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The PEO Relationship
PEOs Are Co-Employers
The PEO relationship involves a contractual allocation and sharing of employer responsibilities between the PEO and the client. This shared employment relationship is called co-employment.
As co-employers with their client companies, PEOs contractually assume substantial employer rights, responsibilities, and risk through the establishment and maintenance of an employer relationship with the workers assigned to its clients. More specifically, a PEO establishes a contractual relationship with its clients whereby the PEO:
•Co-employs workers at client locations, and thereby assumes responsibility as an employer for specified purposes of the workers assigned to the client locations.
•Shares or allocates with the client employer responsibilities in a manner consistent with maintaining the client's responsibility for its product or service.
•Pays wages and employment taxes of the employee out of its own accounts.
•Reports, collects and deposits employment taxes with state and federal authorities.
•Establishes and maintains an employment relationship with its employees that is intended to be long term and not temporary.
Businesses today need help managing increasingly complex employee related matters, including employee relations, health benefits, workers' compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. They contract with a PEO to assume these responsibilities and provide expertise in human resources management. This allows the PEO client to concentrate on the operational and revenue-producing side of its operations.
A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client's worksite and by contractually assuming certain employer rights, responsibilities, and risk.
PEO Frequently Asked Questions
1.What is a PEO?
Professional employer organizations (PEOs) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. PEO clients focus on their core competencies to maintain and grow their bottom line.
2.Who uses a PEO?
Any business can find value in a PEO relationship. An average client is a business with 15-30 worksite employees. Increasingly, larger businesses also are finding value in a PEO arrangement, because PEOs offer robust Web-based HR technologies and expertise in HR management. PEOs can partner with companies that have 100 or more employees and work in conjunction with their existing human resources department.
PEO clients include many different types of businesses ranging from accounting firms to high-tech companies and small manufacturers.
3. How does a PEO arrangement work?
Once a client company contracts with a PEO, the PEO will then co-employ the client's worksite employees. In the arrangement among a PEO, a worksite employee and a client company, there exists a co-employment relationship in which both the PEO and client company have an employment relationship with the worker. The PEO and client company share and allocate responsibilities and liabilities. The PEO assumes much of the responsibility and liability for the business of employment, such as risk management, human resource management, and payroll and employee tax compliance. The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The PEO and the client will share certain responsibilities for employment law compliance. As a co-employer, the PEO will often provide a complete human resource and benefit package for worksite employees.
4.Are PEOS recognized as employers at the state and federal levels?
Yes. PEOs operate in all 50 states. Many states provide some form of specific licensing, registration, or regulation for PEOs. These states statutorily recognize PEOs as the employer or co-employer of worksite employees for many purposes, including workers' compensation and state unemployment insurance taxes. The IRS has accepted the right of a PEO to withhold and remit federal income and unemployment taxes for worksite employees. The IRS has promulgated specific guidance confirming the authority of PEOs to provide retirement benefits to workers.
5.Why would a business use a PEO?
Business owners want to focus their time and energy on the "business of their business" and not on the "business of employment." As businesses grow, most owners do not have the necessary human resource training; payroll and accounting skills, the knowledge of regulatory compliance, or the backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer. PEOs give small-group markets access to many benefits and employment amenities they would not have otherwise.
6.Do the business owners lose control of their businesses?
No. The client retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities. The PEO will generally only assume responsibilities and liabilities associated with a "general" employer for purposes of administration, payroll, taxes and benefits. The client will continue to have responsibility for worksite safety and compliance. The PEO will be responsible for payroll and employment taxes, will maintain employee records and reserves a right to hire and fire. Because the PEO also may be responsible for workers' compensation, many PEOs also focus on and improve safety and compliance. In general terms, the PEO will focus on employment-related issues and the client will be responsible for the actual business operations.
7.What is the difference between employee leasing and a PEO arrangement?
A PEO or co-employment arrangement involves all or a significant number of the client's existing worksite employees in a long-term, non-project related, employment relationship. The PEO brings services to the client, including the management of human resources, employee benefits, payroll and worker's compensation. The PEO assumes employer responsibility for employment tax, benefit plans and other human resource purposes. Through the use of a PEO relationship, client companies make a long-term investment in their workers, because in most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for their worksite employees. If a PEO relationship is terminated, the co-employees will cease to work for the PEO but will continue as employees of the client.
By comparison, a leasing or staffing service supplies new workers on a temporary or project-specific basis. These leased employees return to the staffing service for reassignment after completion of their work with the client company. Some would define employee leasing as a supplemental, temporary employment arrangement where one or more workers are assigned to a customer for a fixed period of time, often for a specific project. This concept creates little long-term equity or investment between the worker and customer.
Some older statutes governing PEOs still use the leasing terminology.
8.What is the difference between temporary staffing services and a PEO?
Like a leasing situation, a temporary staffing service recruits employees and assigns them to clients to support or supplement the client's workforce in special work situations, such as employee absences, temporary skill shortages or seasonal workloads. These workers are traditionally only a small portion of the client's workforce. A PEO contractually assumes and manages employer responsibilities for all or a majority of a client's workforce. Industry ratios identify the PEO arrangement as a long-term relationship with nearly 86 percent of the clients and worksite employees remaining with the PEO for a year or longer. Worksite employees participate in the PEO's full range of employee benefits including, health, dental, and life insurance, vision care, and retirement savings plans.
9.How many Americans are employed in a co-employment PEO arrangement?
It is estimated that 2-3 million Americans are currently co-employed in a PEO arrangement. The average PEO has grown more than 20 percent per year for each of the last six years, according to a survey of NAPEO members. About 700 PEOs that offer a wide array of employment services and benefits are operating today in 50 states. The PEO industry generates approximately $51 billion in gross revenues annually. PEOs have an 88 percent client retention rate due to strong client satisfaction.
10. How do PEOs help their clients control costs and grow their bottom line?
The PEO's economy of scale enables each client company to lower employment costs and increase the business's bottom line. The client can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. The professionals at the PEO can provide critical assistance with employer compliance, which helps protect the client against liability. In many cases, the client can pay a small up-front cost for a significant technology and service infrastructure or platform provided by the PEO. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company's core competency and grow its bottom line.
11.How do employees benefit from a PEO arrangement?
Employees seek financial security, quality health insurance, a safe working environment and opportunities for retirement savings. When a company works with a PEO, job security is improved as the PEO implements efficiencies to lower employment costs. Job satisfaction and productivity increase when employees are provided with professional human resource services, training, employee manuals, safety services and improved communications. And in many cases, a co-employment relationship provides employees with an expanded employee benefits package, to include a 401(k), life insurance, disability insurance, discount plans, a flexible spending plan and more.
12.Do workers receive comprehensive benefits?
Frequently, a PEO arrangement is the only opportunity for a worker of many small businesses to receive Fortune 500 quality employee benefits like health insurance, dental and vision care, life insurance, retirement saving plans, job counseling, adoption assistance, and educational benefits. Absent the PEO, a small business can neither afford nor manage these benefits.
13.Who is responsible for the employees' wages and employment taxes?
PEOs assume responsibility and liability for payment of wages and compliance with the rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. PEOs have long established their role as reporting income and handling withholding, FICA and FUTA. In 2002, the IRS issued guidance confirming the ability of PEOs to offer qualified retirement benefits.
14.Who is responsible for state unemployment taxes?
As the employer for employment tax and employee benefits, PEOs assume responsibility and liability for payment of state unemployment taxes, and most states recognize the PEO as the responsible entity. In those states that require the PEO to report unemployment tax liability under its clients' account numbers, the PEO can still manage this responsibility.
15.Who is responsible for employment laws and regulations?
As employers, both the client and the PEO have compliance obligations. However, PEOs provide worksite employees with coverage under many employment laws and regulations, including federal, state, and local discrimination laws, Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, FMLA, HIPAA, Equal Pay Act, and COBRA. In many cases, these laws would not apply to workers at small businesses without the PEO relationship, since many statutes have exemptions based upon the number of workers in a work force. Once included in the PEO's workforce, the workers are protected by these laws.
16.Who is responsible for workers' compensation?
Many states recognize the PEO as the employer of worksite employees for purposes of providing workers' compensation coverage, however some like California want the workers’ compensation policy to remain in the name of the client. In this case, the PEO manages the policy for the client.
17.Does a PEO arrangement impact a collective bargaining agreement?
No. PEOs work equally well in union and non-union worksites. The National Labor Relations Board (NLRB) recognizes that in co-employment relationships, worksite employees are appropriately included in the client employer's collective bargaining unit. Where a collective bargaining agreement exists, PEOs fully abide by the agreement's terms. PEOs endorse the rights of employees to organize, or not organize, under state and federal laws.
18.Do PEOs need to be licensed to provide insurance benefits to their workers?
Like other employers, a PEO may sponsor employee benefit plans for its worksite employees. Such benefits may be mandated by law, such as workers' compensation and unemployment benefits. Or they may be voluntary benefits that will help attract and retain quality employees, such as health, life, dental and disability insurance. PEOs as employers may sponsor or acquire programs for their employees. As such, PEOs are consumers of insurance and procure these benefits from licensed insurance agents and authorized insurers.
Risk Management
Risk exists in all business. How a business assesses and deals with it is critical.
Businesses put in place workers compensation insurance policies they hope will protect them when employees are injured on the job. Yes, they will protect them but the policy itself will not protect the business from the rising costs related to their employee claims. Businesses must put their own policies in place to protect employees, which in turn will reduce employee injuries and claims, which as a result will reduce employer costs.
Fines Are Going Up
On January 2, 2018, the U.S. Department of Labor announced an increase in the maximum penalty amounts for violations of federal Occupational Safety and Health Administration (OSHA) standards and regulations.
Not only have penalties increased nationwide, they affect state rules as well. States that have their own occupational safety and health standards and regulations have also raise their maximum penalty amounts for violations by the same amount. In future years, the maximum penalty amounts will be increased every year to adjust for the rate of inflation.
New 2018 Maximum Penalties Per Incident:
Other than Serious Violations $ 12,934
Serious Violation $ 12,934
Willful or Repeat Violation $ 129,336
OSHA Reveals Top Violations
It was no surprise that violations of the construction scaffolding standard led the list as it has the last few years with more than 8,000 violations, followed by more than 7,000 violations of the construction fall protection standard.
Violations of the hazard communication standard came in third with more than 6,000.
Year after year, hazard communication standard violations appear at the top of the list for general industry.
The rest of the top-10 standards violated were:
Respiratory Protection
Ladders
Lockout/Tag out
Electrical—Wiring Methods
Powered Industrial Trucks
Electrical—General
Employment Posters Must Be Updated Annually!
Posters Must Be:
Displayed in a place where all employees can see it
Must include information on workers compensation, pay days, and employee rights
Must also post a Spanish version if employer has any Spanish speaking employees
Employment Posters are included in our Compliance Packages and are automatically updated annually for our client employers
How To Stay Out Of Trouble: 10 Hot Tips For Today's Employers
Hot Tip #1: Document that your employees actually took their state-required meal and rest periods. California employers are generally required to provide non-exempt employees with a 30-minute rest period for every five hours of work, and a 10-minute rest period for every three to four hours of work. Failure to do so, or failure to keep records which show when your employees actually took these periods, can result in a penalty of I hour's wages for each day that a rest or meal period is not permitted in accordance with the state's extremely complex and technical requirements. And no, your employees may not work through the required rest period in order to leave work early. Finally, provide a suitable place for your employees to take their rest periods -- not their work stations or the restroom.
Hot Tip #2: Keep company policies and handbooks updated. It is crucial to update your company's employee handbooks and policies to reflect not only changed practices and procedures within your company, but also changes in the law. It is especially important to check for new and amended laws that apply to your company's employees before the new calendar year, since many legislative changes become effective on January 1. While you are at it, remember to replace your wall posters at the start of every calendar year, as needed. These posters are available from various sources and the specific enforcement agencies, such as the California Department of Fair Employment and Housing and the Department of Labor Standards Enforcement.
Hot Tip #3: Be alert for potential disability claims and be prepared to engage in the 'interactive process.' In the disability context, it is a separate violation of California's Fair Employment and Housing Act (FEHA) for an employer to fail to engage promptly in an "interactive process" once an employee or job applicant requests a reasonable accommodation--even if you subsequently offer the employee an accommodation or correctly conclude that no accommodation is possible. Your obligation to engage in the interactive process is triggered whenever an employee informs you that he or she has a disability and requests an accommodation. Notify your employees (in writing) to inform you whenever they have a disability that affects their ability to perform their jobs. Train your managers and supervisors on what to do when they receive a request for an accommodation, and standardize your documentation methods and procedures for handling accommodation requests to ensure that nothing falls through the cracks. Seek outside advice if a reasonable accommodation is not immediately apparent.
Finally, remember that California's protection for the disabled under FEHA covers anyone whose condition merely "limits" a major life activity -- a far broader standard than the federal Americans With Disabilities Act (ADA), which covers impairments that "substantially limit" a major life activity. Review and revise your policies to make sure that they conform to state law and not just the federal ADA.
Hot Tip #4: Provide your employees--and management--with regular sexual harassment training. Sexual harassment claims are still keeping attorneys busy. Make sure your new hires acknowledge receipt and review of your company's sexual harassment policy. Regularly distribute your company's sexual harassment policy to current employees and management for review. Provide appropriate training.
Hot Tip #5: Carefully document employee performance and conduct problems. Avoid grief down the road by carefully and habitually documenting your employees' performance as well as any incidents of misconduct. It's a good idea to keep complete and accurate documentation of all communications with your employees.
Hot Tip #6: Get ready for California's new paid family care leave act. This year California enacted the Paid Family Care Leave Act CH:CLAM entitling eligible employees to take up to six weeks of partially paid leave each year to care for immediate family members with serious health conditions or to bond with a new child. The new law explicitly recognizes the family relationships created by domestic partnerships. Although benefits are not available to employees until July 1, 2004, you need to update your payroll and leave policies now because starting January 1, 2004, employees will be entitled to notice of their rights and benefits under the PFCLA, and payments into the system will start.
Hot Tip #7: Make sure your arbitration agreement comports with rapidly changing law. Many employers include a provision in their employee handbook or job application materials requiring the employee to arbitrate any disputes arising out of the employment. Employers should review their arbitration provisions as California law has changed dramatically in the past few years. To require your employee to arbitrate employment disputes, generally you must have the employee sign the arbitration agreement (and re-sign in the event the agreement is later revised or updated). The agreement itself must be even-handed in its application, and should provide for the neutrality of the arbitrator, adequate discovery, a written decision that will permit a limited form of judicial review. Be prepared to shoulder the entire cost of the arbitration.
Hot Tip #8: Implement an employee Internet usage policy. While no employer is required to have an Internet policy, its probably a good idea. Problems arise when employees use work time to surf the web, or access gambling, pornographic or other potentially harassing sites. If you do establish a written policy, especially if you set firm limits on the amount and type of Internet use, be clear about what is and is not allowed, and consistently enforce the policy. Inform your employees--in writing and repeatedly--if the company intends to monitor their Internet usage. Have your employees to sign and date an acknowledgement that they have reviewed the Internet policy.
Hot Tip #9: Consider alternatives to a layoff. As with most situations in business, there are alternatives to laying employees off. For example, you may consider reducing compensation and/or hours, imposing furloughs, or offering early retirement incentives or buyouts. Each option offers potential benefits to both employer and employee, and if done carefully, allows you to avoid the risks of a layoff.
Hot Tip # 10: If terminating an employee, assess your COBRA and ERISA obligations. Whenever terminated employees participate in group health care, stock option and/or retirement plans, an employer must also be aware of its obligations under COBRA and ERISA. Eligible employees who begin receiving state or federal COBRA coverage on or after January I, 2003 eligible employees are entitled to 36 months of continuation health insurance benefits under COBRA and Cal-COBRA. You should review your COBRA notification materials to ensure they comply with this newly expanded coverage.
Fines / Penalties / Jail Term for California Businesses Who Are Not In Compliance With State Or Federal Laws Regarding Their Employees
The Issue Discussed: Non-Compliance With Form I-9
Employers who fail to fully comply with IRCA face significant legal, financial and public relations risks. Non-compliance, whether intentional or simply caused by oversight, has severe consequences imposed by the DHS, as well as the potential of a corporate image tarnished by negative publicity.
Unfortunately, most employers are unaware that they have a problem with Form I-9 employment verification requirements until governmental authorities audit them. By that time, it is generally too late to undo the damage.
Fines:
The following is a partial list of federally mandated fines:
For employers who fail to properly complete, retain, or make I-9 Forms available for inspection, fines range from $375 to $3,200 per individual I-9
For employers who knowingly hire or knowingly continue to employ unauthorized workers, civil penalties range from $250 to $11,000 per violation
For employers engaging in a pattern or practice of knowingly hiring or continuing to employ unauthorized workers, fines can be as much as $16,000 per employee and/or 18 months of imprisonment.
Source: The Immigration Reform and Control Act of 1986 (IRCA)
I-9 Form Q&A
Q: When does the employer have to complete the required Immigration Form I-9?
A: Within 3 business days of an employee's hire date
Q: How long does the employer have to collect all the required work authorization
documents from the employee?
A: Employers must collect the employee's documents within 3 business days of the hire date
Q: What if an employee's work documents expire during the time they are employed?
A: The employer must keep track of when documents expire and collect new documents upon expiration
Q: Does an employer have to keep the I-9 Form after an employee is terminated?
A: Yes, for one year after the date of termination
Qualities Of A "Quality Worker"
A quality worker:
Takes pride in the work and in the organization
Thinks before acting
Asks questions
Likes solving problems
Shares ideas for quality improvement
Takes initiative
Works well with others
Shows enthusiasm for the job
Follows policies and procedures
Is eager to learn new and better ways of doing things
Applies what is learned in training
Provides positive feedback to co-workers
Listens to feedback from co-workers and supervisors
Sets meaningful work goals and strives to achieve them
Takes action based on quality guidelines
Gives full concentration to the task
Works safely and is concerned about the safety of others
Demonstrates ability and self-confidence
Twelve Things That Get In The Way Of Quality
You hear a lot about quality and quality improvement on the job. One way or another, the pursuit of quality is a part of everything you do on the job. But there are a number of things that can prevent an organization from meeting its quality goals. These 12 are right at the top of the list:
1. Carelessness. Quality is about meeting standards. It’s about care and attention to detail.
2. Indifference. When people don’t care whether or not they do quality work, they usually don’t.
3. Rushing This inevitably leads to errors, accidents, and substandard work.
4. Lack of information, knowledge, or skills. Without these, your work can at best be mediocre.
5. Inconsistency. If standards aren’t maintained, quality always suffers.
6. Poorly maintained tools and equipment. This can have a devastating impact on the quality of your work—even when you’re otherwise doing all the right things.
7. Defective or incorrect materials. Materials that aren’t right for the job or that are substandard or defective won’t produce quality work either.
8. Cutting corners. Shortcuts don’t lead to quality. They lead to the scrap bin.
9. Lack of cooperation. If you don’t get cooperation from and give cooperation to co-workers, the outcome will always be less than desired.
10. Failure to share information and ideas. Only by sharing information and ideas throughout the organization can we function most efficiently.
11. Inadequate problem solving. Letting problems slide will come back to haunt you. So will taking insufficient time and effort to define and examine problems.
12. Lack of concentration. If you’re not focused on the job or if you let distractions interfere with your concentration, you’re not going to be able to do your best work.
Quality Quiz
How does your employees work really rate?
On a scale of 1 to 10, where does your employee’s quality of work really stand? Is their work truly excellent or just so-so? To find out, complete this quiz.
Rate employees from 1 to 10 (10 being the highest quality and 1 the lowest):
Your Rating
Do they understand department quality performance goals? ______
Do they ask questions about the job before they begin work? ______
Do they gather all the information they need for the job? ______
Do they inspect materials and equipment carefully? ______
Do they always follow job specifications and requirements? ______
Do they solve problems as they arise? ______
Do they ask for help if they need it to do a good job? ______
Do they always complete job assignments on time? ______
Do they always double-check their work for accuracy? ______
Do they take advantage of training to develop their skills? ______
Total Score ______
How do your employees rate?
If they scored 100, congratulations, they are doing an excellent job.
If their score was between 80 and 100, they’re doing a good job, but there’s room for improvement.
If they scored under 80, they’re really falling short of the mark, and they need to focus more on the quality of their performance.
The Top #1 Thing Employers Do to Get Sued
Hold Your Employee’s Final Paycheck Until He Turns in His Pager and Uniform. After All, He Agreed in Writing to Return Them.
Holding a final paycheck seems like a reasonable, perfectly fair way to get an employee to return uniforms or other property, or complete required termination paperwork, especially since you have an agreement, signed by your former employee, promising to return your property. However, failing to provide a final paycheck within the legal time limits, regardless of what the employee still holds, can be a costly and time-consuming mistake.
Final paycheck deadlines depend on whether the employee was terminated, laid off, quit without notice, or quit with at least 72 hours notice. A terminated employee is entitled to all final wages, including unused vacation, at the time of termination. The same applies to a layoff, unless there is a return-to-work date within the same pay period.
An employee who quits with fewer than 72 hours notice must receive a final paycheck no later than 72 hours after notice is given. An employee who quits with more than 72 hours notice is entitled to a final paycheck on the last day of work.
An employer may refuse to pay final wages only if the employee owes the employer money due to gross negligence, willful misconduct or dishonesty. These often are difficult and expensive to prove.
Failure to meet a final paycheck deadline subjects an employer to waiting time penalties. This penalty is a continuation of the employee’s wages on a day-to-day basis until the final paycheck is ready, up to a maximum of 30 days.
The Top #2 Thing Employers Do to Get Sued
Get Rid of Anyone Who Files a Workers’ Compensation Claim but Wait Until They Come Back to Work So It Won’t Look Bad.
California’s Labor Code Section 132(a) prohibits an employer from terminating, threatening to terminate, or discriminating in any way against an employee because s/he has received a workers’ compensation award, or has filed or even intends to file a workers’ compensation claim.
Violation of this law increases the employee’s workers’ compensation benefits by one-half, up to $10,000, and requires payment of costs and expenses up to $250. The employee also becomes entitled to reinstatement and reimbursement for lost wages and benefits.
An employer is not shielded from a lawsuit simply because the employee has returned to work for a period of time after a workers’ compensation injury. Once the employee claims a termination (or other discrimination) was a result of filing a workers’ compensation claim, the burden falls on the employer to show there was a legitimate business necessity for its actions.
The Top #3 Thing Employers Do to Get Sued
Let Everyone Work Four 10-Hour Days or, Better Yet, Whatever Schedule They Want
Wage and hour laws place many restrictions on the number of hours an employee may work each day and week without overtime pay. Allowing everyone to work four 10-hour days (or any schedule they choose) without first getting sound legal advice could end up being extremely costly. Even an employee who agrees in writing to this type of schedule is generally entitled to file a claim against the employer and receive back overtime with interest.
California and federal laws require that non-exempt employees be paid time-and-a-half if they work more than eight hours in a workday or more than 40 hours in a workweek. Time-and-a-half also is required if an employee works seven consecutive days in a workweek, with double-time pay required after eight hours on the seventh consecutive day. (Of course, certain types of high-level employees are exempt from these wage and hour laws. There are two ways an employee can work more than eight hours in a day without overtime pay:
Make-up time allows an employee to request time off for a personal obligation and make up the time on another day without overtime pay. For each incident of make-up time:
> the employee must submit a signed, written request;
> the time must be made up within the same workweek;
> the employee may work no more than 11 hours on another workday, and no more than 40 hours in a workweek, to make up the time off; and
> the employer may not encourage or otherwise solicit an employee to request make-up time.
Employers are not obligated to offer employees the option to use make-up time.
Alternative workweek agreements allow all employees in a work unit to put in more than eight hours in a day (but never more than 40 hours in a week) without overtime pay.
The typical alternative workweek schedule is a four-day workweek of 10 hours per day, known as a 4/10 schedule. Also common is a two-week schedule of nine-hour days, allowing every other Friday off, known as a 9/80 schedule.
Employers must follow certain steps to institute an alternative workweek agreement, including employee meetings, a secret ballot vote, a formal agreement and a filing with the state Labor Commissioner.
Failure to comply with all the complex regulations for creating and carrying out alternative workweek schedules can result in enormous obligations for back overtime and fines.
The Top #4 Thing Employers Do to Get Sued
Don’t Waste Time Training Front-Line Managers about Labor Laws.
After All, the Company Pays HR People to Handle Any Problems That Arise.
Front-line managers—the people who interact with your employees most closely every day—are your best defense against being sued.
Basic training on such topics as sexual harassment, discrimination, safety and wage and hour laws (such as exempt versus non-exempt status— are essential.
Example: Ellie Employee tells Mike Manager that Carl Casanova has been making inappropriate sexual remarks to her. Since Mike never received training in handling sexual harassment complaints, he has the common misconception that Ellie can’t sue unless she at least tells Carl she doesn’t like the remarks.
Mike doesn’t think the remarks Ellie reported are that bad, so he tells Ellie to try to handle the problem on her own first by telling Carl to stop. Ellie sues for sexual harassment and wins a large award, since she reported the harassment but the company did not take immediate and appropriate corrective action.
The law presumes that once Ellie’s manager is aware of the harassment, the company is aware of the harassment and has a duty to correct the problem.
Had Mike been properly trained, he would have reported the situation to human resources immediately rather than asking Ellie to try to handle it herself.
The Top #5 Thing Employers Do to Get Sued
Congratulate Your New Employee for Passing Her 90-Day Probationary Period and Let Her Know She’s Now Eligible for “Permanent Employee” Benefits Such as Vacation and Health Insurance.
Under California law the employment relationship is presumed to be at-will, meaning either party can terminate the employment relationship with or without a reason.
Using the term “permanent” can imply the employer no longer has a right to terminate the employee without just cause. A better term is “regular employee.”
Of course an employer should do more to ensure at-will employment relationships. At-will employment should be confirmed on employment applications and in employee handbooks.
Managers should be trained to avoid creating oral contracts for permanent employment.
For example, a manager may reassure an employee that “so long as she does a good job, she’ll have a job.” That sets up the employer to be sued for breach of an oral contract if the company has to lay off employees for economic reasons.
The Top #6 Thing Employers Do to Get Sued
Pay Everyone a Salary. Payroll Is So Much Easier Without Having to Calculate Overtime.
Who wants to deal with timecards and calculating overtime pay? If all employees agree to work for a straight salary, regardless of the hours they work, what’s wrong with that?
Under both state and federal law, certain employees are exempt from overtime requirements and can be paid a straight salary no matter how many hours a week they work. Employees who don’t qualify for an exemption are entitled to overtime pay, and can’t agree to forego overtime pay in exchange for receiving a salary.
An exempt employee normally is a high-level executive, administrative or professional employee. Other types of exempt employees are certain artists or outside salespeople. All others generally are non-exempt. Titles are irrelevant to the determination of whether an employee is exempt or non-exempt.
Merely placing an employee on a salary does not exempt that employee from wage and hour laws. While a non-exempt employee legally can be paid in the form of a “salary,” that employee earns overtime the same as hourly wage earners.
For example, a non-exempt employee paid a salary of $400 a week must be paid overtime based on $10 per hour ($400 divided by 40 hours), which is $15 per hour for time-and-a-half and $20 an hour for double-time.
The Top #7 Thing Employers Do to Get Sued
To Increase Productivity, Let Employees Work through Lunch Breaks on Busy Days and Make Up the Missed Time Off on a Slower Day.
Non-exempt employees generally are entitled to a half-hour meal break for every work day of more than five hours. For each workday an employer doesn’t give an employee a required meal break, the employer owes the employee one additional hour of pay.
According to the state Labor Commissioner, to avoid this penalty the employer has an “affirmative obligation to ensure that workers are actually relieved of all duty, not performing any work, and free to leave the worksite.”
On-duty meal periods, where employees are paid for their normal meal period and allowed to eat on the job, generally are permitted only in extremely limited situations where the nature of the work truly prevents an employee from leaving.
For example, the night clerk at a small motel may be the only employee on the premises at 3 a.m. when she would normally take a meal break, and so may be given an on-duty meal period.
Exempt employees are not subject to the meal break requirements and may work any number of hours without a meal break.
The Top #8 Thing Employers Do to Get Sued
Protect Business Secrets and Prevent Turnover by Requiring All Employees to Sign Non-compete Agreements.
An employee who signs a non-compete agreement is consenting not to work for one of your competitors for a certain period of time after leaving your company. While this practice is legal in many other states, California law specifically prohibits non-compete agreements.
In November 2001, a California Court of Appeal up-held a $1.26 million jury award for an account manager who was terminated by Aetna U.S. Healthcare when she refused to sign a non-compete agreement. The court held the termination for refusing to sign an illegal agreement was a willful and oppressive violation of California law, entitling the manager to punitive damages.
The Top #9 Thing Employers Do to Get Sued
Avoid Employment Law and Tax Hassles by Making Everyone an Independent Contractor.
Many employers operate under the myth that a worker is an independent contractor if s/he:
wants to be treated as an independent contractor
signs a written contract
does assignments sporadically, inconsistently or on call
is paid commission only
has no supervision
does assignments for more than one company
In fact, independent contractor status is determined primarily by the degree of control the worker has over the manner and means of performing the work.
Some other important factors include:
Who supplied the instruments, tools and place of work? For example, a worker who inputs sales data into the hiring firm’s computer at the hiring firm’s office is probably an employee.
Whether the work performed is part of the regular business of the hiring firm. A worker hired to upgrade a computerized inventory control system at a heating and Air Conditioning Company may be an independent contractor, while a worker hired to install air conditioners during the busy summer season is an employee.
Whether the person performing services is engaged in a distinct occupational business. A bookkeeper who works from her home office running payroll for a dozen local businesses is more likely to be an independent contractor than a college student who runs the payroll for a single business working two afternoons a week.
The consequences for misclassifying an employee as an independent contractor can be significant tax, wage and benefits liabilities, as well as massive fines that may be imposed by state and federal agencies.
The Top #10 Thing Employers Do to Get Sued
Save Money, Establish A “Use-It-or-Lose-It” Vacation Policy
Many employers are unaware use-it-or-lose-it vacation policies are illegal in California.
A “use-it-or-lose-it” policy means employees lose accrued vacation days if the employee doesn’t take the days by a specific deadline. According to the California Supreme Court, vacation is a vested benefit that can’t be taken away once it is earned.
Acceptable alternatives to use-it-or-lose-it policies are reasonable caps and cash-out policies. Under a reasonable cap plan, once an employee has earned a set amount of vacation but has not taken it, the employee stops earning vacation until the employee uses some accrued vacation time. Employees also may be required to cash out accrued vacation they haven’t taken.
All accrued but unused vacation must be paid out at the end of the employment relationship, even if the employee wasn’t yet eligible to take the vacation time. This is true regardless of whether the employee quits, is terminated or is laid off. Vacation pay is subject to the same time limits as other final pay. Disputes over vacation pay often stem from poorly drafted vacation policies.
It is not uncommon for a policy to say something like, “Employees are eligible for one week of vacation after a year of employment.” While the employer may mean no vacation is earned until after a year of work, in a legal dispute the policy probably would be interpreted to mean the employee accrues vacation during the entire first year and is eligible to take that vacation during the second year.
An employee who terminates during the first year would be entitled to a proportional amount of one week’s vacation.