Many people begin the year by making New Year’s resolutions, but defining goals at the start of a year can be useful for both individuals and businesses alike. In order to assist our clients and friends in getting the New Year off to a good start from an HR standpoint, this week’s Advisory presents a series of “Human Resources and Employment Law Resolutions” that we recommend for 2017. These resolutions, if adopted and implemented, will assist you in managing your personnel effectively and in minimizing the risk of liability to employees in 2017.
Resolution No. 1: Review and update your Employee Handbook
The Employee Handbook is (or should be) one of the cornerstones of any company’s human resources infrastructure. All companies should review and update their Employee Handbooks periodically, preferably every 12 to 18 months. As a result of changes and developments that have occurred over the past year, numerous policies (including policies on discrimination, harassment, retaliation, rest breaks, confidential information, sick leave and social media) should be reviewed and updated for 2017.
Reviews and updates should focus not only on compliance with new laws and regulations, but also on refining existing policies so that they remain state of the art. Even if a law has not changed, current thinking about the best means of utilizing or complying with the law may have evolved. By reviewing and updating their Employee Handbooks on a regular basis, companies can assure that they remain in compliance with applicable laws and minimize the risk of claims from employees.
Resolution No. 2: Verify your compliance with California’s paystub law
Employers are all too familiar with the ongoing wave of wage-and-hour litigation that has plagued companies of all sizes for many years. While claims regarding unpaid overtime and meal period violations remain common, employee attorneys have become particularly fond of claims alleging violations of pay stub rules.
The California Labor Code requires employers to provide employees with certain information together with their paychecks. The necessary information can be provided in a document separate from the paycheck, but is most often reflected on a detachable check stub. Regardless of the format chosen, employers must provide employees with an itemized listing of the following information:
- gross wages earned
- total hours worked by the employee, except for exempt employees paid on a salary basis
- the number of piece-rate units earned and any applicable piece rate, if the employee is paid on a piece-rate basis
- all deductions
- net wages earned
- the inclusive dates of the pay period
- the name of the employee and only the last four digits of his or her Social Security number or an employee identification number other than a Social Security number
- the legal name and address of the employer
- all applicable hourly rates in effect during the pay period and the number of hours worked at each hourly rate
- the amount of paid sick leave available to the employee
Although the rule is relatively simple and straightforward, violations are all too common. Pay stubs may not contain the full, legal name of the employer entity, for example, nor may reflect an employee’s full Social Security number. Violations are particularly common for employers who process payroll checks internally, rather than through a vendor. Even some payroll vendors utilize pay stubs that do not comply with all of the requirements of California law, however, so employers should not assume that they are immune to risk merely because they utilize a vendor to process their payroll.
Resolution No. 3: Review your commission and bonus plans to assure they comply with current law
Commissions and bonuses represent a significant component of the compensation packages of many employees. California Labor Code Section 2751 requires commission agreements to be set forth in writing, and requires employers to provide signed copies of the agreements to their employees. Disputes concerning commissions and bonuses are common because both employers and employees sometimes focus myopically upon the rate at which commissions or bonuses accrue, neglecting to give due consideration to other critical issues.
When creating or drafting a commission or bonus plan, employers should address these key questions:
- When does a commission or bonus accrue? Commissions and bonuses can accrue when an employee procures a customer or a purchase order, when an invoice is issued to the customer, when the company receives payment from the customer, or at other defined times. Designating the event that triggers accrual of the commission or bonus is perhaps the most important element of an incentive compensation plan.
- How is the commission or bonus calculated? Employers and employees sometimes focus solely on the rate at which commissions or bonuses accrue, without defining the base on which the commission or bonus is calculated. Commissions and bonuses may be based on gross revenue, gross profit, or some other defined base. Plans should also clearly identify any revenue excluded from the base, such as taxes or shipping costs.
- When is a commission or bonus payable after it accrues? Commissions and bonuses are sometimes paid on the next paycheck after they accrue, but it is also common to delay payment to the end of the month, quarter or fiscal year. In the wake of the California Supreme Court’s decision in Peabody v. Time Warner,Cable, however, employees classified as exempt under the commission sales exemption must receive wages during every pay period that (a) equal or exceed 150% of the minimum wage, and (b) consist primarily of commissions.
Failure to satisfy either of the conditions described above can easily lead to controversy and litigation. Commission and bonus plans should eliminate potential sources of confusion and controversy by defining the employee’s right to a bonus or commission as clearly and precisely as possible, eliminating ambiguity, and addressing foreseeable “bumps in the road” such as a customer’s failure to pay.
Resolution No. 4: Manage leave issues properly
Leaves of absence present employers with an ongoing set of challenges. Leave laws are numerous, complex and inter-related. While companies are justifiably concerned about complying with many of the technical rules applicable to leaves of absence, the mistakes that most commonly expose them to liability are relatively mundane and easy to avoid. Some of the most common mistakes include:
- Forgetting that multiple laws may apply — Problems often originate in a failure to recognize that a given set of circumstances may give rise to rights and obligations under multiple laws. An injury on the job, for example, may lead to issues under workers’ compensation law, the Family and Medical Leave Act, and reasonable accommodation law).
- Focusing solely on leave rights and overlooking the duty to engage in the interactive process — Many problems relating to leaves of absence arise from inadequate understanding of some obligations that arise in conjunction with leave issues, including the obligation to engage in an interactive process with employees who request leaves of absence as a reasonable accommodation for a disability.
- Failing to reinstate employees at the conclusion of a protected leave — Still more problems arise from decisions to discharge employees at the conclusion of the leave. Companies that discharge an employee on leave because they suddenly discover that the employee’s performance has been deficient, or that they don’t really need the employee in order to operate effectively, expose themselves to substantial risk.
Employers should identify all leave laws that may apply in a given situation, confirm that their actions comply with the requirements established by each applicable law, and confer with counsel before deciding to discharge an employee who is on leave or has recently returned from leave.