California workers are often faced with a difficult decision: I don’t feel well and I don’t want to go to work where I will get other people sick, but I can’t afford to miss any work. In order to remedy this malady, the California legislature passed AB 1522 creating the Healthy Workplaces, Healthy Families Act of 2014, which requires all employers to provide at least 24 hours of annual paid sick leave to all employees. Unfortunately, the new law was poorly drafted, causing confusion. The Labor Commissioner set up a FAQ page that helped a little, but still didn’t answer important questions.
Just about every employer client I have called me in the weeks leading up July 1st with questions about what they needed to do to comply with the law, and the answers were not always simple. Then, 13 days after employers were required to begin providing paid sick leave, governor Brown signed AB 304 modifying the statute. Although I suspect the purpose of the amendment was to clarify the law, California’s Healthy Workplaces, Healthy Families Act of 2014 leaves the most ardent HR professionals lightheaded.
For employers that did not previously offer any type of paid time off, the new law seems fairly simple: Employers must provide at least 24 hours of paid sick leave every year. Simple, right? But what about employees working in San Francisco, Oakland, Emeryville, San Diego or any other city that has passed its own local ordinances requiring a hiring amount of paid sick leave?
If a company has employees working in different cities, even if the employees perform as little as two hours per week in one of the cities that has passed its own paid sick leave ordinance, the employer has to either adopt the highest city requirement and apply that across the board, or have different policies for different employees depending on how much time they spend in each different city. Now an employer has different accrual rates and leave caps for different employees. No chance an employer will make a mistake, right?
At what rate must employer’s pay out the paid sick leave? For hourly employees, you would assume the hourly rate is the employee’s regular rate of pay. In fact, the original statute defined “Paid sick days” as “time that is compensated at the same wage as the employee normally earns during regular work hours.” Section 246(k) also says, “[t]he rate of pay shall be the employee’s hourly wage.” Simple, right? It was until the legislature amended subsection k.
Now, the employer has three different methods to choose from:
(k) For the purposes of this section, an employer shall calculate paid sick leave using any of the following calculations:
(1) Paid sick time for nonexempt employees shall be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek.
(2) Paid sick time for nonexempt employees shall be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.
(3) Paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.
You’ll notice that there are two different calculations an employer can choose from for nonexempt employees:
- the employee’s regular rate of pay; OR
- divide the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the previous 90 days.
What does that second option mean? It’s a bit confusing, so let’s use an example. Alice’s regular rate of pay is $12.00 per hour, and she typically works 50 hours per week—40 regular hours and 50 overtime hours. Her regular weekly paycheck is $660.00 [($12 x 40) + ($18 x 10) = $660].
Under the amended statute, the employer is only supposed to include “full pay periods of the prior 90 days of employment.” Let’s assume Alice is paid every week. That would mean that, at most, there are 12 full pay periods in the 90 days prior to the intended sick leave. So, Alice earned $7,920 in those 12 full pay periods ($660 x 12 = $7,920).
The statute then directs us to divide the employee’s total wages “not including overtime premium pay” by the total hours worked. Alice worked 600 hours in the 12 pay periods (50 per week x 12 weeks = 600). When you divide her total wages not including overtime ($5,760) by her total hours worked (600) her paid sick leave rate would be $9.60—$2.40 less than her regular hourly rate. So, if an employee regularly works overtime, the employer can actually pay less than the employee’s regular hourly rate if the employer chooses to use the (k)(2) method of calculating the paid sick leave rate of pay. Maybe the lower rate under (k)(2) rewards employers that are willing to “do the math,” but I don’t see many employers using this alternative calculation.
I’d give an example of what happens when you pay different rates for shift differentials, but it looks like my calculator has a headache.
COMMISSIONS, SALARIES AND PIECE RATES
But what about employees paid commissions, salaries or on a piece rate basis? Well, for salaried employees, the regular rate of pay is presumably the weekly salary divided by 40, as dictated by Labor Code section 515(d)(2). Employees receiving commissions or paid on a piece rate basis are more complicated. Get out your calculators.
There are typically two types of commissioned employees: inside sales and outside sales. While outside salespeople are exempt from overtime laws, inside sales people are only exempt if they are covered by either wage order 4 or wage order 7, more than 50% of their wages are paid in the form of commissions, AND the employee earns at least 1.5 times the current minimum wage. Although the Paid Sick Leave law has rules for employees exempt from overtime under the administrative, professional and executive exemption, it does not have rules for other exempt employees (some inside sales, outside sales, sheepherders, irrigators, etc.).
The Labor Commissioner says “If an employee is paid commission or piece rate, then divide total compensation for previous 90 calendar days by number of hours worked and pay this rate.” But, do you use the compensation earned or the compensation paid? Commissions are oftentimes earned before they are paid. Hopefully the employer’s commission agreements clearly identify when the commission is earned versus when it is paid, but neither the Labor Commissioner nor the statute answer this question.
For piece rate employees it is a little bit easier, divide the total amount earned in the previous 90 days by the total hours worked. If the employer is reporting the pieces and hours worked on the pay stubs as required by Labor Code section 226, then this shouldn’t be a problem. On the bright side, employers that were not previously tracking hours worked for their piece rate workers have a good excuse to change their policies so they can properly track paid sick leave.
WHAT IS A YEAR?
There are still other decisions that have to be made. What constitutes a year? The law became effective January 1st, but employers were not required to provide the paid sick leave until July 1st. Should the employer use a calendar year? A year based on the employee’s start date? A year beginning when the paid sick leave requirement became effective? Choosing the right “year” alters how the employer tracks accrued paid sick leave.
CAN I USE MY EXISTING PTO POLICY?
Will your existing PTO policy satisfy the requirements? In most cases, no, because most employees typically do not begin accruing paid sick leave on their first day of employment. Although employers can prohibit an employee from using the paid sick leave during the first 90 days of employment, the employee begins accruing the paid sick leave from day 1. Keep in mind, if an employer modifies its PTO policy to allow the employee to begin accruing PTO from day 1, and that employee stops working in the first 90 days, the employer has to pay out the unused PTO. If the employer decides to keep Paid Sick Leave separate from other paid leave, the employer would not have to pay out the Paid Sick Leave upon termination.
In order for a PTO policy to satisfy the Paid Sick Leave requirements, the PTO has to have the same 30:1 accrual rate required by the Health Workplaces, Healthy Families Act. Although an employer can cap the Paid Sick Leave at 48 hours, the 30:1 accrual rate would actually give the employee about 66 hours of Paid Sick Leave in a year (assuming the employee works 40 hours a day, 50 weeks per year). If you have a PTO policy that allows an employee to accrue 48 hours of PTO per year, the accrual rate is actually lower than the 30:1 Paid Sick Leave requirements.
The July 13th amendment provided a small safe harbor. If an employer had a pre-existing PTO policy that allowed the employee to accrue at least 8 hours of PTO within the first 3 months of employment and at least 24 hours of PTO within the first 9 months of employment, the employer can use the existing PTO policy to satisfy the Paid Sick Leave requirements. However, if the employer ever alters the accrual method used in that policy, then the employer has to default to the 30:1 accrual rate. This applies even if the employer provides a more generous PTO accrual rate than it previously provided.
Rob’s prediction? Litigation.
Although I don’t know that the value of a paid sick leave violation claim would justify a single-plaintiff lawsuit, you can bet there are class action attorneys waiting file suit when an employer makes a mistake. Keep in mind that the Health Workplaces, Healthy Families Act of 2014 is part of the Labor Code. That means an employee can sue under the Labor Code Private Attorney General Act (PAGA) and bypass the class action requirements. Even though the individual employee’s recovery may be minimal, even small errors can create significant liability given that the penalties will accrue every pay period for all employees.
BROAD RETALIATION PROVISION
I also predict we will see litigation regarding employers who ask employees for proof that the leave was for a qualifying reason. The Act has a very broad anti-retaliation provision:
An employer shall not deny an employee the right to use accrued sick days, discharge, threaten to discharge, demote, suspend, or in any manner discriminate against an employee for using accrued sick days, attempting to exercise the right to use accrued sick days, filing a complaint with the department or alleging a violation of this article, cooperating in an investigation or prosecution of an alleged violation of this article, or opposing any policy or practice or act that is prohibited by this article
There is a rebuttable presumption of retaliation for a variety of actions, including “if an employer denies an employee the right to use accrued sick days, discharges, threatens to discharge, demotes, suspends, or in any manner discriminates against an employee within 30 days of … (c) [o]pposition by the employee to a policy, practice, or act that is prohibited by this article.”
The Labor Commissioner has told employers that it is illegal to “deny sick leave due to a failure to provide details” regarding the need for the paid sick leave. The Act is silent as to whether an employer can require an employee to provide a doctor’s note for the absence, but the Labor Commissioner seems to be taking the position that if an employer asks an employee for the details of the leave (e.g., “Why do you need to take paid sick leave?”), and the employee refuses to provide the details, the employer must still pay the employee to take the time off work.
To be safe, employers should only ask for doctors’ notes once an employee has used the full 24 hours of paid sick leave.
Employment attorneys helping companies comply with the law have been inundated with phone calls and emails from clients that want to comply with the law. California’s new paid sick leave requirements confuse even the most seasoned HR professionals. I am glad the legislature took a stance on this important issue. Sick workers should not be forced to choose between paying rent or showing up to work where they can get other people sick. The idea behind the statute is good and honorable. Unfortunately, as is often the case, the legislature’s method is blemished.
Having thought this all through, I’m starting to feel a bit queasy myself. I think I need to take a sick day.
Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.
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