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Audio (MP3) Listen in New Window Presentation (PDF) Open in new window The U.S. Department of Labor’s Initiatives Exemptions from Overtime Salary Threshold now is: $455/week $23,660/year Proposed: $970/week $50,440/year Independent Contractors “Employee means any individual employed by an employer.” “Employ includes to suffer or permit to work” Interpretation: “Most workers are employees under the FLSA” The DOL’s Salary Proposal - June 30, 2015 Notice of Proposed Rule Making - 60 – day comment period – Due September 4, 2015 - Salary threshold last increased in 2004 - Increased salary threshold effective early 2016 - Annual increase of salary threshold is proposed - Bonuses may – or may not count – comments are solicited - No proposed changes duties at this time Overtime Exemptions Who is Exempt from Overtime? - Bona fide Executive, Administrative and Professional employees; - Perform Exempt Duties; AND - Paid on a Salary Basis [There are a few others: Outside sales; Computer Professionals; and certain highly paid employees] What are Executive Duties? - "Primary Duty" is to customarily and regularly manage the business or a department or subdivision. - Customarily and regularly directs the work of 2 or more FTEs. - Authority to hire or fire. - Suggestions and recommendations are given particular weight. What are Administrative Duties? - "Primary Duty" is office or non-manual work directly related to management, or the business operations of the employer or its customers. - Primary duty must include the exercise of discretion and independent judgment as to matters of significance. Administrative Duties - Examples - Formulate, affect or interpret management policies. - Major operational assignments. - Waive or deviate from policies and procedures. - Negotiate for and bind the employer. - Provide expert advice to management. - Plan for business objectives. - Investigate and resolve significant matters. - Represent the employer in handling complaints. What are Professional Duties? Primary duty is work that requires . . . advanced knowledge of science or learning which is obtained through a prolonged course of specialized instruction and study Note: A "Salary" is not required for exemption of lawyers, physicians, dentists, optometrists, podiatrists, osteopaths, interns or residents. Professional Duties - Examples - Registered or certified medical technologists with 3 years of college plus 1 year of professional course work. - Registered nurses. - Physician assistants with 4 years of study and graduation from an accredited program. Paid on a Salary Basis A Salary is a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of the work. Permissible Salary Deductions - Full day deductions for the employee's personal reasons; - Full day deductions for absences taken due to sickness or disability under a sick leave, STD or PTO plan; - Full day deductions for disciplinary suspensions; - Off setting deductions for jury duty pay, witness fees and military pay received; - Proportional deductions for unpaid FMLA leave; and - Proportional deductions in the employee's initial and terminal weeks of employment. Compliance Strategies Determine who is now exempt - Confirm exempt duties - Confirm current salary Increase Salary to Threshold? - Expect annual increases - Change to hourly compensation? Keep on salary, but below threshold? - Overtime due for all hours over 40 or - Reduce hours to avoid overtime Carefully state what the salary is for: - “All hours worked in the week” - Overtime due is then only extra half time since hours over 40 have been paid at full time. - “Fluctuating Workweek” Requires weekly calculation Fluctuating Workweek - Example - Hours vary from week to week. - Salary of $600 a week is paid for all hours in the workweek except Over Time - Employee works 40, 37.5, 50, and 48 hours over 4 weeks. Regular hourly rate in each week is $15.00, $16.00, $12.00, and $12.50. - Straight time already paid, only additional half-time pay is due. Pay for 1st and 2nd week: $600; - 3rd week: $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00); - 4th week: $650 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75). Compliance Strategies (Continued) “Salary is for a set number of hours per week” - Divide stated salary by the stated number of hours to yield the “regular rate” - For all hours over 40, pay time and a half the regular rate - Easier to calculate than “fluctuating workweek” “Belo Agreement” - Only available for employees whose hours vary widely week to week - Guaranteed compensation in any week where work is performed Exemption - Practical Considerations Financial impact on the organization - Increased salaries - Budget adjustments - Increase staff or reduce staff to meet needs Record keeping - Time records necessary - Traditional outside of work done on weekends, emails must be counted - Time and attendance system adjustments - Job description / Handbook review and revision Exemption – Practical Considerations If not exempt then worry about: - Hours of work . . . - On duty, - On call time - Idle time - Meetings, conferences and training - Travel time - Meal period work - Pre and post-shift work Employee morale - Going hourly reduces perceived status - Reduction in hours means reduction in pay - Increase in salary can be a positive motivator - Pay more and expect more - Plan to explain reasons for changes Liability only going forward - Increased salary threshold effective when the regulations effective, not retroactive. Independent Contractors July 15, 2015 DOL’s “Administrator’s Interpretation” - Broad definition of "employee" - Based congressional desire to cover child labor in 1938 - Most workers will be “employees” - Independent contractor classification will be rare - Interpretation does not have the force of law - Only applies to FLSA and FMLA – Not tax, not anti-discrimination laws Worker Misclassification - 10 to 30 percent of employers may be misclassifying their employees as “independent contractors”. - Increasing number of instances where employees are labeled something else, such as “owners,” “partners,” or “members of a limited liability company.” - Titles are not determinative When is a Worker an Employee? Right to Control or Economic Realities? It’s All About Economic Realities Is the worker economically dependent on the employer or Is the worker in business for him or herself? Economic Realities The extent to which the work performed is an integral part of the employer’s business; The worker’s opportunity for profit or loss depending on his or her managerial skill; The extent of the relative investments of the employer and the worker; Whether the work performed requires special skills and initiative; The permanency of the relationship; and The degree of control exercised or retained by the employer. None of the factors is controlling by itself. All factors are weighed together. Integral Part of Employer’s Business If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer. Work can be integral to an employer’s business even if it is performed away from the employer’s premises, at the worker’s home, or on the premises of the employer’s customers. Profit / Loss & Managerial Skill In considering whether a worker has an opportunity for profit or loss, the focus is whether the worker’s managerial skill can affect his or her profit and loss. Simply working more or fewer hours to increase or decrease personal income is not the same as using managerial skill that affects profit and loss risk. Relative Investment - The worker‘s investment and risk for a loss indicates he or she is an independent business. - Example: A worker who simply provides his or her preferred cleaning supplies will not be an independent contractor when the cleaning company provides insurance, transportation, equipment and gives the worker a Form 1099-MISC. The worker’s investment in cleaning supplies does little to further a business beyond that particular job. Special Skill and Initiative - A worker’s business skills, judgment, and initiative, not his or her technical skills, indicate economic independence. - Example: Simply being a highly skilled carpenter working for a single company would not be an independent contractor. - But, that same skilled carpenter could be an independent contractor if he or she provides a specialized service for a variety of area construction companies by demonstrating carpentry skill and taking initiative by marketing the services, determining when and what quantity of materials to and determining which orders to fill. Permanency of Relationship - Most workers are engaged on a permanent or indefinite basis as in the indefinite employment-at-will relationship. The key is whether the lack of permanence or indefiniteness is due to operational characteristics of the industry, or the worker’s own business initiative. - Example: Agency nurses are part of a transient workforce that that reflects the nature of their profession and not their success in marketing their skills independently. Employer Control - The worker must control meaningful aspects of the work performed such that it is possible to view the worker as a person conducting his or her own business. - Example: Where a registry nurse is free to call on as many or as few clients as the nurse desires and negotiates the nurse's own wage rates with the client, this would indicate an independent contractor relationship because of the lack of significant control by the registry. Misclassification is the Target - DOL is working with the IRS and 23 states to combat employee misclassification (but not Indiana). - DOL is cooperating with the Employee Benefits Security Administration, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs, and the Office of the Solicitor to uncover misclassification. - Congressional action – Payroll Fraud Prevention Act of 2015 - Executive Order – Fair Pay and Safe Workplaces (federal contractors) What if There is a Violation? - Employees cannot waive their rights under the FLSA - Reimbursement of unpaid minimum wages and overtime. - Exposure is 2 years or 3 years if willful. - Liquidated damages of an equal amount. - Attorney's fees. - Civil penalties of $1,000 for repeated violations. - Personal liability for responsible manager!! References Exemptions & Salary Proposed Regulations http://www.regulations.gov/#!documentDetail;D=WHD-2015-0001-0001 Fact Sheet http://www.dol.gov/whd/overtime/NPRM2015/factsheet.htm FAQs http://www.dol.gov/whd/overtime/NPRM2015/faq.htm Independent Contractor Interpretation No. 2015-1, July 15, 2015 http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.htm -- Steve Lyman Hall Render Killian Heath & Lyman slyman@HallRender.com
None of the factors is controlling by itself. All factors are weighed together. Integral Part of Employer’s Business If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer. Work can be integral to an employer’s business even if it is performed away from the employer’s premises, at the worker’s home, or on the premises of the employer’s customers. Profit / Loss & Managerial Skill In considering whether a worker has an opportunity for profit or loss, the focus is whether the worker’s managerial skill can affect his or her profit and loss. Simply working more or fewer hours to increase or decrease personal income is not the same as using managerial skill that affects profit and loss risk. Relative Investment - The worker‘s investment and risk for a loss indicates he or she is an independent business. - Example: A worker who simply provides his or her preferred cleaning supplies will not be an independent contractor when the cleaning company provides insurance, transportation, equipment and gives the worker a Form 1099-MISC. The worker’s investment in cleaning supplies does little to further a business beyond that particular job. Special Skill and Initiative - A worker’s business skills, judgment, and initiative, not his or her technical skills, indicate economic independence. - Example: Simply being a highly skilled carpenter working for a single company would not be an independent contractor. - But, that same skilled carpenter could be an independent contractor if he or she provides a specialized service for a variety of area construction companies by demonstrating carpentry skill and taking initiative by marketing the services, determining when and what quantity of materials to and determining which orders to fill. Permanency of Relationship - Most workers are engaged on a permanent or indefinite basis as in the indefinite employment-at-will relationship. The key is whether the lack of permanence or indefiniteness is due to operational characteristics of the industry, or the worker’s own business initiative. - Example: Agency nurses are part of a transient workforce that that reflects the nature of their profession and not their success in marketing their skills independently. Employer Control - The worker must control meaningful aspects of the work performed such that it is possible to view the worker as a person conducting his or her own business. - Example: Where a registry nurse is free to call on as many or as few clients as the nurse desires and negotiates the nurse's own wage rates with the client, this would indicate an independent contractor relationship because of the lack of significant control by the registry. Misclassification is the Target - DOL is working with the IRS and 23 states to combat employee misclassification (but not Indiana). - DOL is cooperating with the Employee Benefits Security Administration, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs, and the Office of the Solicitor to uncover misclassification. - Congressional action – Payroll Fraud Prevention Act of 2015 - Executive Order – Fair Pay and Safe Workplaces (federal contractors) What if There is a Violation? - Employees cannot waive their rights under the FLSA - Reimbursement of unpaid minimum wages and overtime. - Exposure is 2 years or 3 years if willful. - Liquidated damages of an equal amount. - Attorney's fees. - Civil penalties of $1,000 for repeated violations. - Personal liability for responsible manager!! References Exemptions & Salary Proposed Regulations http://www.regulations.gov/#!documentDetail;D=WHD-2015-0001-0001 Fact Sheet http://www.dol.gov/whd/overtime/NPRM2015/factsheet.htm FAQs http://www.dol.gov/whd/overtime/NPRM2015/faq.htm Independent Contractor Interpretation No. 2015-1, July 15, 2015 http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.htm -- Steve Lyman Hall Render Killian Heath & Lyman slyman@HallRender.com