class 5 - law of wages part 2

Question 1

consequences of bending the rules

Answer 1

The wage and hour division of the US department of labor enforces the FLSA regulations described in this chapter. Almost always, it is tipped off to investigate a business by unhappy employees
It is illegal to fire or discriminate against an employee for firing a complaint or participating in legal proceeding under the FSA and many states have similar laws
The department can fine you up to $10K for violating the FLSA and even send you to jail for your second offense
More often, you’ll be required to pay the employee all unpaid wages, including overtime pay
The real cost comes in the time and expense of being involved in enforcement proceedings, not to mention the damage to employee morale and the animosity that can be created in the workplace
Misclassifying employees as exempt is a common basis for a class action
Many companies end up settling for large sums of money (multimillions)
Many of these settlement sums included large amounts earmarked for lawyers’ fees and litigation costs

Question 2

Facts of of lesser importance regarding ICs and EEs

Answer 2

Financial control - the IRS looks at whether your business has the right to direct or control the economic aspects of the worker’s activities
The IRS looks at other facts of less weight

Question 3

Facts of of lesser importance regarding ICs and EEs - part time or full time work

Answer 3

Whether a worker performs services on a full-time or part time basis is a neutral fact. The same is true whether a worker performs services for one business or several

Question 4

Facts of of lesser importance regarding ICs and EEs - place of work

Answer 4

Whether work is performed on your premises or somewhere you select often has no bearing on worker status
Usually it’s only relevant as part of the IRS inquiry into your right to control how the work is to be done
In many cases, services can only be performed at one location

Question 5

Facts of of lesser importance regarding ICs and EEs - Seeking a safe harbor

Answer 5

Despite the strict IRS rules, a business that wrongly classifies a worker as an independent contractor may escape the usual harsh consequences in some circumstances

You are protected by the safe harbor language of the tax law if you had a reasonable basis for classifying a worker as an independent contractor:
- You relied on court rulings, IRS rulings, or advice given to you by the IRS.
- You were audited by the IRS and weren’t assessed employment taxes for workers holding jobs similar to the one held by the misclassified worker.
- You followed a long-standing and recognized practice of your industry

Question 6

Facts of of lesser importance regarding ICs and EEs - hours of work

Answer 6

The irs considered hours of work when it looks at the extent of the instructions you give the worker
As with work location, some work, by its nature must be performed at a specific time; the photographer must shoot the commercial at the same time scheduled for the director and actors to be present

Question 7

Facts of of lesser importance regarding ICs and EEs - Worker automatically classified as employees

Answer 7

Delivery drivers:
Drivers who deliver meat, veggies, fruit, bakery, products or beverages other than milk or who pick up and deliver laundry or dry cleaning. These drivers are employees if they;er legally agents of a company and are paid on a commission.

Insurance agents:
Agents whose main job is selling life insurance, annuity contracts or both, primarily for one life insurance company

Home workers:
People who work at home according to a company’s specifications on materials or goods that are supplied by a company and must be returned to that company or to someone the company designates

Business-to-business salespeople:
People whose main job is to sell for a company and turn in orders to that company from wholesalers, retailers, contractors, hotels, restaurants, or other business establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business rather than goods bought for home consumption

Question 8

state laws

Answer 8

Some differences in differentiating in IC and EEs for state taxes and unemployment compensation:
EX: in deciding whether a worker is an employee for purposes of workers’ compensation coverage or unemployment compensation benefits, a state may use a simple economic reality test or the ABC test

Question 9

the risks of misclassification

Answer 9

First, the IRS may look into the affairs of an independent contractor who hasn’t been paying income taxes

Second, disgruntled employees may complain to the IRS if they think independent contractors are getting favored treatment

Third, during tax audits, the IRS routinely checks to see if workers have been misclassified as independent contractors

Forth, the worker you treated as an independent contractor may claim to have been misclassified by seeking benefits or rights only available to employees

Question 10

strict abc tests

Answer 10

A growing number of states, including California, have adopted the more stringent ABC test to determine whether a worker is an employee or independent contractor for purposes of state taxes, wage and hour laws, unemployment benefits, workers’ compensation, and more.
The ABC test makes it much harder for employers to classify their workers as contractors

The first prong of the test effectively mirrors the direction and control test used by the IRS.
Under the second prong, the worker must be doing a type of work that is different from what the hiring entity normally performs.
The third prong focuses on whether the worker is engaged in an independent trade or occupation. In our example, the electrician is a tradesperson performing electrical work, so this part of the test would clearly be satisfied.

Question 11

the risks of misclassification

Answer 11

The IRS presumes that a worker is an employee unless proven otherwise. If the IRS questions the status of a worker, it’s up to you to prove that the worker is an independent contractor rather than an employee
If misclassified you will pay for the employees SS tax, federal income tax, federal unemployment insurance (up to 3 years) and they can add penalties and interest

A state employment office may audit your business to see if there’s been any misclassification

The audit can be the result of a spot check by the state employment office or a request by an independent contractor for unemployment or workers’ compensation benefits

The Department of Labor denies workers range of benefits and protections form minimum wage and OT pay to family and medical leave and protection from discrimination

Question 12

hiring independent contractors

Answer 12

There a re several things you can do to help establish that a worker is properly classified as an independent contractor right from the start of the relationship

Sign a contract spelling out the worker’s responsibilities and how payment is to be determined for each one

The contract should allow the independent contractor to hire assistants and provide that the contractor will carry insurance, including workers’ compensation

Question 13

contract for ICs

Answer 13

Your contract should include the following elements:

• Require the independent contractor to supply all or most of the tools, equipment, and material needed to complete the job, and to pay for liability insurance.
• Give the independent contractor the maximum possible freedom to decide how to perform the work.
• Avoid a commitment to reimburse the independent contractor for business expenses; have the independent contractor assume that responsibility.
• Arrange to pay a flat fee for the work rather than an hourly or weekly rate, if that’s feasible to do.
• Don’t provide employee-type benefits, such as paid vacation days, health insurance, or retirement plans.
• Make it clear that the independent contractor is free to offer services to other businesses.
• Keep a file containing the independent contractor’s business card, stationery samples, ads, and Employer Identification Number. These items can help show that the contractor has an established business.
• Consider asking the independent contractor to incorporate (or only hire incorporated businesses). Then, sign a contract with the corporation instead of the individual.

Question 14

other ways to get lawyers

Answer 14

There are several other sources to which you can turn for possible candidates in your search for a lawyer:

The director of your state or local chamber of commerce may know of several employment lawyers who have the kind of experience that you seek.
Articles about employment law in trade magazines and newspapers are often written by lawyers. Track down these authors and call or email them. They may be willing to help or provide other referrals.
The director of your state’s continuing legal education (CLE) program— usually run by a bar association, a law school, or both—can identify lawyers who have lectured or written on employment law for other lawyers. Someone who’s a “lawyer’s lawyer” presumably has the extra depth of knowledge and experience to do a superior job for you, but may charge more, unfortunately.

Question 15

Which of the following does the law consider all or part of a uniform?
A. A fast casual restaurant’s slip-resistant shoes.
B. A tropical-themed restaurant waiter’s floral shirt and rugby pants.
C. A nurse’s white uniform.
D. A video store worker’s blue shirt and khaki pants

Answer 15

→ B

The answer is “B.” Courts or regulators have concluded that the other three are not uniforms. That includes the nurse’s white uniform because, according to a 1991 advice letter from a California regulator, “nurses can wear their white uniforms wherever they work, and the employer, consequently, need not pay for them.” The same is true for slip-resistant shoes worn by Denny’s workers and the blue shirt and khaki pants that used to be worn by employees of Blockbuster Video.

By contrast, a restaurant owner who wants to create a tropical theme must pay for his employees’ flowery shirts and rugby shorts, even if such attire is currently in fashion, because servers at other restaurants don’t typically dress that way

Question 16

What is a work uniform and why does it matter

Answer 16

California law requires an employer to pay the cost and maintenance of an employee’s work clothes not generally usable in the employee’s occupation. The duty comes from Labor Code section 2802, which requires an employer to pay expenses an employee incurs “in direct consequence” of performing his or her job

The wage orders that guide enforcement of California wage and hour laws require employers to provide and maintain any “uniform” an employee is required to wear as part of the job. “The term ‘uniform’ includes wearing apparel and accessories of distinctive design or color.”

It is not the employer’s responsibility to provide items of clothing that are “usual and generally usable” in the employee’s occupation.

Employers also may have to pay each employee a penalty of 30 days’ wages. That is because the California court of appeal has ruled that payment for employee work uniforms “is a part of the employees’ compensation and should be considered like any other payment of wages, compensation or benefits.” Willful failure to pay such costs is the equivalent of failing to make timely payment of any other form of compensation

Question 17

unlimited vacation policy

Answer 17

The California Court of Appeal ruled last month that employers may avoid paying departing employees the value of accrued but unused time off by adopting an “unlimited” vacation policy only if, among other things, the policy and its consequences are clearly communicated to employees from the get-go.

Question 18

The California Supreme Court has ruled that paid vacation time, provided by an employment policy or contract, “constitutes deferred wages for services rendered,” which generally vests as work is performed.

Answer 18

Under California Labor Code section 227.3, when “an employee is terminated without having taken off his vested vacation time, all vested vacation” must be paid “as wages at his final rate.” Use-it-or-lose-it vacation policies are illegal in California.

Of particular concern these days, the California Labor Commissioner says a temporary furlough triggers the employer’s obligation to pay all final wages, including the value of unused vacation time, unless the furloughed employee is given a return-to-work date within the same pay period

Question 19

But may an employer avoid having to pay exiting employees for accrued vacation time by setting no limit on how much vacation an employee may take?

Answer 19

In McPherson v. EF Intercultural Foundation, Inc., EF Educational Homestay Program (EF), a nonprofit operator of educational and cultural exchange programs, asserted that its area managers were subject to an unlimited vacation policy, excusing EF from paying area managers anything for unused vacation time when they left their jobs. EF, however, never told the managers they could take unlimited vacation time or put the policy in writing. EF told the area managers only that they could take time off with pay and that they did not accrue vacation days. Area managers also were strongly discouraged, though not prohibited, from vacationing during EF’s peak season, practically limiting their available vacation time.

Moreover, EF’s policy did not define EF’s obligations or the employee’s rights under the policy. Area managers were not warned “of the consequences of failing to schedule a sufficient amount of time off, e.g., that they essentially would leave money on the table by working more hours for the same pay than those who scheduled more time off.”
The court of appeal recognized that EF did not intend its “unlimited”

But on the “particular, unusual facts” of the case, the court concluded that EF’s nominally unlimited or undefined vacation policy in practice had an implied limit of up to 20 days off. EF therefore was liable to its former area managers for the value of their unused vacation time

Question 20

“hardship” pay

Answer 20

The California Supreme Court recently ruled that premium pay owed to employees whom an employer requires to work during their breaks is a form of “hardship” pay that generally must be paid upon termination of employment and recorded on an employee’s wage statement. If not, an employer is subject to statutory penalties. Those premium payments are a form of wages, said the court, “subject to the same timing and reporting rules as other forms of compensation for work.”

Question 21

Basics of california breaks

Answer 21

Non-exempt California employees — that is, not exempt from overtime pay rules — generally must be provided breaks during their shifts.

Employers must authorize and permit their employees to take paid ten-minute rest periods for every four hours worked or major fraction thereof. Such rest periods should be, if practical, in the middle of each work period. An employer need not authorize a rest period for workers working fewer than 3 ½ hours in a day.

Non-exempt employees are entitled to an off-duty, unpaid, uninterrupted 30-minute meal period for shifts over five hours. California law allows on-duty meal periods if “the nature of the work prevents an employee from being relieved of all duty,” but only if the employer and employee agree in writing to an on-the-job meal period. The agreement must state that the employee may, in writing, revoke their consent.

Question 22

issues california supreme court addressed

Answer 22

An employee must receive all their unpaid earned wages immediately upon discharge. An at-will employee who resigns without notice must receive their final wages within 72 hours. Where an employer “willfully” fails to pay the amount due, the employee is owed continued daily wages as a penalty for up to 30 more days under Labor Code section 203.

The California Supreme Court answered both questions “yes” because the court concluded the premium pay for missed breaks constitutes earned wages. “An employee who remains on duty during lunch is providing the employer services; so too the employee who works without relief past the point when permission to stop to eat or rest was legally required. Section 226.7 reflects a determination that work in such circumstances is worth more – or should cost the employer more – than other work, and so requires payment of a premium.”