PRACTICAL STRATEGIES FOR GETTING TO THE HEAD OF THE CLASS ON EMPLOYEE (MIS)CLASSIFICATION

Transcription

1 PRACTICAL STRATEGIES FOR GETTING TO THE HEAD OF THE CLASS ON EMPLOYEE (MIS)CLASSIFICATION March 3, 2016 Please Do Not Reproduce without the permission of the presenters

2 PRESENTERS Veena Iyer Shareholder Nilan Johnson Lewis PA Laura Dornik Director of Policy, Training & Talent St. David s Center for Child & Family Development Roxanne Alexander Controller Greater Twin Cities United Way

3 SCENARIO 1 Maya is one of the founders of a small nonprofit. Maya loses her day job and is not sure what she will do next. The board asks her to work for the nonprofit to ramp up its activities. Everyone agrees that Maya is an independent contractor and should be paid on a No one envisions that she will work for the organization permanently.

4 SCENARIO 1 The parties agree to the following terms but do not enter a written contract: Maya will be paid $100 per day worked. Her pay rate will be unaffected by the number of hours worked. The nonprofit will reimburse any work-related expenses.

5 SCENARIO 1 The parties are six months into the arrangement, at which point: Maya is only working for the nonprofit Maya works an average of 50 hours per week Maya has just been given 5 paid vacation days by the Board Maya is meeting with a subcommittee of the board twice a month to provide feedback and guidance.

6 INDEPENDENT CONTRACTORS V. EMPLOYEES: THE LAW There is no single factor or category of factors that determines classification as an independent contractor versus an employee.

7 INDEPENDENT CONTRACTORS V. EMPLOYEES: THE LAW Behavioral control Type of instruction given; degree of instruction; ongoing training and evaluation Financial control Opportunity for profit or loss; method of payment; level of investment; fixed costs; business expenses; provision of services to multiple parties Relationship of the parties Written contracts; employee benefits; permanency of the relationship; services provided as key activity of the business

8 WEIGHING THE COSTS OF RECLASSIFICATION: THE FINANCE PERSPECTIVE Is the employee eligible for benefits? If so, what is the employer s cost for health, dental, life, STD/LTD, etc? What are the employer tax implications? FICA, Unemployment insurance, workers compensation, etc. Is employee now eligible for additional compensation? Overtime, bonuses, commissions, etc? Is the employee eligible for PTO payout upon termination?

9 WEIGHING THE COSTS OF RECLASSIFICATION: THE FINANCE PERSPECTIVE - Should the correction be made going forward only or to a prior period? Consult with counsel and accountant regarding risks - If a decision is made to correct for prior periods, it could have a number of financial consequences: Paying the employee unpaid wages or salary Pay back employer taxes on the employee wages If the situation crosses fiscal years, tax corrections may be necessary Does a corrected 1099MISC form need to be completed?» If so, a revision on the employee s personal income taxes may be necessary For a taxable entity, this may cause corrections as well

10 CONSIDERATIONS WHEN RECLASSIFYING INDEPENDENT CONTRACTORS: THE HR PERSPECTIVE What should the position involve? Determine job duties Create a job description How should the position be paid? Classify the position as exempt or non-exempt Determine the appropriate hourly wage/salary Arrange for employee to be paid through payroll Offer benefits for which employee is eligible How do we engage the individual on reclassification? Consider how best to explain the reclassification Offer letter Onboarding

11 SCENARIO 2 Roland is a children s mental health case manager at a nonprofit that serves immigrants and refugees. He meets with client families of the organization, connects them with support services for children with mental health needs, and assists the families with using public or private health insurance or other benefits to pay for those services. The position requires a college degree in any subject. The children s mental health case manager position is classified as exempt. As such, Roland is paid an annual salary of $41,600 per year, and he does not need to record his hours. Roland works an average of 50 hours per week.

12 EXEMPT V. NON-EXEMPT EMPLOYEES: THE LAW NEW Administrative MN MN Executive Professional MN Highly compensated employees Teachers Doctors Lawyers Computer Seasonal establishment employees Home health workers MN

13 EXEMPT V. NON-EXEMPT EMPLOYEES: THE LAW Administrative - office or non-manual work directly related to the management or general business operations of the employer or a customer - exercises discretion and independent judgment with respect to matters of significance Executive - manages the organization or a department - customarily and regularly supervises two or more employees; - authority to hire or fire employees or whose suggestions regarding hiring and firing are given particular weight. Professional - knowledge of an advanced type in a field of science or learning that is customarily acquired through a prolonged course of specialized instruction OR - requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor

14 WEIGHING THE COSTS OF RECLASSIFICATION: THE FINANCE PERSPECTIVE - Should we change classification to nonexempt and have employee continue to work 50hrs/wk 10 hours of overtime per week equates to an additional 15K of unbudgeted expense for the year - Should we hire another employee to work the overtime hours? Could combine 10hrs overtime from this employee with overtime from other employees moving to nonexempt Would make the position more attractable to a new hire, rather than a 10hr/wk position Additional employer benefit, on boarding and training costs associated with a new hire, which could be costly - Should we combine the 10 hours with another PT position already hired? Would save on additional overtime, benefit, on boarding and training costs

15 CONSIDERATIONS WHEN RECLASSIFYING INDEPENDENT CONTRACTORS: THE HR PERSPECTIVE Evaluate whether steps can be taken to make the position exempt Remember to follow the law that is most protective of the employees Consider employee relations and programmatic effects of various options Consider effects on employee morale of moving from exempt to nonexempt Ensure employee understands changes as a result of reclassification

16 SCENARIO 2 REBOOTED Roland is a children s mental health case manager at a nonprofit that serves immigrants and refugees. He meets with client families of the organization, connects them with support services for children with mental health needs, and assists the families with using public or private health insurance or other benefits to pay for those services. The position requires a Master s Degree in Social Work or a Bachelor s Degree in Social Work or a Related Field plus two years of experience. The children s mental health case manager position is classified as exempt. As such, Roland is paid an annual salary of $41,600 per year, and he does not need to record his hours. Roland works an average of 50 hours per week.

17 EXEMPTIONS AND MINIMUM SALARIES: THE LAW - Teachers - Doctors - Lawyers - Seasonal establishment employees - Administrative - Executive - Professional - Highly compensated - Computer NO MINIMUM SALARY OR MINIMUM HOURLY WAGE MINIMUM SALARY MINIMUM SALARY OR MINIMUM HOURLY WAGE

18 PROPOSED CHANGES (Administrative, Professional, Executive) CURRENT MINIMUM SALARY $455/week or $23,660 per year PROPOSED MINIMUM SALARY $970/week or $50,440 per year with automatic yearly increases

19 PROPOSED CHANGES (Highly compensated employees) CURRENT MINIMUM SALARY $100,000 total annual compensation, including at least $455 salary per week PROPOSED MINIMUM SALARY $122,148 total annual compensation, including at least $970 salary per week, with automatic yearly increases

20 WEIGHING THE OPTIONS: THE FINANCE PERSPECTIVE Identify exempt employees Identify exempt employees who are earning less than $50,440 per year or just above that amount Assess whether to increase employee salaries to maintain exemption or make non-exempt For highly compensated employees who are making less than $122,148 total compensation, determine whether they qualify for another exemption Consider effect of classification on budget, which could be affected by frequency of, predictability of, and ability to control overtime hours, and benefits costs

21 CONSIDERATIONS WHEN RECLASSIFYING EXEMPT EMPLOYEES: THE HR PERSPECTIVE Considering strength or weaknesses of exempt classification Communicating with employees Updating policies Providing transition period Hiring additional staff

22 QUESTIONS?