California Small Business Owner Wake-Up Call: Comply or Risk Paying Big $$$$

By Janice Knight (SPHR)- Guest Blogger

Wage Theft Enforcement Adds New Urgency

Several enforcement agencies in California are now collaborating and have stepped up their efforts to go after employers who they believe are guilty of “Wage Theft”.  Employers are guilty of wage theft for failing to comply with the many wage and hour laws on the books.  The term became more widely known with the passage in January of 2013 of the Wage Theft Protection Act of 2011, which gives greater protection to workers, and makes changes in the way workers are notified of basic employment information.

Knowledge is power, specifically when it applies to understanding and complying with California’s rather stringent and often confusing wage and hour laws.  Inaccurate information abounds on the internet, often causing confusion with both employees and employers.  Knowing where to go to find accurate information is crucial to employers avoiding expensive penalties, back wages and other adverse awards, not to mention minimizing the number of disgruntled employees.

Knowing what to do with this information is even more important and may require the help of an expert.  A human resources consultant might be useful for clarification, policies and practices, while an employment attorney might be necessary to correct unlawful practices, negotiate with enforcement agencies and minimize future legal risks.   Employers can reduce the cost of experts by doing their basic homework first.

It’s not enough to rely upon the belief that “I’ve been doing for 20 years, my employees love me and would never file a complaint”—a common employer refrain heard by experienced practitioners, until the claims are filed!

What California Small Business Employers Need to KNOW Now

California wage and hour laws are enforced by the Division of Labor Standards Enforcement (DLSE).

1.       Which Wage Order Applies to Your Business?  In order to determine which Industrial Welfare Commission Wage Order applies to an employer or a business, it is first necessary to determine if a business is covered by an industry order or occupational order. An industry order (IWC Orders 1, 2, 3, 5, 6, 7, 8, 9, 10, 11, 12, and 13) regulates wages, hours and working conditions in specific industries. An order is an industry order if the title of the order contains the word “industry.” Otherwise, the order is an occupational order (IWC Orders 4, 14, 15, 16 and 17). Wage, hour and working condition regulations contained in an occupational order only apply when a business is not covered by an industry order.  You can find all the California Wage Orders listed here:  http://www.dir.ca.gov/iwc/wageorderindustries.htm .

2.       Understand and Give Required Notice under the Wage Theft Prevention Act, effective on January 1, 2012. This law amends existing laws (Labor Code sections 98, 226, 240, 243, 1174, and 1197.1), and adds new requirements (Labor Code sections 200.5, 1194.3, 1197.2, 1206, and 2810.5) which criminalize willful violations for non-payment of wages that occurs after a court judgment or final administrative order; requires restitution to the employee in addition to a civil penalty for failure to pay minimum wages; requires that specified information be provided to employees at the time of hire and in wage claim proceedings and that employers update changes within specified periods; extends the time period for obtaining judgments on final orders for collection of penalties by the DLSE; enhances bond requirements for employers with convictions or court judgments for non-payment of wages including requiring an accounting of assets upon request by DLSE or court order; establishes that penalties under the Labor Code for failure to comply with wage-related statutes are minimum penalties; and allows employees to recover attorney’s fees and costs incurred to enforce a judgment for unpaid wages.

The Wage Theft Prevention Act also adds Section 2810.5 of the Labor Code.  This section requires that employers provide notice to employees of their rate(s) of pay, designated pay day, the employer’s intent to claim allowances (meal or lodging allowances) as part of the minimum wage, and the basis of wage payment (whether paying by hour, shift, day, week, piece, etc.), including any applicable rates for overtime. The law requires that the notice contain the employer’s “doing business as” names, and that it be provided at the time of hiring and within 7 days of a change if the change is not listed on the employee’s pay stub for the following pay period. The notice must be provided in the language the employer normally uses to communicate employment-related information to the employee, through translated notices provided by the Department of Labor. Click for form: Notice To Employee- LC 2810.5  Read DLSE’s Frequently Asked Questions (FAQs) by clicking here.

3.       Gain Understanding of How DLSE Thinks by Viewing the DLSE Enforcement Manual and DLSE Opinion Letters.  You’ll gain a wealth of specific, detailed information looking through these resources.  Note that these resources cannot be relied upon as “the law” pursuant to Executive Order S-2-03, as the DLSE opinion letters and the Enforcement Policies and Interpretations Manual are currently under review to determine their legal force and effect and to ensure compliance with the requirements of the Administrative Procedures Act.  However, you will become more informed as to how the DLSE thinks when administering claims.  Please note, in addition, that DLSE opinion letters are advice in specific cases only.  You can find the DLSE Enforcement Manual here: http://www.dir.ca.gov/dlse/Manual-Instructions.htm, and the DLSE Opinion Letters here: http://www.dir.ca.gov/dlse/DLSE_OpinionLetters.htm .  California Labor Code and Regulations can be found here:  http://www.dir.ca.gov/dlse/dlseLaws.html

What California Small Business Employers Need to DO Now

1.    Wage Notice:  Complete and distribute the Notice-To-Employee-LC-2810.5 to all employees if you have not already done so.

2.   Meal and Rest Periods.  Ensure that all non-exempt hourly employees are taking their legally allowed rest and meal periods and that the meal periods are being recorded on the employee’s time card or time record.  The employee must take a minimum of one-half hour for an unpaid meal period if he/she works five or more hours, unless six hours would complete the work shift.  In this case, a written meal waiver must be signed and on file and make be revoked at any time. You will be able to find the law on this in your Wage Order, as well as described in more detail in the DLSE Enforcement Manual. On Duty meal periods are allowed in certain very limited cases.  Do not offer On Duty Meal periods unless you understand the law and get legal advice to confirm that your circumstances apply.

3.  Time Records.  The employer has the burden of maintaining accurate time records for all non-exempt employees.  Employees must record time in and time out, at the beginning and end of the day, as well as during meal periods and other times that the employee may take off during the day.  This can get tricky if the employer offers more than one rate of pay.  Employers typically need to get expert advice on this.

4.  Overtime.  Review time records against required overtime laws to ensure that pay is made accurately and that any rounding off policies don’t negatively impact the employee.  If an employer knows or should have known that employees are working overtime, the employer must pay them for overtime.  Ignorance is no defense.

Employers must provide 1.5 times the employee’s regular rate of pay for:

• All hours worked beyond eight in a single workday
• The first eight hours worked on the seventh consecutive day worked in a single workweek

Employers must pay double the employee’s regular rate of pay for both:

• All hours worked beyond 12 in a single workday
• The hours worked beyond eight on the seventh consecutive day worked in a single workweek.

Check the applicable Wage Order as there are some exceptions, including overtime paid with an Alternative Work Week Arrangement.  Additionally, employers must make sure that employees are property classified as either exempt (from overtime), or non-exempt (from overtime).

5.  Commission Agreements.  Effective January 1, 2013, all commission agreements must be in writing and include the method of computing the commission as well as details as to payment of the commission. The employer must give a signed copy of the agreement to every employee who is a party to the agreement, and must retain a signed receipt for the agreement given to each employee.  Get legal advice on this as case law and statutory law are evolving rapidly.

Defending wage and hour claims can become very expensive, as can awards, back pay and penalties.  Forewarned is forearmed!

Janice Knight is a Senior Human Resource Professional and Business Coach with over twenty-five years of consulting experience helping small business owners create practical, compliant HR practices.

This blog has been reviewed and approved by Grass Valley Employment Law Attorney, Chuck Farrar. This blog is not intended to be legal advice, but a “wake-up call” to alert small business owners of the necessity to know and apply the laws.