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If you make mistakes in classifying non-exempt and exempt employees in California, the “DLSE will get you,” Jennifer Shaw, an attorney with Shaw Valenza LLP in Sacramento, told attendees at a June 30 session during SHRM's 61st Annual Conference & Exposition called "Top 10 Ways to Violate California's Wage-Hour Laws."
The DLSE, or state Division of Labor Standards Enforcement, is California's department of labor, "and 90 percent of wage and hour claims begin there," Shaw said.
She explained that there are three sources of labor and employment laws in California: the California Labor Code, DLSE rules and regulations, and wage orders.
In fact, No. 10 on Shaw's list is "not understanding which wage order applies to you."
Wage orders are issued by the Industrial Welfare Commission (IWC), and there are 17 of them, as well as a minimum wage order. They establish minimum wages and conditions of employment for all employees (even in the public sector) in the covered industries and occupations (unless an exemption applies).
Shaw recommended that, if you are in doubt which order applies to your business, check the "Which IWC Order" document on the IWC's web site.
No. 9, and the most contentious, Shaw said, is "misclassifying employees as exempt." She explained that under California law, to qualify for the "white-collar" exemptions (executive, administrative and professional), there are both salary and duty criteria that must be met. It is not enough that an employee perform a certain type of task and be paid on a salary basis; the employee also must earn at least a certain yearly salary—currently $33,280. The salary is equal to twice the hourly minimum wage, computed on an annual basis.
"So every time the minimum wage goes up,” Shaw noted, "you must recalculate the salary requirement for the white-collar exemptions." And remember that salary means wages. "Don't try to roll in bonuses, don't try to roll in commissions, don't try to roll in nothin'," she clarified.
"Exemptions are a big deal" in California, she said. "Be very careful when you classify someone." An error can result in a multimillion dollar settlement, "so we need to make sure that we do this right."
The rest of Shaw's list is as follows:
No. 8: Not Providing Employees with Required Breaks and Meal Periods. Wage orders dictate the frequency and duration of breaks and meal periods. Generally, a meal period must begin before the end of the fifth hour of work and must be at least 30 minutes long. Usually, breaks are paid and meal periods are unpaid. Employees must be relieved of all duties to be considered on an "off-duty" meal period.
"I don't let my employees eat at their desks," Shaw said. "Let them go outside, get some air." That way it's possible to know for sure that they are not working.
No. 7: Not Properly Paying Employees for All Hours Worked. Non-exempt employees in California must be paid overtime for all hours worked over eight in one day or over 40 in a week; there is no daily overtime requirement under federal law. Eligible employees cannot waive their right to overtime, so "never let anyone work off the clock," Shaw advised.
No. 6: Miscalculating the 'Regular Rate' of Pay. Remember to include bonuses and commissions when calculating an employee's regular rate of pay for purposes of overtime pay.
No. 5: Not Posting Required Information and/or Providing Required Notices. Certain notices and posters must be displayed at each worksite in an area accessible to all employees. Posters and notices must be updated on a yearly basis.
No. 4: Failing to Properly Handle Employee Expense Reimbursements, Uniforms and Tools, and Losses. An employee
cannot be charged for losses or breakage absent gross negligence or theft.
No. 3: Failing to Appropriately Pay Final Wages. When issuing an employee his or her final payment, it‟s OK to deduct anything you usually deduct, Shaw said, but "you can't use the final check to play 'catch-up.' " Anything that an employee may owe to the employer—such as reimbursement for tuition assistance—cannot be deducted from the final check. The employer may have to go to small claims court to recoup its loss.
No. 2: Maintaining an Unlawful Vacation Policy. In California, no "use-it-or-lose-it" policies are allowed, but a "reasonable" accrual cap is allowed.
No. 1: Misclassifying Employees as Independent Contractors. "This one is easy," Shaw said. "Very few people are actually considered to be independent contractors" in California.
