As previously reported here, California employers should gear up for additional legal requirements beginning next year including the following regarding compensation and classification of employees:
Senate Bill 459: Penalties for Misclassification of Employees as Independent Contractors (Effective Jan. 1, 2012): Take note of SB 459. During recent years, there has been nationwide scrutiny, at both the federal and state levels, of employers suspected of intentionally and routinely misclassifying workers as independent contractors, rather than employees, in order to cut costs. It is not surprising federal and state governments have made this a focus issue given that misclassification decreases income and payroll tax revenues. Under SB 459, employers who engage in “willful misclassification” are subject to civil penalties. “Willful misclassification” is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying the individual as an independent contractor.”
SB 459 also makes it unlawful for employers to charge a fee or deduct from the paychecks of misclassified individuals any fee or to make deductions from compensation for any reason (including for goods, materials, or space rental) unless doing so would be permitted were the employee properly classified.
The important part, of course, is the hammer. SB 459 authorizes the Labor and Workforce Development Agency (“LWDA”) to determine that an employer has violated the law. If a “willful misclassification” is found by the LWDA or a court, the law creates a civil monetary penalty range of not less than $5,000 and not more than $15,000 per violation, in addition to any other fines or penalties permitted by law. Similarly, if either the LWDA or court determines that an employer has engaged in a pattern or practice of willful misclassification, civil penalties of not less than $10,000 and not more than $25,000 may be assessed for each violation, in addition to other penalties and fines permitted by law. Employers found to violate the law must display a notice prominently for one year on their websites or in an area generally accessible to employees or the public stating that: (1) it committed a serious violation of the law by engaging in willful misclassification of employees; (2) it has changed its business practices to avoid committing similar violations; (3) the notice is pursuant to court order; and; (4) that any employee who believes that he or she is being misclassified as an independent contractor may contact the LWDA.
Finally, if an employer violates the law and is a licensed contractor pursuant to the Contractors’ State License Law, the LWDA or court shall transmit a certified copy of the order to the Contractors’ State License Board which must initiate disciplinary action against a licensee.
The law does not stop there: it also imposes joint and several liability upon any person who, for money or anything else of value, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status where that individual is later found to be an employee. Employees who provide advice to their employers and attorneys providing counsel and advice are excluded from the new provision.
The penalties under the law are very severe. Employers are advised to conduct an audit of those individuals they have classified as independent contractors.
Assembly Bill 1396: Written Commission Agreements (Effective Jan. 1, 2013): Under AB 1396, if an employer and employee enter into a contract of employment, whereby services are to be performed within California and the method of payment to the employee includes commissions, the commission agreement must be in writing. The agreement must set forth the method by which commissions will be computed and paid, and it must be signed by the employee. Employers without written commission agreements should start acting now to reduce their practices into writing. Employers with written commission agreements should review their content for compliance with AB 1396.
Assembly Bill 469: “Wage Theft Prevention Act of 2011” (Effective Jan. 1, 2012): California employers currently must post specified wage and hour information in a conspicuous location for employees to see it. A copycat of a recent New York law, under new AB 469, employers must now provide newly hired non-exempt employees with certain documentation, at hiring, that states: the rate and basis of employee pay (including overtime rates); whether pay is hourly, by shift, salary, commission, or otherwise; whether allowances are claimed as part of minimum wage; the designated payday; the employer’s name (including d/b/a’s); employer’s physical address and mailing address if different; contact information for the employer’s worker’s compensation carrier. The employer must notify each employee in writing of any changes to the information in the notice within seven (7) calendar days of the changes unless the changes are set forth in another writing within the same time period (for instance in written wage statements). We can expect the Labor Commissioner will provide a disclosure template that employers may follow. The bill also provides new penalties for noncompliance, for instance: in addition to civil penalties, employers who violate the minimum wage law are liable for restitution of wages paid to the affected employee; it is a misdemeanor to willfully violate wage statutes or orders or to willfully fail to pay a court judgment or final order of the Labor Commission for wages due; employees may recover attorneys’ fees and costs incurred to enforce a judgment for unpaid wages. Moreover, the statute of limitations for the Division of labor Standards Enforcement (“DLSE”) to commence any collection action for statutory penalties or fees is increased from one year to three years.
Finally, AB 469 creates new document retention requirements and requires employers to maintain payroll records for three years (versus the prior two years). It also forbids employers from prohibiting employees from maintaining personal records of hours worked or piece-rate units earned.
Other Non-Legislative Key Updates: Increase in Hourly Rates for Employees to Qualify for Overtime Exemption (Effective Jan. 1, 2012): Under California law, certain computer software employees, and also licensed physicians and surgeons, are exempt from state overtime requirements if they receive a minimum hourly, monthly or yearly rate. The rate is determined annually based upon changes to the California Consumer Price Index for Urban Wage Earners and Clerical Workers. The DLSE has adjusted the rates these individuals must be paid to be considered exempt. For computer professionals, there is a 95-cent increase, from $37.94 to $38.89 per hour (translating into a monthly rate increases from $6,587.50 to $6,752.19 and an annual salary increase from $79,050 to $81,026.25 per year). For licensed physicians and surgeons, the DLSE announced a $1.73 increase in the hourly rate for licensed physicians and surgeons, from $69.13 to $70.86 per hour.