ANN PRICE JD Boulette amp Golden LLP Fair Labor Standards Act of 1938 Exemptions and anticipated changes Employee or independent contractor status Regulatory Climate Government new rules expected to issue in late 2016 recent DOL action ID: 760372
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Slide1
Exempt or Not Exempt and Other Big Agency Employment Issues
ANN PRICE,
J.D
.
Boulette
& Golden, L.L.P.
Slide2Fair Labor Standards Act of 1938
Exemptions (and anticipated changes)Employee or independent contractor statusRegulatory ClimateGovernment – new rules expected to issue in late 2016, recent DOL actionLawsuits “Sharing Economy” e.g., Uber
Overview
Slide3FLSA Lawsuits
Slide4FLSA Lawsuits
Causes of the more than 600% increase since 1991
Law is complex, vague, and antiquated
Interpretation shifts with political winds
Greater awareness of rights
Plaintiff attorney’s fee awards
Collective actions
Opt in
Slide5Assuming employer coverage and employee status
Minimum wage ($7.25/hour)Overtime pay (if more than 40 hours worked in workweek) Exemptions from minimum wage and/or overtimeRecordkeeping, especially hours worked by nonexempt employees
Fair Labor Standards Act
Slide6“White Collar” Exemptions
ExecutiveAdministrativeProfessionalCertain computer employeesOutside sales employeesFunky “Good Lobbyist” Exemptions
Exemptions
Slide7Liability for unpaid overtime and/or minimum wages within limitations period
Two yearsThree years if the violation is “willful”Liability for “liquidated damages” equal to above amount (essentially double damages)
Consequences of Violation
Slide8Court can reduce or eliminate liability for “liquidated damages” if the employer demonstrates it acted in “good faith” and had “reasonable grounds” to believe it was not in violation
Reasonable attorney’s fees, and costs
Consequences of Violation
Slide9“Salaried”
= ExemptNot always truePayment on a salary basis alone is not sufficient to establish an exemption
Common Misconception
Slide10Generally, three tests must be satisfied in order to prove an exemption
Primary dutyManner of compensation - payment of a “salary” is usually required, andAmount of compensationNew regulation is expected to change #3, but may also change #1
What are the tests?
Slide11The principal, main, major or most important duty that the employee performs
How is this determined? Proportion of time spent or otherwise?
Test 1 - Primary Duty
Slide12Managing the enterprise or a customarily recognized department or subdivision
Customarily and regularly directing the work of at least 2 full-time employees or the equivalentHave the authority to hire or fire or recommendations are given particular weight
Executive Primary Duty
Slide13Performance of office or non-manual work directly related to
management or general business operations, e.g.,Tax, finance, accounting, auditing, budgeting, insurance, marketing, advertising, human resources, public and governmental relations, legal and regulatory compliance, computer network, internet and database administrationNot production workers
Administrative
Primary Duty
Slide14Exercise of discretion and independent judgment with respect to matters of significance
Consideration of possibilities and choice or action free from immediate direction or supervision High level of importance or significance, not just risk of lossNot skill in application of standards
Administrative Primary Duty, continued
Slide15Insurance claims adjusters
Certain financial services industry workers (not if primarily selling)Team leader on major projects (purchasing or selling a business, negotiating real estate purchase)HR managersSome systems analysts and computer programmers
Administrative Exemption Examples
Slide16Learned Professional
Performance of work requiring advanced knowledge in a field of science or learningCustomarily acquired by a prolonged course of specialized intellectual instruction Consistent exercise of discretion and judgment
Professional
Primary Duty
Slide17Commonly
exempt professionalsLawyers, teachers, accountants, pharmacists, engineers, actuaries, certified athletic trainers, chemists, chefs, etc.Not exemptLicensed practical nurses, bookkeepers, cooks, paralegals, engineering technicians
Professional Exemption Examples
Slide18The application of
systems analysis techniques and procedures, including consultation with users, to determine hardware, software or system functional specifications
Exempt Computer Primary Duty
Slide19The design, development, documentation, analysis, creation, testing or modification of
computer systems or programs, including prototypes, based on and related to user or system design specifications,
Exempt Computer Primary Duty, continued
Slide20The design, documentation, testing, creation or modification of computer programs related to
machine operating systems A combination of the above which requires the same level of skillsNot repair, help-desk, or CAD workers
Exempt Computer Primary Duty, continued
Slide21Making sales / obtaining orders or contracts for services or facilities
Customarily and regularly engaged away from the employer’s place of business in performing the primary duty – not sales made by mail, telephone or the internet unless merely an adjunct to personal calls
Outside Sales
Primary Duty
Slide22Salary basis
Predetermined amount not subject to reduction because of variations in the quality or quantity of work performed
Test 2 - Manner of Compensation
Slide23Salary basis, continued
Unless a specific exception applies, must pay the full salary for any workweek in which the employee performs any workNeed not pay for any workweek when no work is performed
Test 2 - Manner of Compensation
Slide24Salary
Basis – Permitted DeductionsFull day absences for personal reasons other than sickness or disabilityFull day absences due to sickness or disability under a bona fide system for replacement wages
Test 2 - Manner of Compensation
Slide25Salary
Basis – Permitted Deductions, continuedTo offset amounts received as jury fees, witness fees or military payPenalties imposed in good faith for violating safety rules of major significance
Test 2 - Manner of Compensation
Slide26Salary
Basis – Permitted Deductions, continuedFull day disciplinary suspension imposed in good faith for violations of written workplace conduct rulesProration in first or last weekUnpaid FMLA leave
Test 2 - Manner of Compensation
Slide27Fee Basis – Professional and Administrative (can be problematic when determining whether the amount is sufficient)
Different rule for Outside Sales both as to manner and amount
Test 2 - Manner of Compensation
Slide28Current Minimum Levels
Salary or Fee Basis - $455/week or $23,660/yearHighly Compensated Employees - $100,000/year (and $455/week salary)Easier primary duty test; at least one customarily and regularly
Test 3 - Amount of Compensation
Slide29Peg minimum salary to that of the 40
th percentile of full-time workersPeg amount necessary to be a highly compensated employee to the annualized earnings of the 90th percentile of full-time workersEstablish a mechanism for automatic updates
Proposed Changes to Exemptions
Slide30Minimum salary expected to more than double to $970/week or $50,440/year
Annual compensation of approximately $122,148 necessary to qualify as a highly compensated employee
Proposed Changes to Exemptions
Slide31May also change primary duty test
Possibly require more than 50% of time be spent on primary duty
Proposed Changes to Exemptions
Slide32Nearly 5 million workers now properly classified as exempt will be eligible for OT (unless their pay is increased to meet new test)
New rule is expected to issue in late 2016What else happens then?
Proposed Changes to Exemptions
Slide33Consequences of classification
Employee rights and protections Laws (FLSA, Title VII, ADA, FMLA, NLRA, etc.)Health insurance, other employee benefits, unemployment and workers’ compensation
Employee v. Independent
Contractor
Slide34Consequences, continued
Taxes Withholding income tax and FICAMaking employer FICA contributionsReporting of earnings
Employee v. Independent
Contractor
Slide35Independent
ContractorA business – opportunity for profit or loss, not subject to control except final productEmployee Recipient of services has the right to control means and manner of work
Conceptual Definitions
Slide36What determines status?
The facts of the relationshipThe legal test applied to the factsNot the labels or titles applied by the firm or the worker
Employee v. Independent Contractor
Slide37“Employ” includes to suffer or permit to work
FLSA legal test is an economic reality testBroader than traditional common law concept of control
FLSA Definition of Employment
Slide38Administrator’s
Interpretation No. 2015-1, Issued July 15, 2015Not necessarily a new test, but first time set out in this formatMay affect the weight given by courts on this interpretation
DOL Administrator Interpretation
Slide39Signifies DOL’s belief of widespread “misclassification” which deprives employees of important protections, lowers tax revenues, and creates an “uneven playing field”
Conclusion (by DOL) – most workers are employees
DOL Administrator Interpretation
Slide40Focus
– Whether the employee is economically dependent on the employer, regardless of skillFactors Extent to which the work is integral to the employer’s business
DOL Administrator Interpretation
Slide41Factors
, continuedWorker’s opportunity for profit or loss depending on management skillExtent of relative investmentsWhether the work requires special skills and initiative
DOL Administrator Interpretation
Slide42Factors
, continuedPermanency of the relationshipDegree of control exercised or retained by the employerNo single factor is determinative, FLSA should be construed to give broad coverage
DOL Administrator Interpretation
Slide43Think through classification in advance, err on side of employment
Eliminate artificial barriers to employment statusLimit (well drafted) contracts to legal entities other than sole proprietorsProper 1099 reporting for contractors
Classification
Best Practices
Slide44Compliance Audit
Exempt v. NonexemptEmployee v. Independent ContractorWork with your lawyer to maximize application of privilege for attorney-client communicationsBudget for possible changesPlan for transition
Practical Tips
Slide45This presentation is not intended to serve as a substitute for legal advice. For advice specific to a given situation, please consult with an attorney.
The Fine Print
Slide46Ann Abrams Price, Esq.
ann@boulettegolden.com
512-732-8900
Employment
Law Update:
Exempt
or Non-Exempt; Employee or Independent Contractor