ALERT!! NEW CALIFORNIA SUPREME COURT RULING ON OVERTIME–MUST READ!

Overtime pay in California is based on the employee’s “regular rate of pay,” which is not always an employee’s normal hourly wage and must include almost all forms of pay that the employee receives.

Yesterday, the California Supreme Court ruled that an employer must calculate the regular rate of pay by dividing the employee’s total compensation by the number of non-overtime hours an employee worked during the pay period, rather than the total number of hours the employee worked, including overtime hours (Alvarado v Dart Container Corporation of California).

Many of you may pay your employees a premium for working on a weekend or a night shift and you should be aware of this distinction in the law.   Others may pay a “make up amount” to compensate workers who have changed from a daily or weekly rate to an hourly rate and have a separate line to increase their pay to meet a minimum payment.  It may be subject to increased overtime rates as well.  This may eventually extend to housing or other items that are considered part of the regular compensation package.  It may all need to be included at some point as this ruling evolves.

In the case, Dart Container Corporation of California, allegedly maintained a policy of paying a flat “attendance bonus” of $15 per day to employees who worked Saturday and Sunday shifts, regardless of the number of hours worked on the weekend shift. An employee sued, claiming he was improperly paid overtime during the weeks that he earned the weekend attendance bonus.

The employee argued that overtime pay on any flat sum bonus should be divided only by the “regular” hours he worked that week (the method in the Division of Labor Standards Enforcement [DLSE] manual), not by the “total” hours worked during the week (regular hours plus overtime hours worked, the federal formula). For example, to determine the employee’s regular rate of pay, you would divide only by 40 regular hours instead of 48 total hours (regular hours plus overtime hours). This would result in a higher regular rate of pay and, thus, a higher overtime rate.

The California Supreme Court unanimously reversed the lower court and approved the DLSE method of calculating the regular rate of pay when a flat sum bonus is involved: Employers must divide the employee’s total compensation by the employee’s non-overtime hours worked (not by the total hours worked).

The Court reasoned that a flat sum bonus is not tied to the number of hours worked – the $15 will be paid when an employee picks up a weekend shift, regardless of how many hours the employee worked that week. Because the flat sum bonus was payable even if the employee didn’t work overtime, only the non-overtime hours should be considered when calculating the regular rate of pay.

The Court also based its ruling on two other policy factors:

  • California law requires premium overtime pay which is meant to discourage employers from imposing overtime work.
  • California labor laws are interpreted liberally in favor of worker protection.

The Court also decided that this ruling should apply retroactively, not just going forward.

This decision is limited to flat-sum bonuses, but we may see employees argue that it should apply to other types of extra compensation.

We strongly urge employers who want to give “extra pay” to hourly workers should consult legal counsel.

IRS, FBI WARN OF W-2 PHISHING SCAM

We recently recieved this article from CalChamber and wanted to pass along this information as quickly as we could.  Please take necessary steps to avoid problems with these scams.

 March 5, 2018 Gail Cecchettini Whaley, CalChamber Senior Employment Law Counsel

HRWatchdog, HRCalifornia’s Employment Law Blog, © California Chamber of Commerce. (Must have link back to HRWatchdog) http://hrwatchdog.calchamber.com/

The Internal Revenue Service (IRS) and the Federal Bureau of Investigation (FBI) recently warned payroll and human resources professionals of a dangerous Form W-2 phishing scam that victimized hundreds of organizations and thousands of employees during the last two tax seasons—and this season is no different.

The scam goes like this: Cyber-criminals identify your company’s chief operating officer or other high-level executives, pose as the executive and send emails to payroll personnel. In these emails, the fraudsters request copies of employee Forms W-2 or ask for a list of all employees and Social Security numbers (SSNs). Using a technique called business email compromise or business email spoofing, these emails look like they were sent from within your organization.

No Typical Email

According to the IRS, the initial email may be a friendly, “Hi, are you working today?” type of exchange before the fraudster asks for all Form W-2 information. But that isn’t always the case.

Last year, one actual email simply asked payroll, “[S]end me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary) as of 2/22/2016.”

Criminals then use the stolen personal information and data on the W-2s, such as SSNs, to file fraudulent tax returns for refunds. Or they sell the information on the “Dark Net.”

Last year’s scams affected all types of employers—small and large businesses, public schools and universities, hospitals, tribal governments and charities. In 2017, reports about this scam to phishing@irs.gov from victims and nonvictims jumped to approximately 900, up from 100 the previous year. More than 200 employers were victimized in 2017, which translated into hundreds of thousands of employees who had their identities compromised.

Action Items

Employers need to educate payroll, HR and finance personnel of the W-2 scam. The IRS also urges employers to:

◾Consider limiting the number of employees who have authority to handle Form W-2 requests; and

◾Require additional verification procedures to validate the actual request before emailing sensitive data such as employee Form W-2s.

Employers also should immediately notify the IRS if they are victimized. The IRS can then take steps to help prevent employees from being victims of tax-related identity theft. Unfortunately, because of the nature of these scams, some businesses and organizations don’t realize for days, weeks or months that they were scammed.

The IRS has a special email notification address specifically for employers to report Form W-2 data thefts. Here’s how Form W-2 scam victims can notify the IRS:

◾Email dataloss@irs.gov to notify of the data loss and provide contact information, as listed below.

◾In the subject line, type “W2 Data Loss” so that the email can be routed properly. Do not attach any employee personally identifiable information data.

◾Include the following:

◾Business name;

◾Business employer identification number associated with the data loss;

◾Contact name;

◾Contact phone number;

◾Summary of how the data loss occurred;

◾Volume of employees impacted.

Businesses and organizations that fall victim to the scam and/or organizations that only receive a suspect email but do not fall victim to the scam should send the full email headers to phishing@irs.gov and use “W2 Scam” in the subject line.

Employers can learn more at the IRS webpage on Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers.

A February 21 press release from the FBI Internet Crime Complaint Center, ic3.gov, provides additional information about how to report the situation to state tax agencies and other law enforcement officials.

 

Staff Contact: Gail Cecchettini Whaley (CalChamber)