes to you all!

From,
Your Cal Pecs Team

Unpaid Internships: Stocking Stuffer for Employers, or a Proverbial Fruitcake?

Posted in DOL, Recruiting and Hiring

iStock_000015087680_LargeIt’s been said the best things in life are free. In California, where running a business is very expensive, an unpaid internship program might seem a perfect gift. Employers of all sizes and in virtually all industries use internships to train and identify the next generation of superstar employees. Interns frequently bring new ideas to challenging business problems and provide a regular flow of needed support staff, at a low cost or at no cost whatsoever. The benefits of internships are frequently so great that one can certainly imagine Santa staffing his busy workshop with hordes of elfish interns this time of the year.

Let Rudolph Be Your Guide

But the legal environment is not all candy canes and gum drops for unpaid or flat-rate internship programs, especially in California. The highest state and federal courts in California have not explicitly approved unpaid internships, and no California statute or regulation authorizes unpaid internships.

Some 60 years ago, the U.S. Supreme Court in Walling v. Portland Terminal Co. recognized the “special status” of interns and trainees as exempt from wage and hour laws, but Walling, alas, does not provide a clear legal standard. Apart from Walling, employers are left to follow varying sources of nonbinding “guidance” from state and federal labor agencies, and decisions from federal courts outside of California endorsing one of three multiple-factor tests: (1) the “primary beneficiary test,” (2) the ambiguous “totality of the circumstances test,” and (3) the less-than-clear “economic realities test.” Navigating this maze of tests and factors might just about require a holiday miracle!

The risks of missteps with internships are great. California has strict laws on meal and rest periods, minimum wage, and daily overtime. Many, if not most, internship programs are unpaid or involve stipends that fall below minimum wage based on hours worked, and thus do not meet California Labor Code requirements. Plaintiffs’ attorneys live on the thrill of seizing on these laws and their associated penalties to snowball employers with single-plaintiff lawsuits and class actions. For these reasons, the Abominable Snowman of wage and hour litigation appears poised to wreak further havoc on California employers using internship programs.

Don’t Shoot Your Eye Out, Kid!

So are internship programs in California akin to the often dreamed of “Red Ryder BB Gun”—a device whose potential risk outweighs the benefits? Many federal courts assess internships by asking who “primarily benefits from the relationship.” This is a good place to start when assessing your program. The DOL’s 2010 published “guidance,” including six criteria present in legal internships, deserves special attention, as it directly borrows from the U.S. Supreme Court’s only decision on the issue (Walling). Virtually all court decisions on internships, although outside of California, discuss the DOL’s factors in some degree. One important step in securing an internship from a legal Grinch is to integrate the internship with the intern’s formal education, through academic credit or a tie between technical work and classroom learning. The intern’s overall economic contribution to the business, weighed against the company’s resources dedicated to the internship program, should also remain in sight, as this is one means courts use to determine the “primary” beneficial party of the arrangement. One cannot hide the economic reality with pretty gift-wrapping. Simply labeling a job with the title “internship” is insufficient alone to ward off litigation and to keep coal out of your stocking.

The internship test involves a multitude of factors. Employers must thus consider their internship programs from every angle. Don’t simply spin the dreidel this holiday season and hope your “letter” comes up. Take action and grab the reindeer by the reins! For starters, consider including arbitration and class/collective waiver provisions in written internship agreements. That could help avoid large-scale judicial actions. Our California Workplace Solutions lawyers can also help review the numerous and varying factors involved and advise on methods to make the program more defensible from BB pellets, snowballs, or whatever comes your way this holiday season and the year to come.

Health Care Coverage for California Employers After Obergefell v. Hodges

Posted in Case Update

After the U.S. Supreme Court’s landmark marriage-equality decision this summer (Obergefell v. Hodges, discussed in here), we now have full equality between same-sex and opposite-sex spouses under federal and state law. That decision affects healthcare benefits for employers with California employees, as summarized below:

Defining the Term “Spouse”

Since federal law does not define spouse for health plan purposes, many health plans historically relied on a state law definition for the term “spouse.” In some cases, this resulted in different coverage options for same-sex spouses, depending on the state in which they lived. In other cases, plans were written in a manner to provide spousal coverage only for opposite-sex spouses. After Obergefell, employers should review their health plan documents to make sure they are defining spouse in a way that does not exclude same-sex spouses.

Imputed State Tax Income

The U.S. v. Windsor decision in 2013, and later IRS guidance, confirmed that employers offering health benefits to same-sex spouses can treat those benefits as non-taxable for purposes of federal tax. But Windsor left open the issue whether those benefits were taxable at the state level. Now, after Obergefell, it is clear that health benefits provided to same-sex spouses are no longer taxable to the employee under either federal or state law. Employers should no longer impute income for the cost of health coverage provided to same-sex spouses.

Domestic Partnerships/Civil Unions

Note that Obergefell does not apply to unmarried same-sex partners who are in a domestic partnership or civil union. Before Obergefell, many employers extended health coverage to domestic partnerships and civil unions, particularly in states where same-sex marriage was not legal. Now that marriage equality exists for all spouses, some employers have begun to eliminate coverage for domestic partnerships and civil unions, but employers with employees in California should proceed cautiously in modifying these benefits.

California has robust domestic partner laws that grant registered domestic partners many of the same rights and responsibilities of married couples. For example, since 2004, California law has required that insured health plans offered to California employees must provide health coverage to registered domestic partners on the same basis as offered to opposite-sex spouses.

To be clear, the law doesn’t require employers to provide health coverage to registered domestic partners if coverage isn’t provided to opposite-sex spouses. The law also covers only “registered” domestic partners (domestic partnerships where the individuals are of the same sex, and opposite-sex domestic partnership where one partner is age 62 or older). But if the insured plan covers spouses, then it must also cover registered domestic partnerships. (Note that employers with self-funded health plans are exempt from this requirement.)

Since Obergefell, many clients have asked whether they must continue to offer coverage to registered domestic partners—especially since they now offer health coverage to all spouses, regardless of orientation. The answer remains, Yes.

There is nothing in Obergefell that changed the domestic partner coverage requirements for insured health plans in California. In fact, the California Secretary of State’s website includes a reminder that Obergefell does not invalidate or change any of the California Family Code sections related to registered domestic partners.

If you have any questions about how the Obergefell decision affects your health plan, you can always reach out to the authors, and to our Benefits and California Workplace Solutions teams.

Corollary (and Coronary?) Ramifications Of the 2016 Minimum Wage Increase

Posted in 2015 Legislative Updates

The $10 state-wide minimum wage that hits us on January 1, 2016, will complicate things even more than the last increase.

We previously reported here and here on the two-step legislation aimed to increase minimum wage from $8 to $10 by way of two $1 incremental raises. The first $1 increase took effect July 1, 2014. Now it’s time for the second $1 increase, effective January 1, 2016.

That means Happy New Year for some, budget-busting headaches for others.

The obvious employer takeaway from the new minimum wage hike is that now it’s time to pay more:

  • Pay more hourly wages. As in 2014, the increase in minimum wage will increase what employers must pay for regular and overtime wages.
  • Pay more in salary. To maintain salary-exempt status for administrative, executive, and professional employees, employers must now pay a higher minimum salary (calculated at two times the current minimum wage). The salary minimum will thus increase from $37,440 to $41,600.
  • Pay more in commissions. To maintain overtime-exempt status for commissioned salespeople (in retail and service establishments, with the threshold calculated as 1.5 times the current minimum wage), employers must now pay a higher minimum earnings threshold—$15.01 per hour—and over one-half of that amount must consist of commissions, so commissions might have to be increased accordingly.

And, of course, employers, under the Wage Theft Prevention Act, must notify non-exempt employees in writing of any changes to their new rate of pay within seven calendar days from the time of the change (i.e., by January 7, 2016).

While these implications are all readily apparent, the new minimum wage has more subtle implications as well, particularly for employers of unionized employees. Among possibly other implications are these to consider as the new year looms:

  • A Sick Pay Impact? California’s new sick pay law, discussed here, here, and here, provides that most employees will earn at least one hour of paid leave for every 30 hours worked. Certain unionized employees covered by a qualifying CBA are exempt from this sick pay requirement, but the hike in minimum wage will raise the qualification bar: CBA-covered employees are exempt only if their regular hourly pay is at least 30 percent more than the minimum wage.
  • An Overtime Impact? California employees under a qualifying CBA are exempt from state overtime law. Here, as with the sick pay law, a CBA, to qualify, must provide for regular hourly pay that is at least 30 percent more than the minimum wage.
  • A “Non-Productive” Time Piece Rate Calculation Impact? As discussed here, effective January 1, 2016, employers paying employees on a piece-rate basis must pay for “other non-productive time” (when the employee is under the employer’s control but is not engaged in the piece-rate activity). The hourly rate calculation for that time must be no less than the minimum wage, which will increase to $10 on January 1st. Note that this law also applies to unionized employees.
  • An Impact On Meal And Lodging Credits? Wage orders in virtually every industry or occupation allow the value of meals and lodging furnished by the employer to be credited toward the employer’s minimum wage obligation up to specific amounts. Employers who use this form of compensation as part of their wage obligations must adjust accordingly to ensure that they are meeting the increased minimum wage obligations.

If you have any questions about how the new minimum wage will affect your business, you can always reach out to the author and our California Workplace Solutions team.