Here’s a Tip

I own a restaurant and I’m not sure what to do with the tips that my servers receive. Do I need to keep track of their tips? If a customer uses a credit card, can I subtract the credit card processing fee from the tip? What about tip pooling?

Money that customers pay, give or leave for an employee, over the amount actually owed for the goods or service, is considered a tip (or gratuity) and it is the sole property of the employee to whom it was given.

In California, owners and managers are prohibited from sharing in or keeping any portion of gratuity that customers give to employees. You may not make wage deductions from gratuities, or use gratuities as a credit against wages, since tips are voluntarily left by the customer and never belong to the employer. Employees must be paid the minimum wage, on top of any tips they may receive.

A service charge, unlike a tip, is an amount that an establishment charges customers as part of the service contract. Interestingly, employers need not share any portion of the service charge with employees.

Employers who fail to keep accurate records of all gratuities can be charged with a misdemeanor, punishable by a fine not exceeding $1,000, or by imprisonment for not longer than 60 days, or both.

If you run a large food or beverage establishment, use IRS Form 8027 (Employer’s Annual Information Return of Tip Income and Allocated Tips) to file an annual return of receipts for food or beverage operations and tips reported by employees.

When a customer uses a credit card to pay their bill and adds a tip, you are required to pay your employee the tip in full, no later than the next regular payday following the transaction. You may not deduct credit card processing fees or costs from a tip.

You may require your employees to share tips (tip pooling) with other staff that provide service, as long as you don’t keep any tips yourself. In a restaurant, this would include employees who provide direct table service, such as waiters and waitresses, busboys, bartenders and hosts or hostesses. Owners, managers and supervisors may not receive compensation from the tip pool.

Violation of any of these rules could end with a wage claim before the Department of Labor Standards Enforcement (DLSE), a civil lawsuit for unpaid wages, or both. The DLSE treats underpayment and nonpayment the same and regularly seeks waiting time penalties and liquidated damages in both situations.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached atmary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Crowdfunding: rewriting the investment rules

Dear Mary, I’d like to start a new business, but I need money. I don’t know any big investors, but I have a lot of friends who believe in my idea and can invest a little. Is there a way for me to have a lot of little investors, instead of a few big ones?

You are not alone. In fact, there are so many other entrepreneurs in similar circumstances that earlier this year, Congress passed a law to address your situation. The Jumpstart Our Business Startups (JOBS) Act of 2012 allows for a wider pool of small investors, known as “crowdfunding.”

You may have already heard of websites like Kickstarter.com, where people can support business ideas by making small donations in exchange for something of value. The difference between these websites and the crowdfunding concept boils down to whether you’re getting a T-shirt or equity in the supported company. Under the JOBS Act, you could invest in a company for a relatively small amount of money, and receive an ownership stake.

Why isn’t everyone doing it? Well, it’s not quite legal (yet). The Securities and Exchange Commission (SEC) has until the end of the year to draft the crowdfunding regulations, but they’ve already requested more time.

We don’t know exactly what the final rules will look like, but there are some things we’re pretty sure about. Crowdfunded offerings will be limited to $1 million.

Under the new rules, crowdfund investors won’t have to qualify as “accredited investors,” which will allow these investors to invest in “the next Facebook” (or neighborhood food truck) without satisfying the $200,000 income or $1 million net worth accredited investor tests.

Investors with less than $100,000 in net assets or annual income will likely be limited to investing the greater of $2,000 or 5 percent of their annual income.

One of the big unknowns is how the SEC will regulate “solicitation,” which really just means securities advertising. If the regulations are liberal, we may see television commercials for the “next big thing,” or magazine ads offering investment opportunities.

Crowdfunding is very exciting — for businesses as well as for people who just want to make small investments in innovative businesses and ideas. Potentially, it could open up the previously secretive venture capital markets and level the playing field.

Of course, any time we have a new regulation, there are people who will abuse it. As an investor, be on the lookout for potential scams. And as a business, remember that you may be held liable for fraudulent offers posted on a crowdfunding portal.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached atmary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Whose job file is it, anyway?

In my last column, we discussed whether an employer must provide a current or former employee access to his or her personnel file and payroll records. This week, we’ll look at the specific information an employee may review.

The general rule is that a current or past employee has the right to inspect his or her personnel and payroll records, but what does that include?

Typically, you need to retain and provide his or her job application, payroll authorization form, wage garnishments, education or training certificates, performance appraisals and reviews, attendance records, and all employee action documents, including commendations, warnings, disciplinary actions, layoffs, leaves of absence, vacations and termination notices.

As with most laws, there are exceptions. You need not provide access to reference letters, nor are you required to provide access to records relating to a possible criminal offense. Employees have no right to access records obtained before the employee was hired.

If an employee or job applicant makes a request for any documents that they have signed relating to obtaining or keeping a job, you must provide them a copy, not just allow them to inspect.

The reference letter exception excludes not only pre-hire letters, but also responses from persons who were asked about the character or ability of the employee after the person was hired.

If there are reference letters in an employee’s file and you don’t want to share them or they’re confidential, you may choose to provide the former employee with the author’s name or a comprehensive summary of the contents.

If the file includes any third-party confidential communications, those people have a right to keep their names, addresses and telephone numbers confidential.

I’m not sure whether it applies to your particular business, but if your employees are exposed to potentially toxic materials or harmful physical agents, you must provide accurate records of that exposure.

Be careful with the timeline in allowing an inspection. If you receive a written or oral request from a current or former employee to inspect or copy his or her payroll records, you are required to comply as soon as possible, but no later than 21 calendar days from the request. If you don’t comply in time, the employee can recover a penalty from you.

It’s also a good idea to keep a record or log of employee inspection requests, including when the request was made, whether you allowed the inspection, and if so, when it took place.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached atmary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

File this under “Important!”: Employee Files

Dear Mary, I terminated an employee recently and they just sent me a letter demanding that I send them their employee file and payroll records. Am I required to do this? What do they have access to?

You raise two major issues: 1) are you required to give an employee their employee file; and 2) what specific information must you provide? In this week’s column, I’ll answer the first question. Stay tuned for part two, in which we’ll look at what particular documents they can see and which documents you do not have to provide.

To answer the first question: You absolutely must allow employees reasonable access to inspect their personnel file and the opportunity to inspect or copy their own payroll records. That doesn’t mean that you necessarily have to send them a copy of the contents of their file, or that they even have the right to copy their file — it just means that they have the right to inspect it.

To make it easier for your employees, you should either keep a copy of each employee’s personnel file at the employee’s primary work location and make those records available within a reasonable amount of time after an inspection request, or allow the employee to inspect the records at the location where you keep them. Regardless of how you store records, employees may not be penalized or lose wages when they inspect their file.

You must allow inspection at “reasonable” times. “Reasonable” usually means during the office’s regular business hours, or during the employee’s regularly scheduled work shift. You need to give the employee sufficient time to thoroughly inspect their record(s), which will depend on the volume and content of the file.

Having said that, if you receive a written demand from a recently terminated employee to provide their file, it’s probably a good idea to send a complete copy in the manner requested. What you don’t want is a former employee who claims that you added or deleted items later to cover any wrongdoing.

How long do you have to allow a former employee the right to inspect? Employees may inspect their records until the statute of limitations expires on any claims. Keep in mind that a breach of contract claim has a statute of limitations of four years, so you may have to allow inspections for at least that long.

You may be liable for civil penalties and injunctive relief for failure to allow an employee to access their file. There are also different rules for public and large employers.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

The Many Marks of Trademarks

Dear Mary, I have a new product that’s about to go on the market. I’ve noticed that some of my competitors have “TM” after the product name, or an “R” with a circle around it. What’s the difference? Do I need to add something after the name of my product?

There are several different designations for trademarks and service marks, and they each mean something different. A trademark is a word, phrase, symbol and/or design that helps consumers identify the source of a product and distinguish it from products owned by others. A service mark identifies the source of a service instead of a product. People often use “trademark” to mean both trademarks and service marks. Companies also sometimes try to protect sounds, smells, and even tastes as non-traditional trademarks, although registering source-identifying taste is nearly impossible.

A letter “R” with a circle around it signifies that the name is a registered trademark, meaning that the mark is registered with the U.S. Patent and Trademark Office, or another country’s trademark office. An owner of a mark can apply for federal registration, although it’s not required. Registration puts the public on what’s called “constructive” or “legal” notice that the owner claims an ownership interest in the mark. The ® symbol may be used only after an applicant receives approval for a registration, not while an application is pending.

The letters “TM,” often in superscript, typically means that the owner does not have federal registration of the mark, but is claiming either common law rights or a state registration. Anyone can use this symbol if they wish to claim a mark as their own. No paperwork or permission is necessary to use the TM symbol.

The letters “SM,” again often in superscript, are used just like the letters “TM,” except they refer to an unregistered service mark identifying services instead of goods.

In your case, if you do not want to register your trademark, but you would like to protect your mark and claim it as your own, I recommend putting “TM” next to it. Be sure that your mark truly is unique — if someone else is using the same or similar name you might be infringing on their trademark.

Registering your mark provides many advantages, including putting the public on notice of your ownership of the mark. There is a legal presumption that if your mark is registered, you have the exclusive right to use the mark. This can be extremely important later if someone tries to sell a product that looks or sounds like your mark.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached atmary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

We’re not from the government, but we’re here to help

Dear Mary, I incorporated my business a few months ago and today I received a letter that looked very official. It didn’t actually say whether it was from the state, but it said that I’m required to register and make some kind of statutory filing. What is this about? Why is it so expensive?

I often receive these notices after forming new business entities for clients. They come in the mail, and can look very official. At first glance, they appear like they come from the California Secretary of State, or another agency, but really, they are from a private, third-party organization. Like other business scams, these solicitations are sometimes sent from criminal enterprises and responding can trigger further fraud attempts against victims.

These solicitations typically ask for an exorbitant fee for something they say is required. The one I see frequently states that the addressee must comply with California Corporations Code Section 1502.1, “Statutory Filling” (the typo is theirs, not mine). For the mere annual cost of a few hundred dollars, they’ll take care of this compliance “requirement” on my behalf.

In reality, the Secretary of State provides nearly every form you could possibly need to file, including instructions on how to file them. Would you rather pay an unknown organization $495 to file a simple one-page Statement of Information form, or complete the form yourself and pay the nominal $20 to 25 filing fee?

Another direct-mail scam involves services that offer to prepare corporate minutes. Yes, corporations are required to prepare annual meeting minutes, but those minutes are not filed with the Secretary of State. We recommend that an officer, director or a business attorney prepare or review minutes.

The first thing to examine on a potentially deceptive notice is the sender. Look for fine print that says something like, “This service has not been approved or endorsed by any government agencies.” Does it require payment to anyone other than the Secretary of State?

All of the notices I’ve seen quote or paraphrase the actual California Corporation Code in a manner that makes it looks rather menacing. If you read the notice carefully, you might find it full of typographical or grammatical errors.

Be careful of these forms, as they really can appear official and they are incredibly misleading. Of course, if you’d rather pay someone else to take care of these filings, there are several reputable service providers, but the Secretary of State accepts mailed and in-person submission of forms directly by the person or entity.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached atmary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Employee Bonuses

Dear Mary, I’m researching ways to increase sales and I think I’d like to offer bonuses to my employees. Are there any special rules I should know about paying bonuses?

A cash bonus is a payment that is based on performance and earned at the end of a bonus period. Employers often use cash bonuses to incentivize employees to increase performance or productivity.

The terms of any bonus program should be in writing, and the arrangement must comply with wage and hour laws. You should consider whether a team or group of employees will have the same bonus plan, or whether you will negotiate separate formulas for each employee.

Many employers require that an employee remain employed through the end of the performance period in order to receive the bonus. Setting up annual or quarterly bonuses instead of monthly bonuses can help retain key employees. I recommend expressly stating in your written bonus plan that the continued employment requirement is for the purpose of employee retention.

You could also pay bonuses in an ad hoc manner, but if the point of having a bonus system is to reward top performance, it’s probably a better idea to have targets set in advance so that employees know what they’re aiming for.

Consider what kind of performance targets are reasonable. Your bonus scale could be based on net income, sales, revenues, or whatever works best for your business. Managers can receive bonuses for their team performance, or for achieving set metrics. Bonus timing should be set in a way that works for your business. Seasonal businesses often pay bonuses at the end of their busy season(s).

Keep in mind that performance doesn’t always mean an increase or positive result. Depending on your business or your financial situation, sometimes maintaining the status quo or limiting losses can be extremely beneficial to the company and worthy of a bonus.

The terms of your bonus agreement should, at minimum, explain which employees are eligible to participate, how they become eligible, how bonuses will be calculated, and the period of time in which the performance will be measured.

If you are a publicly traded company or wish to offer equity bonuses, you should check with your attorney before you structure your bonus plan. There are many pitfalls about certain forms of performance-based compensation at the state and federal levels.

Employers must be careful not to run afoul of overtime rules for time or attendance-based bonuses, unless the employer truly retains absolute discretion as to whether to award a bonus. A “Christmas bonus,” in which the employer decides whether to give a bonus and how much to award, is a good example of a discretionary bonus.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached atmary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Unequal pay for equal work?

Dear Mary, One of my workers recently raised concerns that she is being paid less than her male counterpart. They have similar positions and the same amount of experience, but different job titles. Should I be concerned?

Under the Equal Pay Act, employers are prohibited from paying employees of one sex at a lower rate than employees of the other sex for equal work. To be covered as “equal,” the jobs must require equal skill, effort, and responsibility, and must be performed under the same working conditions.

In order to prove a pay discrepancy, the employee must show that employees of the opposite sex are paid different wages for equal work. Determining what’s “equal” involves two questions: 1) Do the jobs have a common core, meaning a significant portion of the work is identical?; and 2) Are there additional tasks required of one job that are not required of the other, making the jobs substantially different?

If the two jobs are equal, the discrepancy in pay may be acceptable if the employer can show that the difference in wages is due to one of four statutory exceptions: 1) a seniority system; 2) a merit system; 3) a system that measures earnings by quantity or quality of production; or 4) any other factor besides gender.

Exceptions won’t help an employer if they are pretextual, meaning hiding actual discrimination. A defensible example of a seniority exception to the law against unequal pay for equal work is if one employee has 20 years of experience, and another employee has no experience, it seems fair to compensate the employees differently, regardless of sex.

Likewise, if you have two commission-based employees whose base pay is equal, and they are otherwise given equal treatment, then it’s not considered discrimination if one of the employees sells more, and thus, makes more in commissions.

In your case, a mere difference in job titles would seem to be insufficient to justify a difference in pay. There needs to be a legitimate difference in the tasks and qualifications for each job in order to have separate job titles with different pay.

Keep in mind that an employer’s intent is irrelevant. It doesn’t matter if you meant to discriminate or not. The gender pay gap remains a big issue in the U.S. — in 2009, women’s annual income was reportedly only 75.7 percent of men’s. Women reportedly still earn less than men in nearly every occupational category.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached atmary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Online Reviews

Dear Mary, I recently found out that a customer left a bad review of my company on a review website. Is there anything I can do about it?

As a business owner, it can be daunting to know that customers can post reviews of your business at any time, with very little oversight by the host website.

Word of mouth continues to be the best, most cost-effective advertising any business can use. With the growth of online review sites such as Yelp, word of mouth has become even more popular and people are rating everything from their plumber to their dentist. Many people are skipping the Yellow Pages and heading straight for the Internet.

But what if a rogue customer gives you a critical or hostile review, or worse — a review with false content?

If you can prove that a malicious review contains untrue statements, your first step should be to contact the review site and ask them to remove the posting.

Unfortunately, review sites are very wary of removing postings. As an alternative, several sites, such as Yelp, allow business owners to respond to reviews directly.

If you read that someone has had a bad experience with your business, and you don’t believe that the review is false, you may want to contact that reviewer directly and offer amends. An apology and a gift certificate, discount, or invitation to try the business again can go a long way.

On the other side of the coin, you may also want to thank reviewers who have given you great reviews. Use their generous words on your website, brochures and other marketing materials.

Contrary to what you might think, buying advertising on a review website will not affect the content of your reviews. However, encouraging your customers or clients to review your products or services can be extremely beneficial. One bad rating won’t affect you as much if you have a dozen or more high ratings. And don’t underestimate having the highest rating among your type of business in your geographic area.

People will post reviews of your business whether you want them to or not. Try not to take it too personally, and understand that you can’t please everyone. Google yourself regularly to find out what people are saying about your business and make sure review sites have your correct information.

Online review websites offer a huge potential for you to update the way you promote and market your business. The instant feedback on these sites is also an opportunity for you to listen to your customers and improve your services or products.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Texting at work

Dear Mary,

Lately, I’ve been cracking down on employees goofing off at work. Is it OK for me to ban text messaging at the office? What if I use a cellphone jammer?

I understand your concern that text messaging may be harming the productivity of your company’s employees. Still, have you considered the repercussions of a texting ban?

Nowadays, people rely very heavily on their cellphones as a primary means of communication. Many people also depend on cellphones for text “check-ins” from their families. These morale boosters can affect your productivity in a good way.

If it’s one particular staff person who is texting half the day, you could talk to them about their responsibilities to the company and remind them how important it is that they focus on their work. Some people don’t even realize how much time they spend on their cellphones. If it’s just one person doing the texting, it might not be fair to punish everyone.

On the other hand, if it’s a bigger problem or you own a larger company, consider implementing a texting policy. What that policy looks like will depend on your workplace, how many employees you have, what your industry is, and how productive your employees are.

If your employees often have to meet with clients, then you should probably discourage them from texting during client meetings, even if the texting is for business purposes. Similarly, if your employees are required to drive as part of their job, then obviously you should prohibit them from using their phones while driving.

A policy is only as good as your willingness to enforce it. There’s no point in drafting a policy and then looking the other way when your employees break the rules.

If you ban text messaging or otherwise limit personal phone usage, you need to be clear on how to handle an emergency in which your employees are able to reach family members by text message. In most cases I would not recommend a companywide ban against texting, since there are so many justifiable reasons for needing to text, and because it’s convenient and discreet. Consider your employees’ needs as well as the productivity of your business.

Under no circumstances should you use a cellphone jammer, which is a device that blocks cellphone data and voice service. Interfering with radio communications with a jammer is against the law in the United States, as well as many other countries. Cellphone jamming is considered property theft and is a safety hazard.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.