This Month’s Top Three Questions
We receive hundreds of employer inquiries every month about a variety of employment related topics. Here are the big hits we’re hearing a lot about these days and a bit of our findings…
It’s so much easier and cheaper to have an independent contractor. Can I just hire one and drop the employee route?
Don’t even think about an independent contractor if you are a California employer. Last year, the CA Supreme Court ruled in Dynamex Operations West, Inc. v. Superior Court that a hiring business must pass the ABC test in order to substantiate using an independent contractor. The ABC test places the burden on the hiring entity to establish that the worker is an independent contractor. The hiring entity must meet each of the following factors:
- that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
- that the worker performs work that is outside the usual course of the hiring entity’s business; and
- that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
It is particularly difficult to meet the criteria under B. If you want to hire a plumber to fix your accounting practice’s leaky faucet, then you’ll likely be okay. Don’t try to bring in a part or full-time accountant as an independent contractor in the same firm.
Since then, the U.S. 9th Circuit Court of Appeals has ruled that the ABC test applies retroactively to claims that arose prior to the Supreme Court’s 2018 decision.
This spring, the CA Division of Labor Standards Enforcement (DLSE) issued an Opinion Letter (which is not consider binding on the courts) noting that it would be appropriate to apply the ABC test to determine employment status related to CA Labor Code claims that enforce the wage orders. Bottom line – more cost to a business who is found to have independent contractors misclassified as employees.
Do we have to retrain our supervisors and managers in sexual harassment prevention this year if we did it in 2018?
It depends…. The new CA law (SB 1343) requiring all managers and employees in firms with 5 or more employees to be trained by January 1, 2020 may be amended. The Dept. of Fair Employment and Housing was very specific that everyone must be trained in 2019, regardless of how recently they were trained prior to this year. However, SB 788 is working its way through the CA legislature and may give employers some welcome relief. The new bill would instead require employers to provide the training by January 1, 2021 and thereafter once every two years. We’ll keep you posted if there is some reprieve.
Is there anything I need to know about hourly employees who earn a production bonus and receive overtime payments?
Boy, is there! The payment of a non-discretionary bonus to non-exempt employees is included in the regular rate of pay. A “non-discretionary bonus” is extra wages provided to the employee based on predetermined factors that cannot be withheld unless the employee does not meet the stated goal. The exact method for calculating overtime on a non-discretionary bonus depends on whether it is a production bonus or a flat-sum bonus. A production bonus is based on a percentage of production or some formula other than a flat amount which can be computed and paid with the wages for the pay week to which the bonus is applicable. A flat-sum bonus is generally considered to be a bonus that does not increase or decrease based on the amount of time worked or production of the employee (think attendance bonus.)
The regular rate of pay for a production bonus is found by dividing the bonus by the total hours worked (including overtime) during the period to which the bonus applies. The overtime pay on the bonus is then calculated by multiplying one-half of this regular bonus rate by the number of overtime hours worked during the period in which the bonus was earned (or multiply by one for double time hours). The employer first finds the overtime due on the base hourly rate and then separately computes the overtime due on the bonus.
Example:
- Base hourly rate of pay = $11/hour
- Total hours worked in the workweek = 52
- Total overtime hours at time and one-half = 12
- Overtime due on base hourly rate = 12 x $16.50 (time and one-half) = $198
- Production Bonus attributable to the workweek = $138
- Regular rate of pay for bonus = $138 divided by 52 = $2.6538 x .5 = $1.33 x 12 overtime hours = $15.92
Total earnings due for the workweek:
- Straight time: 40 hours at $11/hour = $440
- Overtime: 12 hours at $16.50 an hour = $198
- Bonus: $138
- Overtime on bonus: $15.92
- Total: $791.92 ($440 +$198 + $138 + $15.92)
The method for calculating overtime on nondiscretionary flat-sum bonuses is different and we’ll cover that another time.
Of course, our answers are not to be considered legal advice. Contact your legal counsel for details on these matters.