The California Labor Commissioner cited Pacific Health Corporation (PHC), a hospital chain, $524,300 for late payment of wages. As it turned out, PHC didn't have enough money to pay the checks it issued. Now that's a hefty fee for late payment of wages. But that was minimal compared to the citation for the failure to comply with Labor Code section 226.
The Labor Commissioner cited PHC $6,537,000 for issuing incomplete wage statements in violation of Labor Code section 226.
So what does the law require? Paycheck stubs should include gross wages, total hours worked, the number of piece-rate units earned, deductions, net wages, dates covered by the paycheck, the name and partial social of the employee, the name and address of the legal employer, and all applicable hourly rates.
I have not heard of too many cases where the Labor Commissioner steps in and issues a citation to an employer on a violation of section 226. However, employees can sue for a violation of Labor Code section 226. An employee who is injured as a result of a knowing and intentional failure to comply with the law is entitled to recover actual damages, or a violation of $100 per employee per pay period up to $4,000 plus legal fees.
The law requires that the employee suffer an actual injury as the result of an incomplete wage statement. (Villacres v. ABM Industries (9th Cir. 2010) 348 Fed.Appx. 626.) However, injury could consist of nothing more than an employee's difficulty in calculating overtime hours or other wages owed to him/her. (Yadira v. Fernandez (9th Cir.) 2011 WL 2434043.)
It is the best policy, and least expensive practice, to review section 226 and make sure your company's wage statements include all of the information requested. You may not be cited for $6 million. But you could lose a few dollars and expend a substantial amount in attorneys' fees.
Thursday, March 28, 2013
ObamaCare -- A Few Bites At The Law
ObamaCare ... passed by the Democratically-controlled Legislature overnight with no one reading it. (Remember the Nancy Pelosi quote, "We'll have to read it to see what's in it"?) Now over 20,000 of regulations attempting to clarify what the 2,000 page legislation means. (It's getting better isn't it?)
Regardless of political persuasions, business has the unenviable task of complying with the law. And it reminds me of the question "How do you eat an elephant?" The answer, of course, is "One bite at a time." I think that understanding and complying with ObamaCare will happen one bite at a time.
At FLGZ we plan on holding some training courses for businesses on complying with ObamaCare. If you are not yet, but wish to be on our e-mail list and receive notices about this and other training courses, please contact our office and ask to be placed on the "Legal Beagle Bagel Breakfast list.
In the meantime, I thought you might enjoy reading a 3-page article put together by Roth Staffing. Tim Conboy is a friend of mine who works for a division of Roth. He allowed me to post a link to this article. It won't answer all of your questions. But you will understand at least a few bits of the enormous elephant law we call ObamaCare.
Regardless of political persuasions, business has the unenviable task of complying with the law. And it reminds me of the question "How do you eat an elephant?" The answer, of course, is "One bite at a time." I think that understanding and complying with ObamaCare will happen one bite at a time.
At FLGZ we plan on holding some training courses for businesses on complying with ObamaCare. If you are not yet, but wish to be on our e-mail list and receive notices about this and other training courses, please contact our office and ask to be placed on the "Legal Beagle Bagel Breakfast list.
In the meantime, I thought you might enjoy reading a 3-page article put together by Roth Staffing. Tim Conboy is a friend of mine who works for a division of Roth. He allowed me to post a link to this article. It won't answer all of your questions. But you will understand at least a few bits of the enormous elephant law we call ObamaCare.
Wednesday, March 20, 2013
Brandi Cochran Overbid On Her Showcase!
A few weeks ago I told you about the Price is Right model who went out on "maternity leave" for 10 months and was not rehired when she was ready to return to work. The jury awarded her $8.5 million. Well, the judge has overturned the jury's decision. He decided that he gave the jurors the wrong instructions. He should have instructed jurors that they had to decide whether the pregnancy was a substantial factor in the company's decision not to return Ms. Cochran to the show.
This case is still confusing. Assuming Ms. Cochran was entitled to a leave pursuant to the Pregnancy Disability Leave Law and the California Family Rights Act, she would not be entitled to take more than seven months of protected leave. After that point, Ms. Cochran did not have a legal right to reinstatement. Perhaps she is claiming that she was disabled and needed more time off under the Americans with Disabilities Act (ADA) but I have not seen that suggested in anything I have read about the case.
What appears happened is that Ms. Cochran decided, after 10 months, that it was time to return to work. The company had replaced Ms. Cochran by that point. I'm not sure there was an open spot on the show at that point. So it is difficult to see how a jury could give an award in Ms. Cochran's favor.
Ms. Cochran's attorney is vowing to fight on. He claims the next jury will give him four times what the original jury awarded. Go figure.
This case is still confusing. Assuming Ms. Cochran was entitled to a leave pursuant to the Pregnancy Disability Leave Law and the California Family Rights Act, she would not be entitled to take more than seven months of protected leave. After that point, Ms. Cochran did not have a legal right to reinstatement. Perhaps she is claiming that she was disabled and needed more time off under the Americans with Disabilities Act (ADA) but I have not seen that suggested in anything I have read about the case.
What appears happened is that Ms. Cochran decided, after 10 months, that it was time to return to work. The company had replaced Ms. Cochran by that point. I'm not sure there was an open spot on the show at that point. So it is difficult to see how a jury could give an award in Ms. Cochran's favor.
Ms. Cochran's attorney is vowing to fight on. He claims the next jury will give him four times what the original jury awarded. Go figure.
Tuesday, March 19, 2013
It's Always The One You Don't Suspect
The United States Attorney in Fresno announced that an employee of Westamerica bank pled guilty to embezzling $250,000. Mary Perez could face 30 years in prison, which at her age -- 50 -- could be a lifetime. She must also repay the amount to Westamerica and pay a criminal fine. How she will pay the debt is a mystery since she spent the majority of the money on gambling.
It's a sad and pathetic ending to a woman's career that spanned nearly three decades. In that time, I am confident that Ms. Perez did much good, served customers well most of the time, and made other good decisions. Otherwise, she wouldn't have been in the position where she could take the money almost unnoticed.
You see, it is always the one you don't suspect who embezzles. It is always the person in a position of trust. It is always the person on whom you could depend for important matters.
Years ago I represented a client who hired his friend from high school. (They were well into their 50s.) The client trusted his friend, and allowed him access to company accounts. Over a period of years, the trusted friend embezzled over $700,000 from the company.
Something unexpected happened and the embezzlement came to light. It was easy to do. The client's signature was easily duplicated. The trusted friend took steps to hide the stolen money. He had access, trust, and a need for money.
Unlike Ms. Perez, the friend invested in retirement for he and his wife. I recovered the stolen money, or at least most of it. However, most embezzlers don't save but rather spend the money. I have had several cases where embezzlers took their ill-gotten gains to local casinos.
What have I learned from embezzlement cases?
1. Put checks and balances in place. Have your CFO or outside accountant / auditor put together processes that don't permit trust to be the only defense against embezzlement. This way you can avoid theft and pinpoint it when it happens. This also allows employees to work without suspicion of wrongdoing.
2. You must work fast when embezzlement is discovered. The legal process is complicated. You must file a complaint and seek ex parte orders from the court freezing assets, if they exist. You must locate assets, and quickly perform the forensics work necessary to prove embezzlement.
3. Expect that what was taken is about 7 times what you originally discovered.
4. Expect that you probably won't see most of the money.
5. Realize that it was your trust, without overseeing, that allowed the event to happen.
There are rarely great results in embezzlement cases. Money is lost. Trust vanishes. Accusations of fault are made. Friendships are broken. A life is punctuated by a criminal record. And families are left hurting.
It's a sad and pathetic ending to a woman's career that spanned nearly three decades. In that time, I am confident that Ms. Perez did much good, served customers well most of the time, and made other good decisions. Otherwise, she wouldn't have been in the position where she could take the money almost unnoticed.
You see, it is always the one you don't suspect who embezzles. It is always the person in a position of trust. It is always the person on whom you could depend for important matters.
Years ago I represented a client who hired his friend from high school. (They were well into their 50s.) The client trusted his friend, and allowed him access to company accounts. Over a period of years, the trusted friend embezzled over $700,000 from the company.
Something unexpected happened and the embezzlement came to light. It was easy to do. The client's signature was easily duplicated. The trusted friend took steps to hide the stolen money. He had access, trust, and a need for money.
Unlike Ms. Perez, the friend invested in retirement for he and his wife. I recovered the stolen money, or at least most of it. However, most embezzlers don't save but rather spend the money. I have had several cases where embezzlers took their ill-gotten gains to local casinos.
What have I learned from embezzlement cases?
1. Put checks and balances in place. Have your CFO or outside accountant / auditor put together processes that don't permit trust to be the only defense against embezzlement. This way you can avoid theft and pinpoint it when it happens. This also allows employees to work without suspicion of wrongdoing.
2. You must work fast when embezzlement is discovered. The legal process is complicated. You must file a complaint and seek ex parte orders from the court freezing assets, if they exist. You must locate assets, and quickly perform the forensics work necessary to prove embezzlement.
3. Expect that what was taken is about 7 times what you originally discovered.
4. Expect that you probably won't see most of the money.
5. Realize that it was your trust, without overseeing, that allowed the event to happen.
There are rarely great results in embezzlement cases. Money is lost. Trust vanishes. Accusations of fault are made. Friendships are broken. A life is punctuated by a criminal record. And families are left hurting.
This Case Has It All When It Comes To California Wage Law -- Guerrero v. Superior Court
Here is a case that shows the complexities of California wage and hour law. (Guerrero v. Superior Court, 2013 WL 493303 (Cal. Ct. of Appeal).) Whether or not you employ personal attendants or domestic service workers, the analysis the court makes is exactly what California employers must make when considering how to pay employees.
Adelina Guerrero worked as an in-home support services (IHSS) worker providing assistance to low income persons in Sonoma County. She claimed that during a three month period she worked 501 regular hours and 87 overtime hours. Ms. Guerrero sued the County, IHSS, the patient and the patient's family member all as joint employers. The County and IHSS moved to dismiss the complaint on these grounds: (1) They were not Ms. Guerrero's employer under the Fair Labor Standards Act (FLSA); (2) even if they were employers under the FLSA, Ms. Guerrero was exempt as a domestic service worker; (3) they were not Ms. Guerrero's employer under California law; and (4) even if they were employers under California law, Ms. Guerrero was exempt as a personal assistant. The trial court agreed with all four of the defendants' arguments.
However, the Court of Appeal reversed the trial court decision on every point. It held that the County and IHSS were employers under the FLSA and under California law. It also held that the exemptions for domestic service workers or personal attendants could not be established without substantial factual analysis. Finally, California's Wage Order #15 did not provided an exemption to public entities from paying overtime.
Under the FLSA an employer is any person acting in the interest of an employer. As this is not really a helpful definition, courts look at four factors to determine the economic reality of the work relationship. Does the principal (employer): (1) Have the power to hire and fire; (2) supervise the work schedule or condition of employment; (3) determine the rate and method of payment; and (4) maintain employment records. In this case, the court determined that IHSS and the County both had sufficient authority in these four areas to be deemed joint employers under the FLSA.
As an employee, Ms. Guerrero was entitled to overtime compensation unless otherwise exempt. Defendants claimed that Ms. Guerrero was employed in domestic service employment to provide companionship services for individuals who (due to age or infirmity) are unable to care for themselves." However, this exemption does not apply if the employee spends more than 20 percent of his/her time performing general household work. Of course, true to form, the Department of Labor has enacted several regulations interpreting what is household work. Thus, determining the viability of an exemption is not an simple task. The court could not resolve the issue, and thus permitted Ms. Guerrero to proceed on the theory this theory.
Under California law, a person is an employer if it exercises control over the wages, hours or working conditions of another. This is not a difficult allegation to make. Thus, IHSS and the County could both be employers even though each entity assumed certain obligations with respect to Ms. Guerrero.
The personal attendant exemption applies if "no significant amount of work" other than supervising, feeding or dressing the person is performed. Like the domestic services worker exemption, this cannot be determined without substantial factual inquiry.
The court also examined defendants' argument that as public entities the obligations to pay overtime found in the wage order do not apply to them. The court looked at Wage Order #15 which applies to persons employed in household occupations. Unlike 14 of the 17 wage orders, Wage Order #15 does not include an exemption for public entities. This, the court determined, was evidence of the regulators' intent to include public entities within the coverage of wage order #15. (I once had a deputy labor commissioner tell me this was evidence of an oversight, not intent to include public entities.) Thus, Ms. Guerrero was permitted to move forward on the theory that defendants violated California law by not paying overtime as well.
Now that you have read this blog, you might be asking how this could apply to you. This is how: When you engage the services of another, you must ask whether you are the employer. You must also determine whether the worker is eligible for overtime compensation or whether the worker is exempt from overtime or any other provision under the wage order. You must know which wage order applies to your business or to your workers. That is not necessarily an easy determination. It is conceivable that two or three wage orders apply to workers employed in your enterprise. (Perhaps that is the subject of another blog.)
In this case Ms. Guerrero was probably paid $8 per hour. Thus, overtime liability was limited to $696.00. However, if her employment with IHSS and the County terminated, she could be entitled to waiting period penalties not to exceed 30 days of wages (approximately $1,600). Big deal right?
Well, don't forget about attorneys' fees. How much do you think Ms. Guerrero's attorney spent defending the lawsuit, including the appeal? Now we are talking thousands. In fact, it is not unusual for a plaintiffs' lawyer to easily spend $200,000 pursuing a case.
It is much more cost-effective to get it right in the first place, avoid the claim, the headache and the attorneys' fees!
Adelina Guerrero worked as an in-home support services (IHSS) worker providing assistance to low income persons in Sonoma County. She claimed that during a three month period she worked 501 regular hours and 87 overtime hours. Ms. Guerrero sued the County, IHSS, the patient and the patient's family member all as joint employers. The County and IHSS moved to dismiss the complaint on these grounds: (1) They were not Ms. Guerrero's employer under the Fair Labor Standards Act (FLSA); (2) even if they were employers under the FLSA, Ms. Guerrero was exempt as a domestic service worker; (3) they were not Ms. Guerrero's employer under California law; and (4) even if they were employers under California law, Ms. Guerrero was exempt as a personal assistant. The trial court agreed with all four of the defendants' arguments.
However, the Court of Appeal reversed the trial court decision on every point. It held that the County and IHSS were employers under the FLSA and under California law. It also held that the exemptions for domestic service workers or personal attendants could not be established without substantial factual analysis. Finally, California's Wage Order #15 did not provided an exemption to public entities from paying overtime.
Under the FLSA an employer is any person acting in the interest of an employer. As this is not really a helpful definition, courts look at four factors to determine the economic reality of the work relationship. Does the principal (employer): (1) Have the power to hire and fire; (2) supervise the work schedule or condition of employment; (3) determine the rate and method of payment; and (4) maintain employment records. In this case, the court determined that IHSS and the County both had sufficient authority in these four areas to be deemed joint employers under the FLSA.
As an employee, Ms. Guerrero was entitled to overtime compensation unless otherwise exempt. Defendants claimed that Ms. Guerrero was employed in domestic service employment to provide companionship services for individuals who (due to age or infirmity) are unable to care for themselves." However, this exemption does not apply if the employee spends more than 20 percent of his/her time performing general household work. Of course, true to form, the Department of Labor has enacted several regulations interpreting what is household work. Thus, determining the viability of an exemption is not an simple task. The court could not resolve the issue, and thus permitted Ms. Guerrero to proceed on the theory this theory.
Under California law, a person is an employer if it exercises control over the wages, hours or working conditions of another. This is not a difficult allegation to make. Thus, IHSS and the County could both be employers even though each entity assumed certain obligations with respect to Ms. Guerrero.
The personal attendant exemption applies if "no significant amount of work" other than supervising, feeding or dressing the person is performed. Like the domestic services worker exemption, this cannot be determined without substantial factual inquiry.
The court also examined defendants' argument that as public entities the obligations to pay overtime found in the wage order do not apply to them. The court looked at Wage Order #15 which applies to persons employed in household occupations. Unlike 14 of the 17 wage orders, Wage Order #15 does not include an exemption for public entities. This, the court determined, was evidence of the regulators' intent to include public entities within the coverage of wage order #15. (I once had a deputy labor commissioner tell me this was evidence of an oversight, not intent to include public entities.) Thus, Ms. Guerrero was permitted to move forward on the theory that defendants violated California law by not paying overtime as well.
Now that you have read this blog, you might be asking how this could apply to you. This is how: When you engage the services of another, you must ask whether you are the employer. You must also determine whether the worker is eligible for overtime compensation or whether the worker is exempt from overtime or any other provision under the wage order. You must know which wage order applies to your business or to your workers. That is not necessarily an easy determination. It is conceivable that two or three wage orders apply to workers employed in your enterprise. (Perhaps that is the subject of another blog.)
In this case Ms. Guerrero was probably paid $8 per hour. Thus, overtime liability was limited to $696.00. However, if her employment with IHSS and the County terminated, she could be entitled to waiting period penalties not to exceed 30 days of wages (approximately $1,600). Big deal right?
Well, don't forget about attorneys' fees. How much do you think Ms. Guerrero's attorney spent defending the lawsuit, including the appeal? Now we are talking thousands. In fact, it is not unusual for a plaintiffs' lawyer to easily spend $200,000 pursuing a case.
It is much more cost-effective to get it right in the first place, avoid the claim, the headache and the attorneys' fees!
Wednesday, March 13, 2013
Now We Have A New I-9 Form, When Is An Employer Liable For Hiring An Illegal Worker?
When it comes to hiring and managing the workforce, nothing is easy. Last week the government released the new I-9 form. As employers read the instructions and start using the form, they will undoubtedly ask again whether they can be held liable for hiring persons not authorized to work in the United States.
With the enactment of the Immigration Reform and Control Act in 1986, it became illegal for employers to hire a person not authorized to work in the United States. An I-9 form was created to document the eligibility of every worker.
Criminal penalties of $100 to $1,100 per day can be imposed on an employer that does not accurately complete an I-9 Form on behalf of each employee within the first three days of employment. The person who signs an I-9 form containing false statements may be guilty of perjury. But this is not all.
Knowingly using a person not authorized to work in the U.S. may be subject to a fine of $10,000, and a jail sentence. You should note that the statute uses the phrase knowingly use as opposed to knowingly hire. Walmart discovered this when the government sued the company claiming that the company knew its contractors were using persons not eligible to work in the U.S. An employer who relishes hiring ineligible workers can be found guilty of harboring and imprisoned. This is knowingly employing 10 or more individuals not authorized to work in a 12-month period.
Employers may receive a no-match letter from the Social Security Administration. A no-match letter means that the name and the social security number of the worker do not match.
Receipt of a no-match letter does not mean the person is not eligible to work in the U.S. Theoretically, an error could have been made somewhere in the process that caused the problem. Or, perhaps someone else stole the employee’s social security number to obtain employment elsewhere and is actively using it. In my experience, the most common reason for the no-match letter is because the employee provided false documentation during the hiring process.
An employer should take careful action once a no-match letter is received. Failing to take action could result in the government claiming that the employer knowingly used a person not eligible to work in the U.S. We have suggested to clients that they give the employee an opportunity to correct any error that may have caused the issuance of the no-match letter.
It is not uncommon, however, for an employee to admit that the social security number provided initially was not his/her number. Sometimes the employee admits (s)he is not eligible to work in the U.S. Sometimes they give the client a new number. If this happens, the employer must complete a new I-9 form with the new information. If it appears valid, then the employer may not have knowingly used an ineligible worker. However, an employer in this situation might also consider use of the E-Verify system. This allows the employer to quickly determine whether the employee’s name matches his/her social security number. Sierra HR Partners can perform an E-Verify search for you.
With the enactment of the Immigration Reform and Control Act in 1986, it became illegal for employers to hire a person not authorized to work in the United States. An I-9 form was created to document the eligibility of every worker.
Criminal penalties of $100 to $1,100 per day can be imposed on an employer that does not accurately complete an I-9 Form on behalf of each employee within the first three days of employment. The person who signs an I-9 form containing false statements may be guilty of perjury. But this is not all.
Knowingly using a person not authorized to work in the U.S. may be subject to a fine of $10,000, and a jail sentence. You should note that the statute uses the phrase knowingly use as opposed to knowingly hire. Walmart discovered this when the government sued the company claiming that the company knew its contractors were using persons not eligible to work in the U.S. An employer who relishes hiring ineligible workers can be found guilty of harboring and imprisoned. This is knowingly employing 10 or more individuals not authorized to work in a 12-month period.
Employers may receive a no-match letter from the Social Security Administration. A no-match letter means that the name and the social security number of the worker do not match.
Receipt of a no-match letter does not mean the person is not eligible to work in the U.S. Theoretically, an error could have been made somewhere in the process that caused the problem. Or, perhaps someone else stole the employee’s social security number to obtain employment elsewhere and is actively using it. In my experience, the most common reason for the no-match letter is because the employee provided false documentation during the hiring process.
An employer should take careful action once a no-match letter is received. Failing to take action could result in the government claiming that the employer knowingly used a person not eligible to work in the U.S. We have suggested to clients that they give the employee an opportunity to correct any error that may have caused the issuance of the no-match letter.
It is not uncommon, however, for an employee to admit that the social security number provided initially was not his/her number. Sometimes the employee admits (s)he is not eligible to work in the U.S. Sometimes they give the client a new number. If this happens, the employer must complete a new I-9 form with the new information. If it appears valid, then the employer may not have knowingly used an ineligible worker. However, an employer in this situation might also consider use of the E-Verify system. This allows the employer to quickly determine whether the employee’s name matches his/her social security number. Sierra HR Partners can perform an E-Verify search for you.
Saturday, March 9, 2013
It's Here -- The New I-9 Form
The U.S. Citizenship and Immigration Services announced on March 7th that the new and improved I-9 Form is available for employer use. Technically, you can use the old form until May 7th. But since it's out, why not use the new form? The format is different and appears to be easier to understand and use. Hopefully, there will be fewer errors by employers, particularly where to sign.
A link to the new form is here: www.uscis.gov/files/form/i-9.pdf
Keep I-9s together, in a binder. It will make life easier if you are subject to an audit. The forms must be kept for three years or for one year after the date of termination, whichever is longer. Have a document retention policy that calls for destruction of old forms after the mandatory retention period. Then follow through with the document destruction.
Happy hiring!
A link to the new form is here: www.uscis.gov/files/form/i-9.pdf
Keep I-9s together, in a binder. It will make life easier if you are subject to an audit. The forms must be kept for three years or for one year after the date of termination, whichever is longer. Have a document retention policy that calls for destruction of old forms after the mandatory retention period. Then follow through with the document destruction.
Happy hiring!
Wednesday, March 6, 2013
Bonuses and the Regular Rate of Pay -- Employers Beware
I have had several clients ask questions related to bonuses and commissions during the past few weeks. The goal for each employer was to provide a meaningful incentive program to employees, and allow them to benefit from their diligent service. However, in every situation but one, the client had not taken into account the effect of a bonus on calculating an employee's regular rate of pay ("RRP"). Since the RRP is used to calculate overtime, it is critical to understand the effect of a bonus on the RRP. If the RRP is incorrectly calculated, then overtime is incorrectly calculated. Failing to pay an employee correctly can subject an employer to substantial liability in unpaid wages, liquidated damages, penalties and attorneys' fees.
The RRP is used to calculate overtime. Thus, when considering bonuses or commissions, if the employee is exempt from overtime compensation, the RRP is irrelevant. However, for an employee who is not exempt from overtime compensation, calculating the RRP is essential.
For an employee who earns an hourly wage, the RRP is the same as the hourly wage. An employee who receives a weekly salary, the RRP is determined by dividing the salary by 40 hours per week. If the employee receives a salary for a month, multiple the salary by 12 months and then divide by 52 weeks for a weekly salary. Divide that by 40 hours to get the RRP.
A bonus or commission complicates the calculation of the RRP. The RRP includes all form of remuneration for employment paid to an employee. Now that's not a very helpful rule, but federal and state agencies have articulated a list of payments that must be included as remuneration, and which can be excluded. For example, a Christmas bonus that is not dependent on hours worked, efficiency or production, is not considered remuneration.
Likewise, a bonus is not remuneration if: (1) The decision to pay, and the amount, is within the sole discretion of the company; (2) is given near the end of a work period; and (3) is not subject to a prior agreement or understanding causing the employee to expect such a payment regularly. However, if the bonus does not meet these criteria, then the payment is part of remuneration.
Companies often want to tie a bonus to some form of production. It is thought that if the company explains how an employee earns a bonus, the employee will modify his/her behavior to achieve the company's goals. In contrast, merely giving employees a bonus at the end of the year may not provide the incentive and understanding for an employee to modify behavior.
If your employee is exempt, then go ahead and create an incentive-based bonus. However, if the employee is not exempt, then an incentive-based bonus (or commission), which is given pursuant to some type of formula, and not per the sole discretion of the company, is remuneration which must be included in the employee's calculation for the RRP.
Consider the employee who earns $10 per hour, and worked 50 hours during the workweek. This employee earns ($10 x 40 hours) + ($15 x 10 hours) = $550. However, let's add more facts to this hypothetical. Assume that the employee earned another $100 for the week under an incentive-based bonus plan. How is the RRP calculated, and what must the employee be paid for the week?
The California Labor Commissioner instructs employers to first determine the overtime based on the hourly rate of pay. In this hypothetical, the calculation is:
$15 x 10 hours = $150.
Then the Labor Commissioner instructs employers to compute overtime due on the bonus. An employer does this by finding the regular bonus rate by dividing the bonus by the total hours worked throughout the period in which the bonus was earned. The employee is then entitled to an additional half of the regular bonus rate for each hour worked.
The calculation is:
$100 ÷ 50 hours = $2.00 ÷ 2 = $1.00 x 10 hours = $10.00.
According to the Labor Commissioner, the employer in this hypothetical would pay:
$10 x 40 hours = $400
$15 x 10 hours = $150
Bonus $100
OT on bonus $10
Total $660
As you see from this example, the bonus (or commission) causes the employee's RRP to increase so that (s)he earns another $10 in overtime compensation. Failure to properly calculate overtime and pay that extra amount owed may subject an employer to unwarranted penalties, liquidated damages and attorneys' fees. An employer should consider the effect of any additional compensation on an employee's RRP. This might include a production bonus, piece rate, shift differential, or pay for on-call services.
The RRP is used to calculate overtime. Thus, when considering bonuses or commissions, if the employee is exempt from overtime compensation, the RRP is irrelevant. However, for an employee who is not exempt from overtime compensation, calculating the RRP is essential.
For an employee who earns an hourly wage, the RRP is the same as the hourly wage. An employee who receives a weekly salary, the RRP is determined by dividing the salary by 40 hours per week. If the employee receives a salary for a month, multiple the salary by 12 months and then divide by 52 weeks for a weekly salary. Divide that by 40 hours to get the RRP.
A bonus or commission complicates the calculation of the RRP. The RRP includes all form of remuneration for employment paid to an employee. Now that's not a very helpful rule, but federal and state agencies have articulated a list of payments that must be included as remuneration, and which can be excluded. For example, a Christmas bonus that is not dependent on hours worked, efficiency or production, is not considered remuneration.
Likewise, a bonus is not remuneration if: (1) The decision to pay, and the amount, is within the sole discretion of the company; (2) is given near the end of a work period; and (3) is not subject to a prior agreement or understanding causing the employee to expect such a payment regularly. However, if the bonus does not meet these criteria, then the payment is part of remuneration.
Companies often want to tie a bonus to some form of production. It is thought that if the company explains how an employee earns a bonus, the employee will modify his/her behavior to achieve the company's goals. In contrast, merely giving employees a bonus at the end of the year may not provide the incentive and understanding for an employee to modify behavior.
If your employee is exempt, then go ahead and create an incentive-based bonus. However, if the employee is not exempt, then an incentive-based bonus (or commission), which is given pursuant to some type of formula, and not per the sole discretion of the company, is remuneration which must be included in the employee's calculation for the RRP.
Consider the employee who earns $10 per hour, and worked 50 hours during the workweek. This employee earns ($10 x 40 hours) + ($15 x 10 hours) = $550. However, let's add more facts to this hypothetical. Assume that the employee earned another $100 for the week under an incentive-based bonus plan. How is the RRP calculated, and what must the employee be paid for the week?
The California Labor Commissioner instructs employers to first determine the overtime based on the hourly rate of pay. In this hypothetical, the calculation is:
$15 x 10 hours = $150.
Then the Labor Commissioner instructs employers to compute overtime due on the bonus. An employer does this by finding the regular bonus rate by dividing the bonus by the total hours worked throughout the period in which the bonus was earned. The employee is then entitled to an additional half of the regular bonus rate for each hour worked.
The calculation is:
$100 ÷ 50 hours = $2.00 ÷ 2 = $1.00 x 10 hours = $10.00.
According to the Labor Commissioner, the employer in this hypothetical would pay:
$10 x 40 hours = $400
$15 x 10 hours = $150
Bonus $100
OT on bonus $10
Total $660
As you see from this example, the bonus (or commission) causes the employee's RRP to increase so that (s)he earns another $10 in overtime compensation. Failure to properly calculate overtime and pay that extra amount owed may subject an employer to unwarranted penalties, liquidated damages and attorneys' fees. An employer should consider the effect of any additional compensation on an employee's RRP. This might include a production bonus, piece rate, shift differential, or pay for on-call services.
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