As the weather warms up and business needs change, this newsletter edition includes a couple of season-specific items such as hiring high school students and interns and how to remain compliant.  Also, be sure to read up on those pesky exempt and non-exempt classifications (which is which and are yours correct!), take a quick tour of the California Family Rights Act, and more. Spring has sprung and Summer is just around the corner.

Summertime is often the time of year when companies are looking to hire interns to help do some of the monotonous tasks, complete unfinished projects, or work on new projects that may take time to research and implement.  Employers can gain brand recognition and improve community relationships through internship programs.  Employers can benefit greatly from hiring an intern, and interns can benefit by gaining work experience in the field of their studies.  An internship program can turn out to be the source of the company’s next great employee!

But am I required to pay an intern in California?  The answer surprisingly is “No”.  It is recommended to pay for the internship to avoid getting in hot water if there is not a valid program in place.

Unpaid internships are legal in California.  However, if the Company is thinking about offering an unpaid internship program, the Company must meet two sets of standards: state law, and federal law.

To comply with federal law,  the Company must complete the Seven-Part Primary Beneficiary Test created by the Department of Labor (DOL) to verify if the program qualifies for an unpaid internship.

The courts have used this test to determine whether an intern is, in fact, an employee under the Fair Labor Standards Act (FLSA).  If the results of the test show that an intern is an employee, then the company must pay at least minimum wage and overtime pay under the FLSA.

In order to comply with federal law, if you are looking into implementing an unpaid internship consider doing the following:

• Conduct the Seven-Part Primary Beneficiary Test
• If the program passes the test, create a program that specifically addresses the seven factors on the test
• Lay out clear requirements of the program
• Issue and have each intern sign a letter of understanding that states that the internship offers no compensation
• Do not make any promises

In addition, in California, if you are hiring for an unpaid internship, the employer is required to submit an outline of the proposed internship to the Division of Labor Standards Enforcement (DLSE) and the internship must meet the following criteria to be approved:

• The internship must take place as part of an educational program, requiring participation in school or something similar
• The intern is prohibited from receiving any employee benefits, including insurance and workers’ compensation insurance
• The intern must be trained to work in a specific industry
• When the employer is trying to find an intern, they must be transparent about the fact that it is going to be unpaid

Remember, internships are supposed to offer training that formally links to academics.  The beneficiary of the internship must be the intern, who is learning new skills of educational benefit.  If the intern’s assignment only includes filing, picking up coffee and lunch for the staff, and answering the phones, without any academic benefit, the unpaid internship does not pass the test and it may be illegal.

What would you do if an exempt employee claims you owe them overtime pay?

Misclassification of an exempt employee happens often, and this mistake can cost employers thousands of dollars.  After all, it is the employer’s responsibility to demonstrate that employees in exempt positions are classified correctly.  It is very common to want employees to be exempt because it is easy to administer, no timecards to review, no overtime to calculate, and no meal penalties to pay, etc.

But how do you determine if an employee should be classified as exempt?   The California Industrial Welfare Commission (IWC) established exemptions to an employer’s obligation to provide overtime pay for executives, administrative, and professional employees.

What is an exemption?  The exemption may apply if the employee is primarily engaged in duties that meet the test of the exemption.

What is the test?  Three factors must ALL be in place for an employee to be classified as an exempt employee:

1. Salary:  The minimum salary required for an exempt employee in California is two times the state minimum wage.  For 2023 the hourly minimum wage is $15.50 per hour X 2,080 hours/year X 2 = $64,480.  This means that if you are paying an exempt employee less than $64, 480 per year, this employee does not qualify for exempt status.  The salary requirement is based on the state’s minimum wage and is not affected by any local or regional minimum wage ordinance.

2. Salary Basis: The salary basis shows how the exempt employee is paid.  The employee must be paid a predetermined, fixed salary.  This means the salary cannot change from week to week based on the quality or quantity of work.

3. Duties Test: In California, the duties test is interpreted to mean that the employee must perform exempt-level work more than 50% of the time in the workweek.  A job title, a high salary, and/or a job description do not determine the exemption status.  The exemption status is determined by what the employee actually does. The employee must exercise discretion and independent judgment in performing their duties.

What are the penalties for misclassifying an employee?
Penalties for misclassifying an employee can range from $5,000 to $15,000 and if the employer is proven to engage in a pattern of willful misclassification, the courts can fine an additional $10,000 to $25,000 or more.

In addition, if the employee has been underpaid due to salary misclassification, the employer can be ordered to pay back up to three years’ worth of back pay that the employee was entitled to receive.

Employers can be subject to civil penalties for failing to pay in full or on time when they have intentionally misclassified. The court can also require the employer to pay interest on the amount that it owes to the employee.

Did you know?  When you hire a seasonal employee and they work 60 days in one year, for example, an intern, and you rehire that intern within one year to work another 60 days, the Paid Sick Law requires that their accrued and unused sick leave be restored if they return to work for you within 12 months from their previous separation date.

Click on the link for more information:
https://www.dir.ca.gov/dlse/Paid_Sick_Leave.htm

Q.  My staff needs vary.  If I need to cancel the shift of an hourly worker before they arrive at the Company, are they owed pay of any type?
A.  The answer is no.  Employers are not required to pay an employee Reporting Pay Time as long as they were informed ahead of time there is no work available before they arrive at the Company.  Reporting Time Pay is only required when an employee:

• Is physically at the workplace at their shift start time
• Works remotely by logging on to a work computer
• Visits a client’s job site
• Sets out on a trucking route
• Is required to call the company two hours prior to the start of a shift to determine if they are scheduled to work

Q.  How much do I have to pay if the employee is already at the worksite, and I have to send them home?
A.  When an employee is at work and their shift is canceled or is shortened, the Company must pay a minimum of 2 hours up to 4 hours of the scheduled shift.

Q.  Are there any exceptions to the requirement for Reporting Time Pay?
A.  Yes, there are exceptions to the requirement:

• When operations cannot begin or continue due to threats to employees or property, or when civil authorities recommend that work not begin or continue
• When public utilities fail to supply electricity, water, or gas, or there is a failure in the public utilities or sewer system
• When the interruption of work is caused by an Act of God or other cause not within the employer’s control, for example, an earthquake

California law requires that all employers of 5 or more employees provide 1 hour of Sexual Harassment and Abusive Conduct Prevention training to nonsupervisory employees and 2 hours to supervisory employees every two years.  Are you in compliance?

Handbooks
In 2023 there were a lot of changes to the laws, for example, CFRA, pay transparency, bereavement leave, and prohibition of discrimination based on reproductive health decisions, just to name a few.  Is your handbook up to date?

We invite you to reach out to us for support on matters such as reviewing your employee handbook, scheduling and training employees on Harassment Prevention Training, or any other HR matters.  Please feel to reach out to us at [email protected] for support.