U.S. Department of Labor Issues New Overtime Regulations

Determining when an employee gets overtime — and when an employee can be considered “exempt” from overtime — is tricky business in California.  Penalties can be extraordinarily severe for an employer who improperly classifies a worker as “exempt.”

In general, under current California law, every employee who works over 8 hours in a day or 40 hours in a week must be paid overtime unless that employee (1) fits within one of the recognized exemptions (i.e., executive exemption, administrative exemption, professional exemption, or highly-paid computer worker), and (2) is paid a salary that is at least 2x the state’s current minimum wage.

The state’s current minimum wage is $10 per hour.  Therefore, the minimum salary that an exempt employee can be paid is $20 x 8 hours/day x 5 days/week x 52 weeks/year, or $41,600 per year.   Therefore, under current California law, an employee making less than $41,600 can never be considered exempt from overtime even if that worker falls within one of the recognized exemptions.

Earlier today, however, the U.S. Department of Labor issued new overtime regulations that set the minimum salary at $47,476.  The new regulations allow employers to use non-discretionary bonuses and incentive compensation (including commissions) to satisfy up to 10% of this new salary level.

The new regulation becomes effective on December 1, 2016.  Accordingly, effective on December 1, 2016, a California employee must be making at least $47,476 and fall within one of the recognized exemptions in order to be properly considered exempt from overtime.  The new regulations did not change the duties that must be met in order to fall within the recognized exemptions.  Only the minimum salary has been changed.

This new regulation will impact employees in other states far more than California.  That’s because California already had one of the highest minimum exempt salary requirements in the nation.  But if you are a California employer and you have an exempt employee who earns less than $47,476, you will need to raise that employee’s salary if you want to keep that employee as exempt from overtime.

You can find FAQ’s about the new federal regulation here.


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Common Legal Mistakes Made by Startups

Inc.com published an article today entitled, “The Dumbest Legal Mistakes Early Startups Make.”  The article, written by Alumnify CEO A.J. Agrawal, asserts that the “dumbest” legal mistakes made by startups include:

  • Not having written LLC operating agreements
  • Choosing the wrong corporate entity
  • Failing to keep proper records
  • Using someone else’s legally protected name
  • Commingling accounts and money
  • Not protecting intellectual property
  • Failing to take into account employees
  • Not thinking about state laws

I agree with these as common mistakes, but I think there are many others too:

  • Choosing a company name that is not easily protectable
  • Not having founders’ agreements
  • Failing to comply with state and federal securities laws when issuing equity to c0-founders, angels, etc.
  • Not having a vesting schedule when issuing equity to co-founders
  • Failing to create a proper HR infrastructure
  • Failing to create and use standard form contracts written to benefit the startup
  • Not having a solid startup team in place from the beginning (lawyer, accountant, banker, insurance broker, etc.)

You can find the Inc.com article here.


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SF Mayor Signs Ordinance Expanding Paid Family Leave

Yesterday, San Francisco Mayor Ed Lee signed a local ordinance that requires San Francisco employers to compensate eligible employees while taking paid family leave (“PFL”) to bond with a new child.

The New PFL Benefit

Under existing California law, the State already pays eligible employees 55% of their prior salary while on baby-bonding PFL.  Under San Francisco’s new ordinance, if an eligible employee goes out on baby-bonding PFL, the San Francisco employer would have to make up the difference between (a) the eligible employee’s gross weekly wage, and (b) the weekly benefit that employee is receiving from the State under PFL.

Implementing the New PFL Benefit

If a San Francisco employer has a policy that provides at least 6 consecutive weeks of fully-paid parental leave in any 12-month period for new child bonding, then that employer is not required to provide supplemental compensation.

In order to meet the new San Francisco requirements, a San Francisco employer can require an eligible employee to use up to two weeks of accrued vacation when State PFL starts.  If an employee does not agree to use his/her accrued vacation, the employer is not required to provide any additional compensation.

To receive San Francisco supplemental compensation, an employee must sign a form created by San Francisco’s Office of Labor Standards Enforcement (“OLSE”), agreeing to reimburse supplemental compensation received, in full, if he or she voluntarily separates from employment within 90 days of the end of his or her leave period, if the employer makes a written reimbursement request.Benefits max out for employees who make $106,647.32.  Therefore, the maximum benefit an eligible employee can receive is $1,129/week (55% of $106,647.32 divided by 52 weeks).  A San Francisco employer is required to match an eligible employee’s salary only up to this maximum level.


To be eligible for this new benefit, a San Francisco employee must (a) have worked with the employer for at least 90 days prior to taking the PFL leave, (b) work at least 8 hours per week in San Francisco, and (c) spend at least 40% of his/her working time in San Francisco.  An eligible employee may take the time off within the first year after the child is born or is placed through foster care or adoption.

Effective Date

This new San Francisco ordinance goes into effect on January 1, 2017 for employers with 50 or more employees. It goes into effect on July 1, 2017 for those employers with between 35-49 employees and on January 1, 2008 for those employers with 20-34 employees.  Employers with under 20 employees (including part-time and temporary employees) are not impacted by this new ordinance.

If you would like to review more information about the new San Francisco PFL benefit, you can find that here and here.

Coordination With Existing State Law

Note:  just over a week ago, California Governor Jerry Brown signed a new state law that will increase the amount of State PFL benefits paid to employees who take time off to bond with a new child.  I blogged about this new law, which takes effect on January 1, 2018, here.  So once this new State law goes into effect, it will lessen the amount of compensation that a San Francisco employer will have to pay under this new local ordinance.  The new San Francisco ordinance will overlay the new State law, so employers are encouraged to consult with their employment counsel if they receive a request from a San Francisco employee for a baby-bonding PFL time.

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Governor Brown Signs AB 908 Increasing Paid Family Leave Benefits

Yesterday, California Governor Jerry Brown signed Assembly Bill 908 (“AB 908”).  This new bill increases the amount of weekly benefits payable to employees who take leave under California’s existing paid family lave law.

California’s existing paid family leave law allows an employee to request paid leave to care for a family member with a “serious health condition” or to bond with a new child.  While on leave under existing law, an employee receives 55% of his or her usual salary, up to a maximum of $1,129/week, for a period of up to 6 weeks.  These benefits are paid for by employees through mandatory payroll deductions payable to the state’s SDI program.  The benefits begin after a 7 day waiting period.

Under the new law AB 908, the state will increase the weekly benefit amounts to employees who go out on paid family leave starting on January 1, 2018.  The amount of the increase in benefits will be determined by the employee’s income.  An employee earning below about $20,000/year will now receive 70% of his or her usual salary.  A higher income worker will receive 60% of his or her usual salary, up to a maximum benefit of around $1,260/week.

(Note:  These numbers are estimates because the income threshold and maximum benefit amounts are tied to the state’s average weekly wage, which changes every year.  In addition, the new law states that the maximum benefit “shall not exceed the maximum workers’ compensation temporary disability indemnity weekly benefit amount established by the Department of Industrial Relations pursuant to Section 4453 of the Labor Code.”  This number also changes every year based on the state’s average weekly wage.   So the actual threshold number and weekly maximum benefit amount for 2018 cannot be known until January 1, 2018.  You can find a chart showing existing 2016 maximum benefit amounts here.)

Finally, AB 908 will eliminate the 7 day waiting period so that these increased benefits become payable immediately.

You can read the full text of AB 908 here.  You can find the Governor’s press release announcing the new law here.

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New Regulations on Sexual Harassment Take Effect Today

The California Fair Employment & Housing Council (FEHC) recently passed new regulations that strengthen California’s Fair Employment & Housing Act (FEHA).  This is the state law banning discrimination, harassment, and retaliation in the workplace, which is already among the toughest in the nation.  These new regulations take effect on April 1, 2016.

Under the new regulations:

  1. Employers with fewer than 5 employees may now be subject to FEHA if they use outside contractors, interns, and/or unpaid volunteers.
  2. FEHA is broadened to protect not only employees, but also unpaid interns and volunteers.
  3. Transgendered workers are protected by the elimination of the word “woman” from FEHA’s pregnancy-related protections.
  4. Sexual harassment policies, to be legally compliant, must now include:
    • A full list of all prohibited bases on which to make employment decisions, including gender identity and gender expression;
    • A statement that the policy protects against harassment not only by other employees but also third parties with whom an employee comes into contact;
    • A statement that an employee is not required to complain to his/her supervisor;
    • A full list of personnel designed by the employer to receive complaints;
    • A statement to supervisors informing them to whom they should complain;
    • A statement that the employer will conduct a fair, timely, and thorough investigation that provides all parties with due process and that reaches a reasonable conclusion that is supported by the findings of the investigation;
    • A statement assuring the complainant that his/her complaint will be resolved on a timely basis;
    • A statement that the employer will guarantee confidentiality throughout the process, to the extent possible;
    • A statement that the employer will monitor and track the investigation into the complaint for progress, on a regular basis;
    • A statement that all investigations will be impartial and conducted by persons qualified to conduct workplace investigations;
    • A guarantee of “appropriate options for remedial actions and resolutions,” including a guarantee that remedial measures will be taken if an investigation concludes that wrongful conduct occurred; and
    • A statement making clear that retaliation is illegal and will not be tolerated.
  5. Employers are now required to distribute pamphlets (DFEH-185, which can be found here) on sexual harassment and ensure that employees are provided a copy of the employer’s sexual harassment policy by hard copy, email, or intranet.
  6. Employers must translate their sexual harassment policy into any other language when 10% or more of the employer’s workforce speaks that language.
  7. Employers now must keep copies of all materials distributed or used in mandated sexual harassment training classes for two years, including PowerPoint slides, handouts, attendance records, questions submitted to the trainer, and responses given by the trainer.

These new regulations will likely require employers to make significant changes to their existing employee handbooks and sexual harassment policies.  Y0u can find the full text of the regulations here.

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