Friday, November 19, 2010
Presented by the Employer Resource Institute
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This program, ORG-PROGRAM-
, has been approved for 1.5 recertification credit hours toward PHR® and SPHR® recertification through the Human Resource Certification Institute (HRCI).
Please be sure to note the program ID number on your recertification application form.
For more information about certification or recertification, please visit the HRCI home page at www.hrci.org.
The use of the above seal is not an endorsement by HRCI of the quality of the program.
It means that this program has met HRCI’s criteria to be pre-approved for recertification.
© 2010 Employer Resource Institute. All Rights Reserved

Mary Topliff, Esq., founded the Law Offices of Mary L. Topliff in
San Francisco in 1997, after practicing civil and employment litigation for nine years.
The firm specializes in employment law counseling, training and compliance, focusing on practical solutions to avoid costly legal issues. She has advised many organizations regarding a wide variety of fitness for duty and disability accommodation issues, provided training to managers and human resources professionals and has crafted customized policies and procedures to comply with legal requirements.
She is a published author and frequent speaker on legal issues impacting the workplace.
© 2010 Employer Resource Institute. All Rights Reserved

7
Agenda
• Overview of Key Legal Requirements
• Risks of Misclassification
• Meal/Rest Period Issues
• Audit Process --Analysis of Selected Jobs
• Strategies for Communication & Implementation
• What you can do now!

8
Overview of Key Legal Requirements
• Overtime Exemption Laws
• Federal Fair Labor Standards Act (FLSA)
• Law favors payment by the hour
• Presumption that employees are nonexempt
• Burden on employer to prove overtime exempt
• Employees cannot “agree” to be overtime exempt
• California Law
• Labor Code and Wage Orders
• Apply CA law to employees working in CA
• Open legal issue regarding employees working occasionally in
CA

9
Overview of Key Legal Requirements
• Overtime Exemption Classifications
• Administrative
• Executive (Manager)
• Professional (Licensed/Learned/Computer/Creative)
• Outside Sales
• Two Components
• Paid on Salary Basis
• Exceptions: Computer professional, outside sales
• Employee’s Regular Duties Qualify for Specific Exemption

10
Overview of Key Legal Requirements
• Salary alone is not determinative
• Salary subject to rules
• Fixed base weekly salary not subject to reduction due to quantity/quality of work
• Deductions from weekly salary in full-day increments
• Okay for employee-requested absences
• Not okay for employer-required absences
• Deductions from weekly salary in partial day increments
• Never okay
• Deductions from Vacation/Sick/PTO banks
• Not the same as deductions from salary

11
Overview of Key Legal Requirements
• California salary requirement: No less than two times State minimum wage based on 2,080 hours worked in year (i.e., full-time employment)
• Currently: $33,280/year
• Salary not prorated for part-time employees
• Tips on inadvertent deductions
• Have policy for employees to raise issues
• Address and fix quickly (specific employee issue + look at broader implications/changes)
• Employee acknowledgment that issue resolved

12
Overview of Key Legal Requirements
• “Duties” Test & 50% Rule
• More than 50% of employee’s actual work involves exempt duties during work week + employer’s realistic expectations and realistic requirements of job
• FLSA focuses on primary duties vs. quantitative analysis
• “Discretion and independent judgment” (DIJ) required for California
Administrative, Professional, Executive Exemptions
• Most commonly misapplied element

13
Overview of Key Legal Requirements
• “Discretion and Independent Judgment” Definition
• Power to make independent choice based on comparison & evaluation of possible courses of action without immediate direction or supervision on matters of consequence
• Skill or knowledge not equivalent
• Decision making regarding management policies/procedures; can deviate from established policies without approval; can negotiate and bind company on significant matters; carries out major assignments; performs work that substantially affects business operations; provides consultation or expert advice to management

14
Overview of Key Legal Requirements
• California Administrative Exemption Summary
• Work directly relates to management policies or general business operations of employer or customers + assists proprietor or specialized work requiring specialized training or special assignments
• Common Misclassification Issues:
• Jobs involve production (product or service of business) or sales
• Jobs do not involve specialized work
• Jobs involve processing reports/data, but lack analytical work and recommendations

15
Overview of Key Legal Requirements
• California Professional Exemption Summary
• Licensed professional (of 8 specified) or learned or artistic profession in advanced field of science/learning after prolonged course of study
• Subset: Computer Professional requiring highly skilled in theoretical & practical application of systems analysis, programming or software engineering
• Common Misclassification Issues:
• Advances in technology have decreased specialized technical aspects of some jobs (i.e. web/graphics designers)
• Coders, testers with lofty job titles

16
Overview of Key Legal Requirements
• California Executive Exemption Summary
• Supervises at least 2 full-time employees with authority to hire/fire &
>50% of time spent in supervisory functions
• Common Misclassification Issues:
• “Working” managers performing same duties as direct reports
• Having handful of direct reports

17
Risks of Misclassification
• Worst case scenario example:
• Employee has worked in same job for 5 years, regularly works 45 hours per week, & paid $40k/year. Employee is very detail-oriented and keeps a calendar of each day’s work hours. If employee’s job is determined to be nonexempt:
• Statute of Limitations: 3 years under California Labor Code; 4 years under California Unfair Business Practices law
• Legal Exposure: $19.23/hr X .5 = $9.62/hr X 5 hrs/week =
$48.08 X 52 weeks X 4 = $9,999
• Plus attorneys’ fees (your own + the plaintiff’s), expenses, downtime
• Even worse case scenario: More than one employee in same job

18
Meal & Rest Period Considerations
(California-Specific)
• Additional risk of misclassification
• California Labor Code provides penalty of one additional hour’s pay for each work day in which meal or rest period is not provided
• Timesheets not typically required for exempt employees, thus no way to prove meal & rest periods provided/taken
• Statute of limitations held to be 3 years
• Brinkley and Brinker cases on appeal to California Supreme Court

19
Impetus for Overtime Exemption Analysis

20
Getting Started
• Consider combining Overtime Exemption Analysis Project with another related project
• Example: Total Compensation Review or update of job descriptions or new HRIS systems
• Benefit: Creates efficiencies by addressing multiple issues and provides more context for job changes

21
Getting Started

22
Selecting Jobs to Evaluate
• Jobs that raise “red flags”
• Entry-level or trainee
• Manager title but no direct reports
• Catch-all titles: Analyst
• Sales jobs with non-sales titles
• Jobs that involve processing data, running reports

23
Selecting Jobs to Evaluate
Good
• Start with lowest paid exempt jobs
Better
• Follow job family to obvious cut-off
Best
• Include all exempt jobs below Director
• Analyze gray area exempt positions
• Include “red flag” jobs regardless of pay or grade
• Include catch-all titles like Analyst, Project
Manager

24
Data Collection Alternatives

25
Common Pitfalls to Avoid during Analysis
By-Passing
Direct Manager
• Imperfect information
• Missed opportunity for buy-in
• Surprises = pushback
Relying on Job
Descriptions
• Doesn’t tell % of time spent on each duty
• Is the person really doing that job?
• Court rulings based on actual job performed, not description

26
Information-Gathering Considerations & Tips
• Who should conduct the analysis?
• Internal HR with in-house or outside counsel review
• External specialist – if attorney, opinion is attorney-client privileged
• Need thorough understanding of employee’s duties
• Insufficient to rely on manager’s insistence of importance of job
• Another data point: performance reviews
• Determine percentage of work time spent on specific duties

27
Information-Gathering Considerations & Tips
• How to determine “discretion and independent judgment”?
• Do not ask: “does the employee exercise discretion and independent judgment?”
• Ask definitional questions with specific examples
• Collect data on hours worked by employees in question
• Travel time?
• Eligible for production bonuses?

28
Analysis of Selected Jobs
• Jobs that have been subject of lawsuits:
• Pharmaceutical sales representatives
• Account executives
• Mortgage loan processors
• Insurance claims adjusters
• Variety of computer professionals

29
Implementation Issues
• Logistics of moving nonexempt employees out of exempt salary structure
• Anomalies may result:
• Employees making more than their boss due to overtime
• Same job at different locations may have different exemption classifications
• Treat differently or make the job nonexempt for all locations?
• Determine extent of “back” overtime
• Factors to consider: Has scope of job changed at particular time? Is job changing now?

30
Implementation Issues

31
Implementation Issues
• Release Agreements
• Cannot condition payment of wages owed on release agreement
• HR “Public Relations” problem
• Need to explain why we didn’t get this right the first time

32
Implementation Issues
• Communicating the Results
• Manager Training
• FAQ’s are helpful
• Announcement to Employees
• Meetings or Memo?
• Assuring employees that change in exemption does not mean demotion or that job is not important
• Department meetings – head of functional area explains
• One-on-one meetings – impacted employee and manager discuss

33
Resources
• Industrial Welfare Commission Wage Orders and DLSE Enforcement Manual
( www.dir.ca.gov
)
• Department of Labor ( www.dol.gov
)
• Employer Resource Institute, “Who’s Entitled to Overtime: How to Avoid
Mistakes When Classifying California Employees” (2009)
( www.employeradvice.com
)

34
Mary L. Topliff
Law Offices of Mary L. Topliff
555 Montgomery Street, Suite 1650
San Francisco, CA 94111
415/398-9597 topliff@joblaw.com
www.joblaw.com

Please be sure to complete and return your program evaluation. An evaluation will be e-mailed to the registered participant shortly after the conference.
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The California Labor Code vs. the federal Fair Labor Standards Act (FLSA)
Who the California wage/hour laws apply to
The Wage Orders that cover your organization
Hours of work —including travel time, make-up time, meal and rest periods, and the definition of "hours worked"
The rules for hourly, salary, and piece-rate pay
Bonuses, profit-sharing plans, and tips
Overtime and double-time wages
Alternative workweeks
Tools and equipment, uniforms, and work-related expenses and losses
Paid time off —vacation, PTO, holidays, and sick leave
Unpaid time off
When and how employees must be paid
Payment of final wages upon termination
Deductions from pay
Recordkeeping requirements
Pay-related discrimination
And much more!
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