08 Aug 2012

Guest opinion: Common wage and pay employer mistakes

08 Aug 2012

We asked our knowledgeable friends at Next Level Strategies, a local HR consulting firm, to provide additional perspective on common wage and pay mistakes made by many employers.  You know, the kind of mistakes that lead to lawsuits from former employees, or fines from the Department of Labor.  Thanks to Julie Chendes for taking the time to respond:

When we audit a new client for human resources compliance issues, wage and hour issues are second only to missing required paperwork. Almost all of our new clients struggle with at least one of the three issues mentioned in this article. There are a few additional things to note:

1. Minimum pay for exempt employees: Exempt employees must be paid at least two times the state minimum wage which is $33,280 in California. ($8.00 per hour x 2 = $16.00 per hour x 2080 work hours in a year.) If you have an employee classified as exempt but aren’t paying him or her at least $33,280, we suggest you take a closer look at that employee’s exemption status. Please note: much higher exempt hourly rates apply to exempt computer professionals and doctors.

2. Volunteer Workers and Internships: Volunteerism comes up frequently in our practice, usually when employers talk with us about interns and internships. Unpaid internships have a very narrow definition by the Department of Labor Standards Enforcement (DLSE).

The DLSE, which enforces wage-and-hour laws in California, has developed the following guidelines for student intern programs derived from the Federal Fair Labor Standards Act. In order to be classified as an unpaid internship, the program or training must meet the following criteria:
•    The training must be part of an established course of an accredited school or of an institution approved by a public agency to provide training for licensure, or to qualify for a skilled vocation or profession;
•    The program must be for the benefit of the trainee and not be for the benefit of the employer;
•    A regular employee may not be displaced by the intern or trainee;
•    The training must be supervised by the school or a disinterested agency;
•    The employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer’s operations may be actually impeded; and
•    The trainees or students are not necessarily entitled to a job at the conclusion of the training period.

Any training program or internship that does not satisfy the above criteria must pay the intern or trainee minimum wage and overtime, as applicable.  The state minimum wage is $8.00 per hour and many cities within California have higher minimum wages.

3. Independent Contractors: The misclassification of independent contractors (ICs) is on our Top 3 most frequently made mistakes by our clients list. The IRS has a 20-point checklist which can be downloaded free of charge from its website. We suggest you take a look at this before classifying people as ICs. We often hear justification from our clients such as, “the person has another client,” “the person makes their own hours,” and so on. Neither of these justifications, on the face of it, are enough to pass the IRS’s test. It’s about control. Who controls the client, the work output, tools, process, and the financial risk/fees/responsibility? Can the person send someone else from their company to do the work or does the work have to be done by that specific person? Will the person have an ongoing relationship with your firm or are they there for a one-off project? Is the person performing work that is core to your business model? For instance, if you do graphic design and the potential IC is a designer, that would be more heavily weighted toward them being an employee than if they performed IT or HR work for your design firm. An example of a true IC is if your sink backed up and you called, “Jack’s Plumbing” to fix it. Jack, Jill or Joe could show up. They bring their own tools, use their own methodology, take on the risk of damaging your property, fix the sink (presumably without you interfering :-), and send you a bill when they are done. Is that the relationship you have with your independent contractors? We hope so.

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