News & Events

Independent Contractor Classification Legislation

by Sara Boyns

October 4, 2019

Question:  I read your newsletter about the court case involving independent contractors, but now I’m hearing about a new rule regarding worker classification.  What’s the status?

Answer:  On September 18, 2019, California Governor Gavin Newsom signed Assembly Bill (AB) 5 codifying the stringent three-part “ABC” test that was set forth by the California Supreme Court last year in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (Dynamex) to evaluate whether a worker is correctly classified as an independent contractor.

Historically, in determining whether a worker was an employee or an independent contractor, California courts, the Labor Commissioner, Internal Revenue Service, and the Employment Development Department used the eleven-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (Borello). The Borello test primarily focuses on whether a business has control over the means and manner of performing contracted work, while considering additional secondary factors such as the method of payment, the length of time the services are to be performed, and who provides work tools.

In Dynamex, the California Supreme Court adopted a new test for determining whether a worker is properly classified as an independent contractor as opposed to an employee.  The Dynamex “ABC Test” presumptively considers all workers to be employees for purposes of Wage Order claims unless the employer can prove that the worker satisfies the following three conditions:

(A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

(B) the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) the worker is customarily engaged in an independently established trade, occupation, or business.

Under Dynamex, failure to satisfy any one of these three elements means that a worker must be classified as an employee for purposes of the California Wage Orders (e.g., claims for minimum wage, overtime, etc.).  Under AB 5, the Dynamex  test applies not only for purposes of the California Wage Orders, but also for all Labor Code and Unemployment Insurance Code claims, meaning that now the “ABC Test” will apply to additional claims to which it previously did not apply.

Notably, due to extensive lobbying efforts during its drafting, AB 5 contains numerous exemptions from the Dynamex test for particular occupations and relationships.  Subject to certain licensing and other requirements, the following occupations are subject to the Borello test instead of the Dynamex test:

• Doctors (physicians, surgeons, dentists, podiatrists, veterinarians, psychologists)
• Professionals (lawyers, architects, engineers)
• Professional service providers (marketing, human resources administrator, travel agents, graphic designers, grant writers, fine artist)
• Financial services (accountants, securities broker-dealers, investment advisors)
• Insurance brokers
• Real estate agents
• Direct sales (compensation must be based on actual sales)
• Builders and contractors
• Freelance writers and photographers (no more than 35 submissions to an outlet in a year)
• Hair stylists and barbers (must be licensed, set own rates and schedule)
• Estheticians, electrologists, and manicurists (if licensed)
• Tutors (that teach their own curriculum, and that are not public school tutors)
• Commercial fishermen
• AAA-affiliated tow truck drivers.

AB 5 is very complex and the risks of misclassification are significant and can include back taxes owed to the federal and state government, as well as unpaid overtime and missed meal and rest period penalties.  If you use independent contractors, be sure to analyze their classification under AB 5, which can be viewed at https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB5

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CALSAVERS: RETIREMENT PLANNING MADE EASY

by Fenton & Keller

September 20, 2019

Question: Is it mandatory to provide a retirement plan for all of my employees?

Answer: Not exactly.  California established the CalSavers Retirement Savings Program (“CalSavers”), an IRA designed to benefit employees whose employers do not offer traditional retirement plan programs.  With minimal action required and no fees or liability for employers, CalSavers is a simple and effective way for employees to save money and plan for retirement.

With automatic enrollment and contributions made through payroll deductions, CalSavers makes it easier for employees to save for retirement. Once an employee is enrolled, the money saved belongs solely to the employee and the account can move freely with the employee from one job to the next.  CalSavers is not sponsored by the employer, meaning the employer is neither responsible nor liable for an employee’s decision to participate in the program or the performance of investments.  An employer’s responsibilities under CalSavers are limited to registering for CalSavers, providing employee information to the CalSavers administrator, and remitting employee contributions through payroll deductions.

CalSavers is mandated for all California private for-profit and non-profit employers that do not already sponsor a retirement plan for their business and that have more than five full- or part-time employees over the age of 18 with at least one employee working in California.  Eligible employers that fail to enroll are subject to a penalty per eligible employee.  Employers that maintain or contribute to a Tax-Qualified Retirement Plan which qualifies for favorable federal income tax treatment, regardless of whether all employees are eligible for the Plan, as well as employers with fewer than five employees, are prohibited from participating in the CalSavers program.

Prior to the effective dates listed below, employers must log on to the CalSavers site to either register online or certify their exemption from CalSavers by stating that their business already maintains a retirement plan:

Existing employees of employers that participate in CalSavers must be enrolled within 30 days after the employer registers with CalSavers. Employees hired after the employer registers will be automatically enrolled within 30 days of their date of hire or date of eligibility.  Despite this automatic enrollment, participation in CalSavers is voluntary, and employees may choose to opt out at any time.

Once the employer is enrolled, on each payroll date, it must deduct and transfer each participating employee’s contribution to the CalSavers administrator. All employee contributions must be remitted as soon as administratively possible, not to exceed seven business days from the date of deduction.

When providing information about CalSavers to employees, employers are required to remain neutral about their employees’ participation in the program. The CalSavers regulations expressly preclude employers from requiring, endorsing, encouraging, prohibiting, restricting, or discouraging employee participation in CalSavers, or from providing any advice or direction regarding any employee decision about CalSavers (e.g., investment choices, contribution rate, etc.).  To maintain neutrality, CalSavers will provide an email template at the time of registration that employers may share with employees to inform them that CalSavers will reach out to them.  The employees can then communicate with CalSavers directly to get further information and to ask any questions they may have.

Although CalSavers becomes effective next year, employers may begin registering now at the following link: https://employer.calsavers.com/californiaertpl/enroll/createEmp/viewCollectEmpPreRegDetails.cs.

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Changes to California’s Mandatory Sexual Harassment Prevention Training Law

by Sara Boyns

September 5, 2019

Changes to California’s Mandatory Sexual Harassment Prevention Training Law
By Sara Boyns

On August 30, 2019 Governor Newsom signed Senate Bill 778, which extends the date for employers with five or more employees to provide mandatory sexual harassment prevention training to most of their employees.  Prior law stated that the training had to be completed by January 1, 2020, but SB 778, which takes effect immediately, extends the time limit for providing the mandatory training and education to January 1, 2021.  However, this new law still requires new nonsupervisory employees to be provided the mandatory training within six months of hire, and new supervisory employees to be provided the training within six months of becoming a supervisor.  The new law requires the training to be provided once every two years.

Other important provisions of this new law include:

• Employers who provided mandatory sexual harassment prevention training and education in 2019 do not have to provide it again until 2021, and every two years thereafter.
• The training may be completed by employees individually or as part of a group presentation, and may be completed in shorter segments, as long as the applicable hourly total requirement is met.
• Employers are defined as any person or company regularly employing five or more persons or regularly receiving the services of five or more contract workers, or any person acting as an agent of an employer, directly or indirectly, the state, or any political or civil subdivision of the state, and cities.
• Employers must also include prevention of abusive conduct as a component of the training and education.  “Abusive conduct” means conduct of an employer or employee in the workplace, with malice, that a reasonable person would find hostile, offensive, and unrelated to an employer’s legitimate business interests.
• Employers must also provide training inclusive of harassment based on gender identity, gender expression, and sexual orientation as a component of the sexual harassment prevention training and education. The training must include practical examples inclusive of harassment based on gender identity, gender expression, and sexual orientation, and must be presented by trainers or educators with knowledge and expertise in those areas.
• Beginning January 1, 2020, for seasonal, temporary, or other employees that are hired to work for less than six months, an employer shall provide the mandatory training within 30 calendar days after the hire date or within 100 hours worked, whichever occurs first.
• If a temporary employee is employed by a temporary services employer to perform services for clients, the training shall be provided by the temporary services employer, not the client.
• Different rules apply to agricultural workers.
• Employers may develop their own training, may send their employees to a live or web based training provided by a trainer who meets the required qualifications, or may direct employees to view the online training course that the Department of Fair Employment and Housing (DFEH) will develop and make available on its internet website. The DFEH states the training will be available “by late 2019.”

You can see the full text of the new law at https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB778.  While employers have more time to comply with the mandatory sexual harassment prevention education and training requirements, it is important to accurately calendar training deadlines for all new hires, new supervisors, and other employees to ensure compliance with the law.

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CalSavers: Retirement Planning Made Easy

by Fenton & Keller

September 5, 2019

CalSavers: Retirement Planning Made Easy
By Susannah L. Ashton

What is CalSavers? As of July 1, 2019, employers may begin registering with the CalSavers Retirement Savings Program (“CalSavers” or the “Program”), an IRA designed to benefit employees whose employers do not to offer traditional retirement plan programs.  With minimal action required and no fees or liability for employers, CalSavers is a simple and effective way for employees to save money and plan for the future.

CalSavers is designed to make it easier for employees to save by lowering the barriers that often keep people from doing so: enrollment is automatic and contributions are made through payroll deductions.  Once enrolled, the money saved belongs solely to the employees and accounts can move freely with employees from one job to the next.  CalSavers is not sponsored by the employer, meaning the employer is not responsible nor liable.  Employers’ only responsibilities under CalSavers are limited to registering for the Program, providing employee information to the Program Administrator, and remitting employee contributions through payroll deductions.

Who has to participate in CalSavers? CalSavers is mandated for all private employers in California, both for-profit and non-profit entities, that do not already sponsor a retirement plan for their business and who have more than five full- or part-time employees over the age of 18 (with at least one employee working in the state) (“Eligible Employers”).  However, employers who maintain or contribute to a Tax-Qualified Retirement Plan which qualifies for favorable federal income tax treatment, regardless of whether all employees are eligible for the Plan, or employers who have fewer than five employees are prohibited from participating in the Program.  Note that an employer-provided payroll deduction IRA program that does not provide for automatic enrollment is not a Tax-Qualified Retirement Plan.

If you are an employer who is required to participate in CalSavers, what do you need to do? Prior to their mandatory participation date, employers must log on to the CalSavers site to either register online or certify their exemption from CalSavers by stating that their business already maintains a retirement plan.  The effective dates are based on the employer’s number of employees:

An employer’s number of employees is the average number of employees as reported to the California Employment Development Department for the quarter ending December 31 and the previous three quarters of available data.

How do employees enroll in CalSavers? Existing employees of Participating Employers must be enrolled within 30 days after the employer registers with the Program and employees who are hired after the employer registers will be automatically enrolled within 30 days of their date of hire or date of eligibility.  Although eligible employees will be automatically enrolled, participation in the CalSavers program is voluntary, and employees may choose to opt out at any time.

What happens to employers who do not comply with CalSavers? Employers who, without good cause, fail to allow their eligible employees to participate in CalSavers, on or before 90 days after service of notice of its failure to comply, shall pay a penalty of $250 per eligible employee if noncompliance extends 90 days or more after the notice, and if found to be in noncompliance 180 days or more after the notice, an additional penalty of $500 per eligible employee.

What else do employers need to do? On each payroll date, the employer must deduct and transfer each participating employee’s contribution to the CalSavers Administrator at the applicable contribution rate for each participating employee.  All compensation must be remitted as soon as administratively possible, not to exceed seven business days from the date of deduction.  Employers may add their own payroll service provider as a delegate to help perform the employer facilitation duties on employers’ behalf.

When providing information to employees, employers are required to remain neutral about their employees’ participation in CalSavers.  The regulations expressly preclude employers from requiring, endorsing, encouraging, prohibiting, restricting, or discouraging employee participation in the Program, or from providing any advice or direction regarding any employee decision about the Program (e.g., investment choices, contribution rate, etc.).

In order to maintain neutrality, the Program will provide an email template at the time of registration that employers may share with employees to inform them that CalSavers will reach out to them.  The employee can then communicate with CalSavers directly to get further information and to answer any questions they may have.  Further, Exempt Employers who wish to inform employees who are ineligible for an employer-sponsored retirement plan about any rights or benefits with CalSavers are encouraged to contact CalSavers directly for guidance.

Employers’ only other ongoing responsibility is to ensure the Employee Information Packet is delivered during each open enrollment period to all eligible employees who are not participating employees (including those who have previously opted out).

For more information, employers are encouraged to visit the CalSavers website at https://www.calsavers.com/.

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