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The EDD does not question the employer’s right to discharge an employee, or the employee’s right to quit. The EDD is looking beyond that question to whether or not the circumstances of the separation fit the requirements of the UI code. The wording of separation documents is critical. There is a great distinction in the UI code as to whether the reason for separation can be defined as the claimant’s inability to perform the work or a “willful and wanton disregard of the employer’s interests.” Here are some things to keep in mind.

UI Guidelines
Never give false or inaccurate information to the EDD. Claimant’s can get False Statement Penalties, but employer’s can get False Statement penalties up to 10 times the claimant’s weekly benefit amount. If the claimant makes a false statement to the EDD, make the EDD aware of it. If you get a Notice of Potential False Statement Liability, appeal it.

Don’t misclassify employees as independent contractors, the penalties involved here will go way beyond paying UI claims.

Always respond to the initial claim form even if you agree with the claimant’s reasons. If you don’t respond to the claim on a timely basis, you are not considered “an interested party.” Therefore, if you later disagree with any charges from that person’s claim, you have no rights to object to the charges.

Complete all EDD forms if there is money involved and you feel you have a right to relief of charges. You will not get relief if you don’t. Make sure to include all supporting documentation including the DE 1545 along with your protest.

The EDD will send such forms as DE 4614, DE 428, DE 2088, Notice of Potential False Statement, Notice of Potential Tax Liability, and Notice of Denial of Petition. Failure to appeal any of them within the time limit is costly. You can appeal any ruling against you and the effort can result in substantial savings to your account.

There are several reasons where an employer may be relieved of charges even if the claimant is collecting UI benefits.
• Did the claimant leave to accompany a spouse or domestic partner?
• Was it because of domestic violence?
• Was the use alcohol or drugs involved?
• Did the employee leave your company for another job?
• Was the claimant a student returning to school or on a work/study program?
• Have you offered work to a past employee currently collecting UI benefits?
• Is the past employee caring for children or some other individual that precludes them from accepting work?

Do not assume that short-term employees don’t cost you any money for unemployment insurance. Every dollar someone earns in wages contributes to potential liability on your reserve account. It’s just as important to do the documentation on a short-term employee as it is for an employee who has worked for you longer.

If an employee quits, but you want the person off your property prior to the effective day of the resignation, give serious thought to paying the employee through the time of notice. If not, the separation is considered a discharge, and the employee would be eligible for unemployment insurance benefits.

Hearings
• Read the instructions on all forms, including the Notice of Hearing.
• Have your facts in order and available for when the EDD adjudicator calls for more information about a past employee.
• Ask the EDD representative for the EDD their fax number or email. That’s where you should send supporting documentation, so you know the decision maker will see it.
• Go to the hearing.
• Go with witnesses and documentation. You are not going to win if you don’t show up.

Remember, every dollar on a DE 1545 could mean the difference between paying the next higher rate or the next lower rate.

Human Resources 4U can help in responding to UI claims.

Human Resources 4U is a full service Human Resources consulting company specializing in small and midsize businesses. Note: This article is presented with the understanding that we are not engaged in rendering legal advice. If legal advice is required, the services of a competent attorney should be sought.

Wage and hour litigation seems to growing into a big business for employees and their attorneys; especially, if they can smell a class action potential. All employers can take steps to avoid getting themselves into these types of lawsuits by paying careful attention to the law. Here is the basic rule and some common problem areas.

The Basic Rule
To be classified as exempt you must be “primarily engaged in” exempt work as defined in the labor code and earn at least 2 times the minimum wage (this currently amounts to $640 per week in CA). There are 3 main types of exemptions (Executive, Administrative, and Professional) and each have very specific criteria assigned to them.

Trap 1: “Comp Time”
Never give a non-exempt employee “comp time” instead of overtime pay. The basic rule in CA is overtime (time and a half) must be paid for any time worked in excess of 8 hours in a day and 40 hours in a week. There are some minor exceptions (formal make-up time and alternate work schedules) to this but you cannot let employees bank overtime to be taken at a later date.

Trap 2: Pay a Salary - Classify as Exempt
Pay a person a salary as opposed to paying them by the hour has no bearing on their eligibility for overtime pay. To be exempt from overtime pay for almost all jobs, you must meet the criteria for either the administrative, executive or professional exemption. These criteria are strict and not easily attained. It is the job duties that determine eligibility for overtime pay not how they are paid or what their job title is.

Trap 3: Not Paying Overtime on all Earnings
Properly paying non-exempt employees for overtime in a week where they earn additional nondiscretionary compensation beyond their base pay is complicated but it’s the law. Basically, you must roll into their base pay any additional earnings for the week and recalculate an “adjusted” hourly rate. For example; if an employee’s base pay is $10 per hour and they work 50 hours for the week, they would be paid $15 per hour for their overtime work. Now let’s say they earned a production bonus of $50 for the week. Their total earnings are now $550 or an “adjusted” average of $11 per hour. For overtime work during this week, their overtime pay would now be based on $11 per hour rather than $10 per hour. Therefore you would have to pay them $16.50 for each hour of overtime worked.

Trap 4: Call It a Sales Job – Classify as Exempt
Just because the person is selling doesn’t necessarily mean they are exempt. Again it is the job duties that determine the exempt status not how you pay them. To be eligible for the sales exemption you must primarily be doing “outside” sales. That means sales at the customer’s place of business. If you are making sales from your office or even from your home or by mail, internet or telephone, you are not eligible for the sales exemption. Keep in mind that exempt sales staff must still be paid at least the minimum wage for time worked regardless of their amount of sales commission earned.

Trap 5: Pay a Commission – Classify as Exempt
Just because you pay someone a commission doesn’t mean that you don’t have to pay them overtime. Some inside sales commissioned employees may be exempt but they must work for a retail or service business and earn at least 1.5 times the minimum wage and over 50% of their pay must come from commissions. Also, in CA you can only be exempt as a commissioned employee if you meet all the above tests and are covered under wage orders 4 (Professional, Technical, Clerical, Mechanical and Similar Occupations) or 7 (Mercantile Industry). For any other wage order an inside sales commissioned employee would automatically be non-exempt and eligible for overtime pay. Therefore if you have a full time employee that earns only $250 in a given week (commission plus base pay), and otherwise meets the criteria for this exemption, you still must pay them $480 for the week (40 x $12.00) for them to be exempt.

Trap 6: Call Them an Independent Contractor – Pay as Exempt
Just because you call someone an independent contract (IC) doesn’t make them one. Once again it is the job duties that determine independent contractor status (see my blog on ICs for more information on this topic). If it is determined that the person in question was not an IC, the IRS or the Labor Board would then determine if they should have been classified as exempt or non-exempt. If it is determined that they should have been non-exempt, you will owe them overtime for all excess hours worked in addition to all the penalties associated with not paying them as an employee.

Getting It Wrong Is Expensive
Generally, for wage and hour violations, there is a 3 year look back plus penalties, interest and attorney fees. So even getting 3 hours a week, wrong for a $15 an hour job for a couple of years could wind up costing you upwards of $10,000 per employee. You don’t want to get this wrong!

If you are interested in getting an outside opinion on how your employees should be classified, Human Resources 4U can help.

Human Resources 4U is a full service Human Resources consulting company specializing in small and midsize businesses. Note: This article is presented with the understanding that we are not engaged in rendering legal advice. If legal advice is required, the services of a competent attorney should be sought.