Commission Based Salespersons: A Cautionary Tale

Commission Based Salespersons: A Cautionary Tale

Do you pay employees on a commission basis? if so, I’d like to share information with you from a recent newsletter by DeAnn Chase of the Chase Law Group. A recent case issued by the California appellate court will have a significant impact on the structure of commission-based compensation for inside salespersons.  The case of Vaquero v. Stoneledge Furniture involved employees engaged in retail furniture sales activities for Ashley Furniture Stores, (“Ashley”).  Ashley argued that its compensation program ensured that employees were paid at least minimum wage, and that this compensation plan adequately accounted for the employees’ meal and rest periods.  However, Ashley’s compensation plan was structured such that the employees were paid via a “draw” against advanced commissions that equated to an hourly wage that exceeded the minimum hourly wage, but allowed Ashley to “claw back” future commissions for pay periods in which the employees’ commissions did not exceed the hourly minimum payments.  The court therefore determined that this program did not adequately account for non-sales activities, such as time spent in meetings or trainings.  Accordingly, the court determined that Ashley’s compensation plan did not adequately account for the employees’ mandatory rest periods, and that the employees should have been separately compensated for these rest periods.  Notably, the court found that an alternative compensation program instituted by Ashley prior to the court’s final determination was adequate.  This compensation program provided that the employees would be paid a fixed hourly wage that complied with the local, state and federal minimum wage, and then provided the employees with incentive-based commissions based on sales.  If you run a business that hires...
Comp Time Instead of Overtime? A New Bill May Change the Law

Comp Time Instead of Overtime? A New Bill May Change the Law

Do you have employees who work overtime? Would they be interested in being given comp time instead? I recently read an article written by Isaac O’Bannon and Gail Perry on the CPA Practice Advisor website discussing the U.S. House of Representatives passing a bill that would allow employees to take comp time instead of being paid overtime. The Working Families Flexibility Act would allow employers to offer paid time off instead of overtime if they work more than 40 hours in the workweek. If passed by the Senate and signed into law, it will be interesting to see how it affects overtime in states with more stringent laws (for instance, anything over 8 hours a day is subject to overtime pay in CA). I would assume that if this law goes into effect, that any overtime worked would be able to be converted to comp time, even if not over 40 hours has been worked. Currently, if working overtime, the employee is paid 1.5 times their hourly wage. This law would allow the hours to be banked at 1.5 times the overtime hours worked to be used at a future date. When used, they would reduce their hours to work that week but be paid as if they worked their full schedule. For instance, if someone worked 4 hours of overtime, compensation is paid as if they worked 6. Instead of getting the extra money in their paycheck, they could bank those hours to use in the future. When they take the 6 hours off of their schedule (assuming they work 40 hours), they would actually only work 34...
Clarification on CA’s New Minimum Wage

Clarification on CA’s New Minimum Wage

Employers have received clarification on California’s new minimum wage law. The California DLSE recently released new FAQs (“New Minimum Wage Phase in Requirement 2017-2023 SB 3 —  Frequently Asked Questions“) addressing California’s new tiered minimum wage system. Among the topics addressed are two important questions: What employees are counted for the 26-employee threshold? If an employer’s headcount increases above 25 employees, at what point is the employer required to pay the higher minimum wage? With respect to the first question, the DLSE clarifies that all workers who are not “bona fide” independent contractors are considered employees and “count” towards the 26 employee threshold.  This includes exempt employees, salaried executives, part-time workers, minors, and new hires.  It also includes any workers who work both in and outside California. NOTE:  California has many cities that have its own local minimum wages.  In these ordinances, the city might have a different standard for “counting employees”.  For example, the City of Los Angeles’ minimum wage ordinance counts only individuals working in L.A. at least two hours per week; while the city of Pasadena counts all employees in the United States. With respect to the second question, the DLSE clarifies that the headcount is determined on a per pay period basis.  In other words, if the employee headcount increases to 26 employees in one pay period, then the minimum wage for that pay period (and any other pay period when employee headcount is above 25 employees) is the “large employer” minimum wage. NOTE:  This implies that an employer can fluctuate minimum wage (i.e. drop minimum wage to the “small employer” minimum wage) if the employee...
On-Call Rest Periods Not Allowed, California Supreme Court Rules

On-Call Rest Periods Not Allowed, California Supreme Court Rules

Last week I received an e-mail with a link to an article regarding a court case for on-call rest periods for employees. According to the CA Supreme Court, this is not allowed. The information presented below was written by Gail Cecchettini Whaley and appeared on the Cal Chamber website. Here is what the article said about the case: In a disappointing decision for California businesses, the California Supreme Court ruled recently that on-call rest periods are not permissible. This decision will require many California employers to re-examine their rest-break policies and practices. Supreme Court Ruling In Augustus et al. v. ABM Security Services, Inc., the California Supreme Court reversed the 2nd District Court of Appeal, concluding that, “state law prohibits on-duty and on-call rest periods. During required rest periods, employers must relieve their employees of all duties and relinquish any control over how employees spend their break time.” The 10-minute rest break must be uninterrupted. “The rest period, in short, must be a period of rest.” Although rest breaks are compensable time (unlike meal breaks), the employer must still relinquish control over the rest break, said the Supreme Court. An employer cannot meet its rest-period obligations by requiring employees to remain on-call. A “broad and intrusive degree of control” exists when there is an on-call rest period because the employee is forced to remain “on call, vigilant, and at the ready.” The state high court noted that its ruling does not prevent employers from being able to reasonably reschedule a rest period when the need arises—although such circumstances should be “the exception rather than the rule.” Moreover, if a rest...
Labor Law Changes in California for 2017

Labor Law Changes in California for 2017

There have been many changes to the labor laws in California that took effect January 1, 2017. The new laws listed below are pertinent to private businesses and will be put in place this year: Smoking is prohibited in more places that before. Law ABX2-7 updates California Labor Code Section 6404.5. Smoking can no longer be in hotel lobbies and meeting rooms, bars, warehouses, employee break rooms, and in owner operated firms, even if it’s just the owner present. All paid local government officials have to be trained on sexual harassment prevention, education and training due to AB 1661 being passed. In order to correct pay disparity between male and female employees, AB 1676, the California Fair Pay Act has been amended to state that a previous salary does not (by itself) justify greater pay for an individual of either sex. If an applicant has a juvenile record, potential employers can no longer ask or consider using it as a barrier to employment, according to AB1843, which updates Section 432.7 of the California Labor Code. Section 230.1 was amended by AB 2337, stating employers who have workers that are victims of domestic violence, sexual assault or stalking are required to inform said people of their rights, in writing, upon hire, and to other employees if requested. Companies do not have to distribute information until the Commissioner of Labor publishes a form that complies with the law. The minimum wage will be increased to $15 per hour over the span of 5 years (2017-2022), and will be adjusted with Cost of Living Adjustments (COLA’s) afterward. Firms with 25 or less...
New Contractor Misclassification Guidance Available

New Contractor Misclassification Guidance Available

Workers, employers, and government agencies can find new guidance on the Department of Labor’s  new website about contractor misclassification (workers shown as independent contractors rather than employees). According to the Department of Labor (DOL), the misclassification of workers as independent contractors continues to be a huge problem in the United States. This new resource is intended to educate employers about the harm misclassification causes by offering “information about how misclassification affects pay, unemployment insurance, safety and health protections, retirement and health benefits, and taxes.” Employers can also use the information to audit their relationships classed as independent contractors. With the release of these new materials, the message to employers should be clear – the DOL will be continuing to heavily scrutinize independent contractor relationships in 2017. It is recommended that all employers who use independent contractors review these materials and use those materials to evaluate their independent contractor relationships. There are very specific guidelines to follow when determining if someone is an employee or an independent contractor. The IRS looks at multiple categories when making its determination which include behavior control, financial control, and the relationship of the parties. Make sure to follow all of the mandated guidelines to guarantee you are in compliance with the classification of your workers. Failing to do so could end up being a very expensive mistake! I have written a series of blogs on Contractors VS Employees in the past. Read more on this topic here: Contractor VS Employee Part 1 (Costs) Contractor VS Employee Part 2 (Determining Factors) Contractor VS Employee Part 3 (Behavioral Control) Contractor VS Employee Part 4 (Financial Control) Contractor VS Employee...

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