Employment Requirements

The Employment section, which accounts for 20% of the law and business exam, evaluates a contractor's understanding of hiring, supervising, training employees, and managing payroll and record-keeping requirements. This includes knowledge of labor laws, non-discriminatory hiring practices, payroll processes, and the rights and obligations of both employers and employees under federal and state laws. Understanding these aspects is essential for maintaining a compliant, productive, and fair workplace, which is critical for the successful management of a construction business.

Employment

Pre-Employment

Multiple laws govern equal employment opportunities and prohibit employment discrimination.  In order to protect a business from potential lawsuits, and to maintain good employer status, the laws must be understood and abided by.

The California Labor Code

The California Labor Code deals with employment issues and regulations, protecting employees from potential employer abuse.  The Division of Labor Standards Enforcement, as a part of the Department of Industrial Relations, enforces the California Labor Code and has the authority to visit any employment location within California.

Unfair employment practices listed in this law are:

• Using discriminatory job application forms;
• Inclusion or exclusion from training programs through group membership;
• Hiring or dismissing an employee due to group membership;
• Using different pay scales, working conditions, or privileges due to an employee’s group membership;
• Using coercion or threats to interfere with an employee’s political activities and affiliations;
• Extracting promises from an employee not to join or organize a union, as a hiring condition;
• Discriminating or dismissing an employee for filing a discrimination complaint, or testifying as a witness at a discrimination hearing;
• Discrimination in any way due to being over the age of 40;
• Testing an employee with a polygraph test in the application process. This rule applies to the private industry only.

If an employee feels that they are victims of discrimination, they may file a complaint with the Labor Commissioner, who is responsible for addressing the following claim types:

• Wages, incidental expense accounts, or advanced expenses;
• Damages based on misrepresentation of employment;
• Penalties for non-payment of wages;
• Bond money not returned to the employee;
• Loss of wages due to discharge or garnishment;
• Workers’ compensation benefits awards;
• Vacation pay, severance pay or other compensation as part of wage agreement;
• Return of employee’s tools detained by another person;
• Mechanics’ liens and other liens concerning employees.

Discrimination and Harassment in Employment

The Department of Fair Employment and Housing (DFEH) and the California Fair Employment and Housing Act protect applicants, employees, and independent contractors from illegal discrimination and harassment based on race, color, ancestry, national origin, religion, creed, age (over 40), mental or physical disability, gender (includes pregnancy, childbirth, breastfeeding or related medical conditions), sexual orientation, gender identity, gender expression, medical condition, genetic information, marital status, military or veteran status.  Employers must take all possible measures to prevent harassment and discrimination against job applicants or employees in hiring, promotion, termination, or any term, condition, or privilege of employment.

Hiring

Employers must be well-versed in the labor code, since hiring the right employee can be a challenging process.  Successful employers hire ambitious, hardworking individuals thereby avoiding hiring disasters, since employees can make or break a business.  The right employee will produce high-quality work and care about their job, while an incompetent employee decreases productivity, is costly to the work environment, and leads to the potential loss of revenue and customers.

Asking the right interview questions is crucial when searching for the right employee.  The following top 10 interview questions can assist the interviewer in hiring the appropriate candidate:

• Tell us about yourself.
• What do you know about our business/company?
• Why do you think you would be a great fit for this position?
• How will you contribute to or add value to our business/company?
• What past accomplishments gave you satisfaction?
• How do you measure success in this position?
• What are your future goals and where do you see yourself in 5/10 years?
• What are your strengths and weaknesses?
• What is your response to working under pressure?
• Tell us about what motivates you and what frustrates you in work environment?

Job Interview Questions an Employer Must Avoid

The California Fair Employment and Housing Act protects applicants from discrimination.  Employers must avoid asking the following explicit questions during an interview:

• What is your religious or political affiliation?
• What is your age?
• Where were you born?
• Are you married, single, engaged, divorced, separated, or widowed?
• Where are your parents from?
• Are you a United States citizen?
• Have you ever been affiliated with a union?
• What race are you?
• Have you ever suffered from a disability?
• NOTE: an employer may ask if the employee has any medical conditions that will prevent them from doing their job (i.e., epilepsy).
• Have you ever been arrested?
• NOTE: An employer may ask if the prospective employee has been convicted of a felony or misdemeanor.

Immigration and nationality

The Immigration and Nationality Act mandates that employers must authenticate the eligibility of a new hire for employment. The forms for the Immigration and Naturalization Service (I-9) should be correctly filled out and kept on file for a minimum of three (3) years from the date of hiring or one (1) year after the employment ends, whichever is later.

The I-9 form, along with the necessary supporting documents, must be completed within three (3) days of hiring an employee. It's a legal requirement for employers to keep a completed I-9 form for each of their employees. However, exceptions are made for individuals who are:

• Engaged in irregular or occasional domestic work in a private home;
• Employees of independent contractors;
• Not working physically within the U.S.;
• Hired before November 6, 1986.

Americans with Disabilities Act (ADA)

The Americans with Disabilities Act (ADA) is applicable to employers with a staff of 15 or more. The ADA prohibits any form of employment discrimination. The key provisions of employment under the ADA include:

• Equal opportunities must be provided to eligible candidates with disabilities during hiring, testing, and shortlisting;
• Reasonable adjustments should be made in the job for applicants/employees with disabilities, enabling them to efficiently execute their job responsibilities;
• Equal opportunities should be extended to all during promotions or benefits.

Discrimination against qualified individuals with disabilities, whether they are job applicants or current employees, is prohibited. A person is deemed disabled if they have a physical or mental impairment that substantially restricts one or more major life activities. Such life activities encompass seeing, hearing, breathing, walking, talking, manual tasks, learning, self-care, and working.

People with disabilities can include those with:

• Conditions such as Epilepsy, paralysis, HIV infection, AIDS, among others;
• Significant impairment in hearing or vision;
• Intellectual and developmental disabilities;
• Specific learning disability;
• Post-Traumatic Stress Disorder (PTSD).

Impulse-control and sexual behavior disorders generally do not fall under the ADA's protection.

The term "qualified" is key in this context. For instance, a person in a wheelchair wouldn’t be qualified for a roofing job, as the job requirements cannot be reasonably adjusted to accommodate the disabled person.

Whistleblower's protection

In California, laws exist to protect employees in both private and public sectors from retaliatory actions after they report suspected or actual violations of federal or state laws by their employers to authorities or law enforcement agencies. If an employer, or anyone representing the employer, terminates an employee for making such a report, the employee has the right to initiate a whistleblower lawsuit. Acts of retaliation can potentially lead to criminal charges.

Requirements for Newly Hired Employees

For an employer to legally onboard a new employee, the following obligations must be met:

• Employee’s Social Security Number: It's mandatory for an employee to provide their Social Security Number before commencing work. This should be directly sourced from the individual’s Social Security card.
• Completion and Signing of the Federal W-4 form: The Federal W-4 tax form must be filled out by the employee. The number of exemptions claimed on this form informs the amount of Federal taxes that will be deducted from the employee's wages.
• Employment Eligibility Verification Form (I-9): The I-9 form is used to confirm the identity and employment eligibility of individuals hired in the United States.
• Reporting and Form DE 34: As per federal law, all employers must report any newly hired employees working in California to the Employment Development Department (EDD). This reporting should occur within 20 days of their start-of-work date or first day of work. Form DE 34 is used for this reporting process.

Employee Handbook

Employee handbooks serve as a vital tool for employers to outline their company's policies and procedures in detail. The formulation of an employee handbook is especially advantageous for emerging companies as the codified guidelines bolster managerial decisions. The utilization of an employee handbook aids in safeguarding a company from potential lawsuits, while also providing protection to the employees.

Working hours

According to the California State Labor Code, a typical workweek is defined as five (5) eight (8) hour days. While employee agreements can allow for alternative work schedules, the standard workweek should not exceed 40 hours. Overtime, at a minimum rate of 1-½ times the regular pay, is required for any hours worked beyond the standard eight (8) hours per day. If an employee works more than 12 hours in a single day, the overtime rate should be double the regular pay. On the seventh (7th) consecutive workday in a workweek, the first eight (8) hours should be paid as overtime at 1-½ times the regular rate of pay. This applies even if some of the days were only part-time. If more than eight (8) hours are worked on the seventh (7th) workday in a workweek, then overtime should be double the regular pay. This stipulation does not apply to employees working fewer than 30 hours in a week or six (6) hours in a workday of that week.

The California State Labor Code mandates that employers must provide employees with one day of rest in every seven days. The employer should not require their employee to work more than six (6) consecutive days. However, an employee can work more than six (6) consecutive days if they are paid overtime as per the law.

Breaks

As stipulated by the California State Labor Code, employers are obligated to offer their employees a paid rest break of a minimum of 10 minutes for every four (4) hours worked in a day. In addition to any restrooms available, the employer must provide suitable facilities for these rest periods. If an employee's total daily work duration is less than three and a half (3-½) hours, a rest period is not mandated.

For employees working more than five hours, a lunch break of at least 30 minutes is compulsory. If the work duration is less than six hours, the meal break can be waived by the employee. During this break, employees must be relieved of all duties; however, this break period is unpaid. An employer and their employee can mutually agree on a paid on-duty lunch time. If an employee is working more than 10 hours a day, a second meal break of at least 30 minutes should be provided (this meal break may be waived if the total hours worked are 12 hours or less and all parties agree).

Employing Minors

In the majority of scenarios, individuals who are under the age of 18 are safeguarded by the child labor laws of California and are required to possess a work permit to legally work within the state. Employers are required to have a valid Permit to Employ and Work. Typically, this permit is issued by an authorized person at the school the minor is attending, for specific employment at a defined location (excluding the entertainment industry). When school is not in session, the permit can be procured from the superintendent of the school district. The permit that is issued during the school year becomes invalid five days following the commencement of the next academic year, but can be renewed.

Work hour restrictions for minors are dependent on the minor's age. Minors aged 14 to 17 are allowed to work on non-school days and during non-school hours on school days. Minors aged 14 or 15 can work up to three hours on a school day or up to eight hours on a non-school day, but not exceeding 18 hours in a school week. However, there is an exemption if the work is necessary for their own support or that of their family. Minors aged 16 or 17 can work up to four hours on a school day or up to eight hours on a non-school day, with the total working hours in a week not exceeding 48 hours.

Only office, clerical, or sales positions may employ minors aged 14 or 15. Minors are prohibited from working in jobs that pose considerable hazards, such as:

• Work involving scaffolding, roofing, or excavation;
• Operating heavy-duty power tools like saws, punching or shearing machines, etc.;
• Operating motor vehicles;
• Certain manufacturing jobs, including brick or tile manufacturing.

Employers are obligated to pay minor workers at least the minimum wage and overtime rates as established by the California Industrial Welfare Commission. Employers are also required to maintain on file the "Permits to Employ and Work," which can be inspected at any time by school officials or officials from the Division of Labor Standards Enforcement. If an employer is unable to produce these permits when asked, they may be liable for a fine of $500 for a first-time offense.

Payment for Wages

Under the California Labor Code, employers are required to display a notice in the workplace that informs employees about the location and schedule for wage payments. It is mandatory for employers to pay their employees a minimum of twice per month.

Employers are accountable for the costs of any necessary medical examinations required for employment, and these costs should not be subtracted from the employee's wages. Any agreement between an employer and an employee where any part of the employee’s wages are given back to the employer is not acceptable. With the employee's written consent, an employer can deduct the costs of life insurance, medical plans, retirement plans, or similar programs from an employee’s wages.

If an employer neglects to pay any wages owed to an employee, the employee has the right to lodge a complaint with the Labor Commissioner. Employers are prohibited from punishing an employee for submitting such a complaint. If an employer deliberately fails to pay legally due wages, the employer may be subject to penalties imposed by the Labor Commissioner.

If a bank returns an employee’s wage check due to a deliberate action or error by the employer, such as insufficient funds or a non-existent account, the employer may be liable for a penalty of up to 30 additional days’ wages payable to the employee. This penalty period ends before the 30-day deadline if the employer pays the employee or if the employee initiates a lawsuit to recover the lost wages. Employers may be exempt from this penalty if they can demonstrate that the mistake was not deliberate.

Paid Sick Leave (1 hour for every 30-hrs worked)

From the first day of employment, employees start accumulating paid sick leave. However, the use of this leave is allowed only after the completion of 90 days of employment. By law, employers are obligated to provide and permit employees to utilize a minimum of 24 hours (three (3) days) of paid sick leave annually. Employers have the discretion to enact a paid sick leave policy as either "accrual" or "no accrual/up-front".

Timecards

Employers utilize timecards to monitor the hours worked by employees, along with breaks and meal times. While timecards or timesheets are predominantly used for payroll calculations, experienced employers also leverage this data for staffing and recruitment purposes. A standard timecard includes the employee's name, spaces for time logging, and a place for the employee's signature. With the advent of technology, timecards or timesheets are predominantly maintained digitally rather than on paper.

Payment Laws

There are specific labor laws that are excluded from the California Labor Code, mainly those relevant to positions that are funded or assisted by the federal government.

Davis-Bacon Act - This Act dictates that employers must compensate employees with a prevailing wage for federal projects.

Walsh-Healey Public Contracts Act - This Act outlines the minimum wages, overtime, and safety and health standards for contracts exceeding $10,000 that have supplied materials, supplies, articles, or equipment to the federal government.

Contract Work Hours and Safety Standards Act - This Act establishes the overtime and safety standards for contractors and subcontractors on federal service contracts and federally funded and assisted construction contracts exceeding $100,000.

Federal taxes

Every employer, irrespective of the number of employees, is obligated to withhold and remit both federal income tax (FIT) and Social Security (FICA) taxes. When an individual or a business hires employees, it becomes necessary for the employer to obtain an Employer Identification Number (EIN) for federal tax return purposes. The employer must deduct FIT and FICA from the employees' wages and remit the same to the relevant agency on a quarterly, monthly, or semi-monthly basis, depending on the requirement.

The federal payroll taxes that the employer is responsible for withholding and/or matching include:

• Federal Income Tax: This tax must be deducted from the wages of all employees unless the employee is exempt. The amount withheld is calculated based on the wages earned, the schedule of wage payment, and the number of exemptions the employee has claimed on their W-4 Form.
• Social Security and Medicare Taxes (FICA): FICA, which is a percentage of an employee’s wages, must be matched by the employer. This is typically referred to as “50/50”, indicating that 50% is the employer’s obligation and 50% is the employee’s obligation.

Employers are required to file quarterly federal employment tax returns with the Internal Revenue Service (IRS). These tax returns help to compute the federal income and Social Security taxes withheld from employee wages during a particular period, and the amount of matching Social Security tax remitted by the employer. If the withheld amount exceeds the maximum limit, then the employer may need to make deposits more frequently than the usual quarterly tax returns filing schedule.

Employers are obligated to remit a Federal Unemployment Tax (FUTA) under the following circumstances:

• If they employed one or more employees in 20 or more different calendar weeks within a year.
• If they paid wages of $1,500 or more in any calendar quarter of a year.

FUTA is the responsibility of the employer and should not be deducted from the employees’ wages. Employers must file an annual FUTA return with the IRS, but the deposit schedule for this tax is typically quarterly, if not more frequently. This return is filed separately from the FIT and FICA returns. The employer is liable for a percentage of the first $7,000 paid to each employee for the calendar year.

FORM 941

Form 941 is a document that employers generally utilize to report the federal income taxes and social security taxes that have been deducted from an employee's salary, as well as to pay the employer's share of the social security or Medicare tax. More precisely, Form 941 is used for the following purposes:

• Reporting the total wages paid to employees.
• Documenting the tips that employees have reported to the employer.
• Accounting for the federal income tax withheld from salaries.
• Recording both the employer's and employee's contributions to the social security and Medicare taxes.
• Documenting any additional Medicare taxes withheld from the employee's wages.
• Adjustments made in the current quarter for fractions of cents, sick pay, tips, and group-term life insurance related to social security and Medicare taxes.
• Claiming the payroll tax credit for small businesses that increase research activities.

State taxes

In California, employers have the responsibility to withhold and submit employment taxes, along with state payroll and unemployment insurance tax. Employers must register with the Employment Development Department (EDD) within 15 days or as soon as they have disbursed over $100 in taxable wages. Employers will receive an identification number to be used on state tax returns and for all correspondence. As per Assembly bill (AB) 1245, it is mandatory for all employers to file employment tax returns, wage reports, and payroll tax deposits electronically to the EDD.

The employer is responsible for the following State payroll taxes:

• State Personal Income Tax (PIT) Withholding: Personal income tax functions similarly to Federal Income Tax and is deducted from an employee's wages. This tax is calculated based on the employee's Withholding Allowance Certificate (Form W-4 or DE 4) that is on file with the employer.
• State Disability Insurance (SDI): This is calculated as a percentage of an employee's gross earnings and is paid by the employee until a specified limit is achieved. Once this limit is reached, the employee is not required to pay SDI for the rest of the year. SDI provides a safety net for employees unable to work due to illness or injury. SDI premiums are collected via payroll taxes. Self-employed individuals can opt into this program by electing coverage and paying premiums based on their IRS quarterly reporting.
• State Unemployment Insurance (UI): Employers may be obligated to pay State Unemployment Insurance. This system determines the tax amount payable by providing an employer with a rating based on the volume of unemployment claims filed by former employees. This rating then determines the percentage rate payable by the employer.
• State Employment Training Tax (ETT): The State Employment Training Tax (ETT) is borne by employers to strengthen workers, advance businesses, and stimulate California's economy. Employers subject to the state employment training tax pay 0.1% on the first $7,000 in wages paid to each employee in a calendar year.

Employers are required to submit quarterly employment state tax returns to the EDD. These tax returns outline the state personal income taxes and disability insurance contributions withheld from employee wages during the period, as well as the employer's contribution to unemployment insurance. Depending on the requirement, this tax may call for more frequent deposits than the quarterly tax returns.

The IRS acknowledges the quarterly dates listed in the below table. Quarterly returns are due by the end of the month following the quarter's end. For instance, the 1st Quarter ends on March 31, so tax returns are due by April 30th of the same year.

Dates When Filing Quarterly*

QuarterDurationEndingApril 301st QuarterJanuary through MarchMarch 31April 302nd QuarterApril through JuneJune 30July 313rd QuarterJuly through SeptemberSept 30Oct 314th QuarterOctober through DecemberDec 31Jan 31

• Due dates are subject to change. Visit irs.gov to stay up to date.

Filing W-2 Forms

All employers are required to submit a W-2 form for each of their employees to the IRS. This form is required for employees who have had any income, social security or Medicare taxes withheld, would have had income taxes withheld if they had claimed one or no exemptions on their W-4 form, or have received at least $600 in wages. The deadline for employers to provide employees with copies of their W-2 forms is January 31st of the following year. For instance, a W-2 form reporting income from January 1, 2018, to December 31, 2018, should be given to employees by January 31, 2019.

Filing 1099 Forms

Contractors who are self-employed need to report their untaxed earnings for the calendar year to the IRS using a 1099 form. If a primary contractor pays a subcontractor over $600, they are required to distribute 1099-MISC forms to them. These forms should be given to the relevant subcontractor by January 31 at the latest. The copy to be filed with the IRS is due by February 28 if mailed or by March 31 if submitted electronically.

IRS Penalties

The IRS imposes a $50 penalty for each W-2 or 1099-MISC form that is filed late but within 30 days of the due date. The penalty increases to $100 for forms filed by August 1 and $260 for forms filed after August 1 or if the forms are incorrectly filed. For example, an employer would face a $100 penalty for each W-2 form filed on July 1.

Net Pay Calculation and Check Distribution

Net pay refers to the final amount an employee receives after all the necessary deductions have been made. The calculation for net pay is as follows:

Net Pay = Gross Pay – (Taxes + Deductions)

Accompanying each paycheck, employees should receive a detailed statement that outlines their earnings and the computation of their net pay.

Record Keeping for IRS Tax

A contractor who is also an employer is obligated to retain all employment and tax records for a minimum duration of four (4) years. This documentation includes:

• Complete details such as names, addresses, Social Security numbers, and job roles of all employees;
• The employer’s Federal EIN, state identification number, and sales and use tax account number;
• Data on all wages, annuities, and pension payments made to all employees, including the amounts and dates;
• Employment timelines for all employees, including the dates of hiring and termination;
• Copies of all income tax withholding certificates (W-4 Form) for employees;
• Information on all payments made to employees during their absence due to sickness or injury, including the amounts and dates, whether such payments were made by the employer or a third party;
• Records of all tax deposit transactions, including the amounts and dates;
• Returns reporting FUTA, FICA, federal and state income tax withholding, and the amounts of all wages that are subject to these taxes.

Payroll Records

Employers must keep records related to payroll for at least three (3) years after an employee's termination. This includes documents such as payroll records, collective bargaining agreements, and sales and purchase records. Any records that are used to calculate wages should be kept for a minimum of two (2) years. These might include time cards, piece work tickets, wage rate tables, work and time schedules, and records of additions or deductions to wages.

Quitting

Employees have the legal freedom to leave their job at any point. If an employee quits without providing notice in advance, the employer is required to pay them within 72 hours of their departure. However, if the employee gives at least 72 hours' notice before quitting, they should be paid all due wages at the time of their resignation.

Firing

Under the California State Labor Code, employers have the legal right to expect their employees to perform their duties reasonably. If an employee fails to meet these expectations or is found guilty of misconduct, the employer can terminate their employment. If an employee is fired due to failure to fulfill their duties, the wages they have earned up until their termination must be paid immediately. The final payment should include any unused vacation pay and earned commissions. It is important to note that unused sick days are not included in the final payment.

Tardiness

In cases where an employee does not report to work at the arranged time, the employer has the right to subtract from the employee's wages an amount equivalent to what the employee would have earned during the missed time. Should an employee be tardy by less than 30 minutes, the employer can deduct wages equivalent to 30 minutes of work.

Unions

Employees are entitled by the Labor Code to either affiliate with an existing labor union or establish a new one. Employers are forbidden from interfering with an employee's decision to join a union or discriminating against employees who are attempting to form or join a union. As stated in the Fair Employment and Housing Act, it is unlawful for employers to make union membership a precondition for employment. However, once an individual has been employed, the law allows employers to mandate union membership.

Collective Bargaining Agreement

A collective bargaining agreement is a negotiated contract between an employer and a labor union. Any breach of this agreement by either party could potentially lead to legal consequences. If the business is sold or transferred in any way, the agreement becomes null and void. However, there may be a successor clause in the agreement, which would carry over to the new business owner.

Note: A successor clause remains in effect for three (3) years from the date the collective bargaining agreement takes effect, or until the termination of the agreement, whichever comes first.

Labor disputes

Labor disputes can be initiated by either the labor union or the employer when they fail to agree on a contract:

• Strike – This is when the workforce decides not to work until there is a satisfactory agreement in place.
• Lockout – This occurs when the employer disallows employees from entering the workplace until a suitable agreement is made.

The National Labor Relations Act (NLRA)

The NLRA provides protection to all non-Federal and non-state employees in the event of a strike aimed at improving working conditions. According to the NLRA, employers cannot intimidate employees with threats of job or benefit loss, or the closure of the workplace. During a strike or lockout, the law permits an employer to employ temporary workers as replacements during the period of the labor dispute. However, the employer must adhere to two key restrictions:

1. The employer must disclose in the job advertisement that there is an ongoing labor dispute and that the job openings are intended to replace the workers who are on strike or locked out.
2. The employer is forbidden from hiring a professional strikebreaker. The Labor Code defines a professional strikebreaker as a person who has worked for at least two different employers that have been involved in a strike or lockout consecutively (on at least three separate occasions) in the past five years, or who offers their services to employers during a strike for the purpose of replacing the striking workers. An employer or strikebreaker who knowingly hires professional strikebreakers could face a fine of up to $1,000, a maximum of 90 days in county jail, or both.

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