San Diego Employer Rights Attorney – McCarthy Law
In California, employers have targets on their backs!
After working hard to build your business, you decided it was time to bring on some help. Congratulations! You should be proud. You built a business that is taking off, or has made it necessary to hire employees. But, you should also be worried. Having employees is terrific. But, it’s also terrifying. A San Diego employer rights attorney from McCarthy Law can help you navigate the minefield of hair-trigger California laws favoring employees at every turn.
In addition to the practical and financial concerns of hiring people to work for your business, now you need to manage people too. Unfortunately, these people are not always easy to manage. Even more unfortunately, these people (who you have hired to help you) often pose the greatest threat to your business. Getting wise counsel from an experienced San Diego employer rights attorney can save your business from a legal and financial hit that is often so huge as to be catestrophic, ending your business in one unfortunate misunderstanding.
How Often Do Employees Sue Small Businesses?
Based on recent data, one in five small businesses (fewer than 500 employees) will face employment claims. In the U.S.A., small businesses have nearly a 12% chance of getting sued by an employee. In California, they have about a 40% chance of getting sued. The average cost to defend an employment lawsuit is about $125,000. The median judgment in an employment lawsuit is about $200,000. One in four judgments exceed $500,000. The average settlement of an employment lawsuit is nearly $55,000. The median settlement is about $30,000. California small business have a ton of labor and employment issues to deal with. Good human resources can be one of your company’s greatest assets. Bad human resources can be one of your company’s greatest liabilities. Sit down with an employer rights attorney from McCarthy Law to brainstorm your unique circumstances and make a list of weak areas where you can better protect yourself from common employee claims. If you don’t, likely you’ll wish that you had…
Check out some REAL Employer Horror Stories:
Are My Workers Employees? or…
Are My Workers Independent Contractors?
At the outset, you must understand the difference between employees (who get W-2s) and independent contractors (who get 1099s). You’re probably asking, “what’s the difference?” An employer rights attorney will drill into you that anyone who works for your business is either an employee, or an independent contractor.
Getting the classification wrong can sometimes be so COSTLY that you end up bankrupt! There are five different governmental entities, that use five different factual tests to figure out if your workers are employees or independent contractors. Some of those tests examine about 20 factors.
If you have any questions, you should really consult with a San Diego employer rights attorney. Knowledge is power! Moreover, knowledge is cheap when compared to the median $30,000 employee claim. While there are 20 factors, the main factor is control. Think of it this way: an employee is someone who works for you, at your site, with your tools, with your equipment, and according to your rules and procedures. On the other hand, an independent contractor is in business for themselves, works on their own time, with their own tools, and performs services for a number of different clients.
For example, Jack does a lot of freelance work, editing football books. He works for Star Press, but, he also works for four or five other publishers. He always works from home, with minimal instruction, and he works whenever he wants. Jack is probably an independent contractor.
Contrast that to Diane. Diane programs, almost exclusively, for Debutant Publishing. But, Diane does the occasional programming for some friends who own some nonprofits. Diane sometimes works from home, on a computer Debutant gave her. She works closely with Debutant’s software development team. She follows instructions from some of Debutant’s senior developers while training some of Debutant’s newer workers. Diane is probably an employee.
One big tech company (we will call them Macrohard) learned this lesson the hard way. Macrohard had these temporary workers. Macrohard claimed these temporary workers were independent contractors. But, Macrohard clearly treated the temporary workers like employees. When the IRS audited the company’s payroll tax accounts in 1989 and 1990, the IRS determined the temporary workers were actually employees and not independent contractors. Macrohard agreed with the IRS that the temporary workers should have been classified as employees for tax purposes. When they found out about the IRS decision they were employees and not independent contractors, eight of the misclassified workers sued Macrohard for full employee benefits for the time they worked as independent contractors. The eight employees won their lawsuit. Macrohard had to pay a small fortune.
Most employers pay taxes for their employees. Most employers do not pay taxes for independent contractors. Independent contractors must pay taxes themselves. Not surprisingly, the IRS is very interested in whether your workers are employees or independent contractors. Also, not surprisingly, there is a presumption that workers are employees…not independent contractors…even if you have a contract that says they are independent contractors. At the State level, the EDD (the agency that collects unemployment taxes) is also very interested in whether you are calling your workers employees or independent contractors. You and your managers should have a training session from an employer rights attorney from McCarthy Law when you start your business and during expansion or contractions in hiring thereafter.
State and Federal taxes and penalties can be super harsh for calling someone an independent contractor when they are really an employee. In fact, they typically include back taxes, and can even include jail time. In other words, it’s not something you want to mess up. So, you should consult with an employer rights attorney – someone who knows their stuff.
Can I Get Sued for Not Hiring Someone?
Before you hire your first employee, you open Pandora’s box. For example, a jewelry store was hiring a sales associate. The interviewee didn’t have any jewelry sales experience. But, she had experience selling other stuff. The hiring manager wrote “no jew.” on her application, and turned her down. Turns out the sales associate was upset she didn’t get the job. It also turns out she was Jewish. She sued for failure to hire, based on religious discrimination. It was almost impossible to prove the store turned her down for some other reason when her application had a note that said, “no jew.” So, the company settled.
What Happens When You Have Employees?
Employees are truly human resources capable of bringing your company to new heights. But, they can also bring your company down. Once you hire an employee, not only do you have to pay employment taxes, and register with certain government agencies, and pay for certain types of insurance, but you have a host of record keeping requirements, you must make sure employees are paid properly and timely, and you have to make sure you have a ton of different policies and procedures in place.
For example, generally, business owners with one or more employees are required to:
- Report all new hires to the EDD,
- Obtain Worker’s Compensation insurance,
- Comply with state and federal job safety laws,
- Withhold federal income taxes and FICA taxes,
- Report wages and withholding,
- Pay the employer’s portion of Social Security and Medicare tax,
- Withhold state income taxes from employees,
- Withhold employee’s contributions to the state disability insurance program,
- Register and pay the California unemployment insurance taxes,
- Pay federal unemployment taxes, and
- Confirm employment eligibility to work in the United States
…and even then, you still have a 40% chance of getting sued by an employee.
Thinking twice about hiring employees? We don’t blame you. But, it’s the cost of doing business in California. And it really is rewarding and necessary for your business to thrive. But do it right. Call an employer rights attorney for an hour’s review of your business structure, your exposure to the State of California’s very employee-centric statutes that can take you down legally and financially over the most mundane mis-step.
How Do I Manage Employees?
If you’re ready to take the leap, or you have already taken the leap, it’s essential to hire and manage your employees with care. First, you must determine what tasks need to be done. Do you need help answering phones? Do you need help sending bills? Do you need help making bagels? The clearer you are about your needs the easier it will be for your workers to meet those expectations. Once you understand the tasks to be completed, simply group the tasks together for each position.
Why Do I Need Job Descriptions?
You should regularly think about positions and their job descriptions. It’s important to write out a formal job description for each ongoing position. Job descriptions offer critical guidance in the hiring process, and to employees, and are valuable resources when reviewing an employee’s performance. Not to mention, if you have an employee who is disabled, you most likely have to engage that employee in a timely, good-faith, interactive process in order to determine what reasonable accommodations should be made to allow the employee to perform the essential functions of the job.
Why Do I Need an Organizational Chart?
Your business needs organizational structure. Some folks want chain of command. Some folks want a more egalitarian structure. Different things work for different companies. But, one thing that doesn’t work, for any company, is having no structure at all. Multitasking is a really fun buzzword. But, study after study has shown that people are much more productive when single-tasking. People are much more capable of single-tasking when their roles are defined either in a team, or in a hierarchy.
How Do I Pay Employees?
A lot of companies are tempted to just put everyone on a salary. That way, companies don’t have to think about paying overtime or giving meal or rest periods. But, that could be a huge mistake. You see, only certain employees can be considered exempt from overtime and meal and rest period laws. Most employees are what we call “nonexempt”. Misclassifying an employee as exempt, when they’re not exempt, can be incredibly expensive.
Do I Need to Pay Overtime?
California employment laws are designed to protect employees – NOT employers! California courts construe these laws such that employees always receive the maximum protection: and the benefit of any doubt! In California, employees are presumed to be entitled to overtime pay. Moreover, under California and federal law, it is the employer, not the employee, that has the burden of proof to show that the employer properly paid the employee.
In California, an employee’s right to being paid overtime does not depend on whether an employee is salaried. In fact, MANY salaried employees (not being paid overtime) are legally entitled to be paid overtime and when that becomes known to the employee, the employer can be in a world of hurt! Often catastrophically hurt to the point of bankruptcy; losing the business, and if the business is not set up in the proper legal entity, those financial losses often spill over into the business owner(s) being personally liable: a huge, painful, embarassing disaster. An hour’s consultation with a San Diego employer rights attorney could have prevented most or all the tragic cases we hear about virtually monthly…
For example, Erin is a paralegal at a law firm. The law firm is getting ready for trial. They don’t want to keep track of Erin’s hours. So, they move Erin to salary. They want to make it up to Erin. So, they increase her wage. Erin was making $25 an hour and working about 40 hours a week, making about $1,000 per week. Erin’s new salary is $1600 per week. But, with the trial, Erin ended up working about 70 hours a week. Erin is making more money. It should be fine, right? Nope. Even though Erin is on salary, she is still a nonexempt employee. So, now the Law Firm has Erin’s hourly rate of pay at $40 an hour ($1600 divided by 40 hours of work-based on the typical work week). So, Erin gets paid $40 per hour for her first 40 hours of work that week. Then she gets paid $60 per hour for her next 30 hours of work. The firm owed Erin $3,400. They paid her $1,600. They owe her another $1,800. Compare that to the $2,125 they would have owed her total if they had kept her hourly at $25 per hour and just tracked and paid the overtime.
Do I Need to Give Employees Breaks?
You also must make sure you’re providing nonexempt employees with meal and rest periods. With a few exceptions, nonexempt employees, who are not provided meal and rest periods, are entitled to one additional hour of premium pay, per meal or rest period missed. This can add up.
There was a crew of 20 people working at a popup restaurant. Each employee made $15 per hour. One day, it got really busy. The manager decided the employees couldn’t take their first ten-minute breaks. But, now all the employees are owed $300 because they never got their breaks. I’m guessing the restaurant didn’t make $300 more because the employees didn’t take their ten-minute breaks. But, it gets even worse. The pop-up restaurant ended. All the employees left without getting paid their $15 each for the missed rest period. Each of the employees took their claim to the Labor Commissioner.
The Labor Commissioner said the restaurant owed the employees $72,300. How can that be? Well, when employees are terminated, they are owed all wages upon their termination. Each employee was owed $15 dollars when they were terminated because of the missed ten-minute break. Because the employees were not paid the $15 when they were terminated, the employer owes “waiting time” penalties to the employees for failing to pay the wages owed (20 employees, multiplied by $15 per hour, multiplied by eight hours in a day –a typical shift– multiplied by 30-days, plus $300 owed = $72,300). Waiting time penalties can be as much as 30-days’ worth of wages. This assumes the employees are not also pursuing Private Attorney General Act (“PAGA”) claims, which can quickly ramp up even more.
What Employment Policies Are Required?
Once you figure out how to appropriately pay employees, you must have workplace policies and procedures. Your employee handbook plays a crucial role. Employee handbooks give employees information about your company, their jobs, and what is expected them. More importantly, employee handbooks provide policies and procedures to enhance the workplace, and minimize risks posed by anyone who works for your business.
To create an employee handbook, owners and/or high-level managers, must spend time coming up with the rules and procedures the company will follow with its employees. Facing, and answering, these questions, with the help of an attorney, will help ensure your employment policies, procedures, and practices are legal. Moreover, compiling these policies in a handbook promotes positive labor relations because you commit to fair treatment, for all workers, according to the same set of rules.
Employee handbooks typically include information on hiring, hours and flex time, sick and vacation leave, parental leave, employee benefits, performance review procedures, workplace expectations, workplace behavior, health and safety, employee privacy, conflicts of interest, discrimination and harassment, grievance procedures, and termination. This is an area you’re going to want outside help with. States, and even cities, have their own laws and ordinances that must be followed by employees.
Most entrepreneurs, and small business owners, are overwhelmed at the prospect of creating an employee handbook. But you should have a handbook in place, as soon as you hire an employee.
You may also want agreements in place for assignment of rights, mediation/arbitration of workplace disputes, non-disclosure, trade secret protection, non-solicitation, and even noncompete agreements. An employer rights attorney from McCarthy Law can counsel you in being a proactive employer so that you do not experience the traumatic side of employment law, but can sail smoothly, with confidence as you grow your business.