S T E P H E N W. S C H U E L E R

Transcription

1 S T E P H E N W. S C H U E L E R J P M O R G A N C H A S E T O W E R T R A V I S S T R E E T H O U S T O N, T E X A S ( ) S S C H U E L E W I N S T E A D. C O M

2 AGENDA Overview of the FLSA Employee vs. Independent Contractor General Requirements for Exemptions White Collar Exemptions Application to Public Agencies

3

4 OVERVIEW OF THE FLSA Enacted in 1938 Revisions in 1986 extended coverage to public employers Revised again on April 20, 2004 Main provisions: Federal minimum wage ($7.25/hour as of July 24, 2009) Overtime pay and threshold (40 hours) Exemptions to overtime pay (focus of most FLSA litigation) Youth employment Recordkeeping Classifies employees as exempt (not covered by the FLSA) or non-exempt (covered by the FLSA), and all employees are presumed to be non-exempt unless the employer establishes that the position meets specific exemption criteria.

5 TWO TYPES OF COVERAGE Enterprise coverage - At least two (2) employees and $500,000 a year in business Individual coverage workers engaged in: Interstate commerce Production of goods for commerce Closely related process or occupation directly essential (CRADE) Domestic service Engaging in interstate commerce includes: Making telephone calls Sending letters to other states Processing credit card transactions Travelling to other states Bottom line Almost every employee in the US is covered by the FLSA

6 REQUIREMENTS FOR NON-EXEMPT EMPLOYEES Employee must be compensated (i) at or above minimum wage and (ii) at a rate of time and one-half for any hours worked over forty (40) hours in a workweek (i.e., the seven (7) day workweek defined by the employer) Employer required to keep the following wages and time records: Time and day of week when workweek begins Hours worked each day Total hours worked each workweek Basis on which wages are paid (i.e., per hour, piecework) Regular hourly pay rate Total daily or weekly straight-time earnings Total overtime earnings Additions to or deductions from wages Total wages paid each pay period Date of payment and pay period covered by payment

7 REQUIREMENTS FOR NON-EXEMPT EMPLOYEES (CONT.) Employers may use any timekeeping method they choose (e.g., time clocks, manual timesheets, electronic timesheets) Payroll records must be retained for at least three (3) years Records on which wages are based (e.g., time cards, timesheets, computer records) must be retained for at least two (2) years Some states have enacted overtime and minimum wage laws which differ from the FLSA Employees subject to both the state and federal overtime and minimum wage laws are entitled to the standard overtime and minimum wage that would provide higher compensation

8 ENFORCEMENT OF THE FLSA United States Department of Labor - Wage and Hour Division (WHD) Investigation of claims; and Lawsuits for injunctive relief, back pay and liquidated damages Private Lawsuits or Collective Actions Recoverable damages include back wages and liquidated damages for up to three (3) years if violation was willful, attorneys fees and costs United States Department of Justice Criminal prosecution, imprisonment and civil money penalties

9 SUPPORT FOR EMPLOYEES WHD s Timesheet App (ios) Record hours worked Calculate amount owed by employer, including overtime pay Sends an report of timesheet Does not include tips, commission, bonuses, deductions, holiday or weekend pay, shift differentials or rest pay If accurate, could provide evidence in an FLSA lawsuit

10

11 EMPLOYEE VS. INDEPENDENT CONTRACTOR In order for the FLSA to apply, there must be an employment relationship between the employer and the employee Implications of Misclassifications: Workers' Compensation Unemployment Taxes Employee benefits Payment of overtime and minimum wage Discrimination Recordkeeping

12 HOW IS CONTRACTOR STATUS DETERMINED? Contract with individual and Simply paying on a 1099 are not determinative! More than one test exists: IRS and TWC test = "Right to Control USDOL test = "Economic Reality Common law test Highly factual intensive tests

13 IRS AND TWC RIGHT TO CONTROL TEST Rev. Rul contains a 20-factor test to determine worker classification, including (also contained in Treas. Reg (d)-1(c)(2) and IRS Manual Audit, Part IV, Exhibit ): Extent of control, training and integration Whether services must be personally rendered Full-time nature of employment, set work hours Whether the work may be performed outside of the employer s location Whether reports must be regularly submitted Whether individual is paid by the hour, week or month The identity of the person responsible for the payment of business expenses, the furnishing of equipment/tools Whether the individual performing services has the right to work for more than one entity at a time No one factor is dispositive, but a primary factor tends to be control

14 DOL ECONOMIC REALITIES TEST Different from the IRS, the DOL applies an economic realities test: Is the worker economically dependent upon the employer or in business for himself? Plumber Is the work an integral part of the employer s business? Dole v. Snell: Cake decorators Secty of Labor v. Mauritzen: Pickle pickers How does the worker s relative investment compare to the employer s investment? - Who provides the tools and equipment? Does the work performed require special skill and initiative? Is the relationship between the worker and employer permanent or indefinite? What is the nature and degree of the employer s control?

15 HIGH RISK SCENARIOS Performing the same duties as employees Performing essential function of the business Employee resigns or retires and then rehired as an independent contractor doing the same job Working a long time or exclusively for one company Being provided tools, equipment, office space, etc.

16 HIGH RISK SCENARIOS Being paid a salary Being able to direct or control employees Being disciplined by the company or given a performance review Receiving benefits along with other employees (non-cash awards, bonuses, insurance) Staffing companies can provide a safe haven Must be legitimate staffing company other customers

17 TIPS TO PREVENT MISCLASSIFICATION Avoid classifying former employees as independent contractors Use independent contractors who are incorporated and market their services to the public Do not be an independent contractor s first or only customer Pay by invoice and negotiate rate No training, reporting obligations, evaluations, handbook Do not permit independent contractor to make employment decisions for your employees Have signed agreement (but not determinative as to status) Confirm status No benefits Pay by project (not hourly)

18 HERE IS ALL YOU NEED TO REMEMBER TO AVOID MISCLASSIFICATION

19

20 EXEMPT VS. NON-EXEMPT Generally, to be exempt an employee must: Qualify for one of the exemptions based on the employee s primary duties (more than 50% of time spent working) Regularly exercise discretion and independent judgment, and Be paid on salary basis for the job, not the number of hours worked White Collar Exemptions: Executive employees Administrative employees Learned or creative professionals Computer professionals Outside sales employees

21 THE SALARY BASIS TEST Employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or party of the employee s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed Minimum salary of $455.00/week ($23,600/year) No pay docking! Employee must be paid the full salary for any week in which the employee performs any work, but need not be paid for any workweek when no work is performed Seven (7) exceptions Full day deductions permitted in very limited circumstances (e.g., employee's personal choice sick leave, vacation, etc.)

22 THE SALARY BASIS TEST (CONT.) Employers may require exempt employees to take vacation or PTO, including for a facility or plant shutdown Employers may institute voluntary time-off programs and may make deductions from salary for full-day increments Employers may reduce an exempt employee s salary in relation to a reduction in hours in the normal scheduled workweek Must be a bona fide reduction not for the purpose of circumventing the salary basis requirement, and must not lower compensation below minimum salary May not determine the length of the workweek on a week-to-week basis

23 SAFE HARBOR POLICY An actual practice of making an improper deductions from salary will result in the loss of the exemption During the time period in which improper deduction were made For employees in the same job classifications Working for the same managers responsible for the actual improper deductions Exempt status not lost over salary basis if: Clearly communicated policy prohibiting improper deductions with a complaint mechanism Reimburse employees for improper deductions Good faith commitment to comply with requirement Not available if employer willfully violates policy by continuing to make improper deductions after complaints are made

24 DOL S PROPOSED RULE CHANGES TO SALARY LEVEL June 30, 2015 DOL announced a proposed rule change that will substantially reduce the number of executive, administrative, and professional employees who would be exempt under the FLSA by doubling the threshold salary level for exemptions to $970/week ($50,440/year) Estimated five (5) million previously exempt workers will become subject to the FLSA s minimum wage and overtime requirements beginning in 2016 Substantial increase in payroll costs and new recordkeeping requirements for employees who were previously exempt Employers should consider revising their job descriptions and auditing the exemption status of all positions

25

26 EXECUTIVE EXEMPTION Paid on a Salary Basis, plus Management: Primary duty is management of business or customarily recognized department or subdivision Setting and adjusting employee pay and hours Maintaining production or sales records Evaluating employee performance Handling employee complaints and grievances Supervision: Customarily and regularly supervises work of two (2) or more other employees in department Authority: Hires or fires other employees or makes recommendations as to hiring, firing, or other status changes given particular weight

27 EXECUTIVE EXEMPTION (EXAMPLES*) Exempt: Plant manager Business operations manager Department supervisor Store manager Construction project superintendent Non-exempt: Working foreman Relief supervisor Store manager who spends only a small portion of time on exempt work *depends on facts, position or title alone insufficient to establish status

28 EXECUTIVE EXEMPTION (CASE LAW) Two (2) store managers covered by the executive exemption Primary duties (more than 50%) were managerial, including: Hiring, supervising, and disciplining employees Promoting, demoting, and firing employees Training and setting or adjusting work schedules Delegating and prioritizing tasks and assignments Exercised discretion in performing managerial duties Paid more than nonexempt employees and could earn bonus based on store profitability

29 BUSINESS OWNER EXEMPTION The executive exemption also covers employees who: Own at least a bona fide 20% equity interest in the enterprise Are actively engaged in management of the enterprise The salary level and salary basis requirements do not apply

30

31 ADMINSTRATIVE EXEMPTION Paid on a Salary Basis, plus Primary duty is The performance of office or non-manual work directly related to management or general operations of employer or employer s customers, and The exercise of discretion and independent judgment with respect to matters of significance (e.g., comparing and evaluating possible courses of conduct, and acting or making decision after various possibilities are considered)

32 MANAGEMENT OR GENERAL BUSINESS OPERATIONS Tax Finance Accounting Budgeting Auditing Insurance Quality Control Purchasing Procurement Advertising Marketing Research Safety and Health Human Resources Employee Benefits Labor Relations Public and Government Relations Legal and Regulatory Compliance Computer Network, Internet, and Database Administration

33 ADMINSTRATIVE EXEMPTION (EXAMPLES*) Exempt: Insurance claims adjuster or internal auditor Certain financial industry employees Team leader for major projects Administrative assistant to senior executive HR manager or generalist Purchasing agent Non-exempt: Inspector or examiner/grader Comparison shopper Mortgage loan officers Financial industry employees whose duty is to sell financial products *depends on facts, position or title alone insufficient to establish status

34 ADMINSTRATIVE EXEMPTION (CASE LAW) Ninety-one (91) Special Investigators qualify for administrative exemption Primary duties (more than 50%) were conducting investigations to resolve indicators of fraud in suspicious claims, including: Interview witnesses Gathered information Recommended and sometimes supervised vendors Involved the exercise of discretion and independent judgment Used experience and knowledge... to distinguish relevant from irrelevant, fact from untruth, to resolve competing versions of events Had nearly unilateral discretion in referring cases with unresolved fraud indicators to law enforcement Significant matters: Determined if claims were paid or not

35

36 LEARNED PROFESSIONAL EXEMPTION Paid on a Salary or Fee Basis, plus Primary duty is the performance of work requiring advanced knowledge The work must be predominantly intellectual and require consistent exercise of discretion and judgment Advanced knowledge must be in field of science or learning customarily acquired by prolonged course of specialized intellectual instruction

37 FIELDS OF SCIENCE OR LEARNING Occupations with recognized professional status, as distinguished from the mechanical arts or skilled trades Law Accounting Actuarial computation Theology Teaching Physical, chemical, and biological sciences Medicine Architecture Pharmacy Engineering

38 LEARNED PROFESSIONAL EXEMPTION (EXAMPLES*) Exempt: Medical doctor, physician, dentist, dental hygienist or registered nurse Pharmacist Lawyer or accountant Engineer or architect Teacher or professors Executive chef or sous chef Non-exempt: Licensed practical nurse, nurse aide, or paramedic Paralegal or legal assistant Accounting clerk or bookkeeper Cook who perform routine mental, manual, mechanical or physical work *depends on facts, position or title alone insufficient to establish status

39

40 CREATIVE PROFESSIONAL EXEMPTION Paid on a Salary or Fee Basis, plus Primary duty is the performance of work requiring invention, imagination, originality, or talent in recognized field of artistic or creative endeavor

41 FIELDS OF ARTISTIC OR CREATIVE ENDEAVOR Music: Musician, composer, conductor, or soloist Writing: Essayist, novelist, short-story writer or play writer Screen play writers who choose their own subjects Responsible writing positions in advertising agencies Acting Graphic Arts: Painter, cartoonist or photographer Investigative news reporter

42

43 COMPUTER PROFESSIONAL EXEMPTION Paid at least $27.63/hour for every hour worked, including overtime, or Paid on a Salary or Fee Basis, plus Primary duties are: Applying systems analysis techniques Design, develop, document, analyze, create, test or modify computer systems or programs

44 COMPUTER PROFESSIONAL EXEMPTION (EXAMPLES*) Exempt: Computer systems analyst Software engineers Most computer programmers Non-exempt: Entry level programmers Computer manufacture and repair CAD operators Help desk workers *depends on facts, position or title alone insufficient to establish status

45

46 OUTSIDE SALES EXEMPTION No compensation test Primary duty must be making sales or obtaining orders or contracts for services or use of facilities for consideration paid by customer Customarily and regularly engaged away from employer s place of business in performing primary duty

47 OUTSIDE SALES EXEMPTION (EXAMPLES*) Exempt: Most sales representatives Some real estate agents *depends on facts, position or title alone insufficient to establish status

48

49 HIGHLY COMPENSATED EMPLOYEES Total annual compensation of at least $100,000/year At least $455/week on salary basis Including commissions, non-discretionary bonuses, and other nondiscretionary compensation Excluding cost of benefits Customarily and regularly performs at least one exempt duty of an executive, administrative or professional employee Primary duty includes performing office or non-manual work:

50

51 PUBLIC AGENCIES UNDER THE FLSA A public agency covered by the FLSA include the U.S. Government, Government of a State or political subdivision thereof, any agency of the U.S., a State, or political subdivision of a State, any interstate governmental agency

52 PUBLIC AGENCIES UNDER THE FLSA The calculation of overtime pay may differ for certain employees if: Employees who solely at their option occasionally work on a part-time basis for the same agency in a different capacity Employees who solely at their option with agency approval substitute for another during scheduled work hours in the same capacity Mass transit employees who spend some time engaged in charter activities Employees working in separate seasonal amusement or recreational establishments (e.g., swimming pools, parks, etc.) Hospital or residential care establishments may, with agreement or understanding of employees, adopt a fixed work period of fourteen (14) consecutive days and pay overtime after eight (8) hours in a day or eighty (80) in the work period, whichever is greater

53 FIRE PROTECTION AND LAW ENFORCEMENT No limit on the amount of nonexempt work that an employee employed in fire protection activities may perform. Fire protection personnel include firefighters, paramedics, emergency medical technicians, rescue workers, ambulance personnel, or hazardous materials workers who: Are trained in fire suppression Have the legal authority and responsibility to engage in fire suppression Are employed by a fire department of a municipality, county, fire district, or State Are engaged in the prevention, control and extinguishment of fires or responses to emergency situations where life, property or the environment is at risk

54 FIRE PROTECTION AND LAW ENFORCEMENT (CONT.) Employees engaged in law enforcement activities may perform some nonexempt work that is not performed as an incident to or in conjunction with their law enforcement activities. Law enforcement personnel are employees who: Are empowered by State or local ordinance to enforce laws designed to maintain peace and order, protect life and property, and to prevent and detect crimes Who have the power to arrest who have undergone training in law enforcement A person who spends more than 20% of the workweek or applicable work period in nonexempt activities is not considered to be an employee engaged in law enforcement activities.

55 FIRE PROTECTION AND LAW ENFORCEMENT (CONT.) Fire protection and law enforcement employees may at their own option perform special duty work in fire protection and law enforcement for a separate and independent employer without including the wages and hours in regular rate or overtime determinations for the primary public employer Fire Departments or Police Departments may establish a work period ranging from 7 to 28 days in which overtime need be paid only after a specified number of hours in each work period Any employee who in any workweek is employed by an agency employing less than 5 employees in fire protection or law enforcement may be exempt from overtime

56 COMMON ERRORS EMPLOYERS SHOULD AVOID Failing to keep proper wage and time records Misunderstanding what is compensable time outside of principal work activities (e.g., travel, on-call duty, training, short rest and meal periods, changing clothes or preparing for work) Assuming that all employees paid a salary are not due overtime pay Improperly applying an exemption to a non-exempt position (applies to each position individually based on duties and responsibilities, not to a class, role, working title or category of position) Making improper deductions from an employee s salary Not updating job descriptions and employee handbook and policies to conform with laws and regulations Failing to pay an employee for working overtime without authorization (a disciplinary issue, not a compensation issue)

57 GREAT REFERENCES FOR ASSISTANCE The statute (29 U.S.C. 201) The implementing regulations (29 C.F.R. Part ) Interpretive Guidance from the WHD (opinion letters, field operations handbook, and field bulletins) FLSA poster WHD s Handy Reference Guide and Fact Sheets Department of Labor or WHD s Website (

58