Exempt or Not Exempt and Other Big Agency Employment Issues - PowerPoint Presentation

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Exempt or Not Exempt and Other Big Agency Employment Issues

ANN PRICE,

J.D

.

Boulette

& Golden, L.L.P.

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Fair 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

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FLSA Lawsuits

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FLSA 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

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Assuming 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

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“White Collar” Exemptions

ExecutiveAdministrativeProfessionalCertain computer employeesOutside sales employeesFunky “Good Lobbyist” Exemptions

Exemptions

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Liability 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

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Court 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

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“Salaried”

= ExemptNot always truePayment on a salary basis alone is not sufficient to establish an exemption

Common Misconception

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Generally, 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?

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The 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

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Managing 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

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Performance 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

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Exercise 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

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Insurance 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

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Learned 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

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Commonly

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

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The application of

systems analysis techniques and procedures, including consultation with users, to determine hardware, software or system functional specifications

Exempt Computer Primary Duty

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The 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

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The 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

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Making 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

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Salary basis

Predetermined amount not subject to reduction because of variations in the quality or quantity of work performed

Test 2 - Manner of Compensation

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Salary 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

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Salary

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

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Salary

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

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Salary

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

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Fee 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

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Current 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

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Peg 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

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Minimum 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

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May also change primary duty test

Possibly require more than 50% of time be spent on primary duty

Proposed Changes to Exemptions

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Nearly 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

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Consequences 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

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Consequences, continued

Taxes Withholding income tax and FICAMaking employer FICA contributionsReporting of earnings

Employee v. Independent

Contractor

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Independent

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

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What 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

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“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

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Administrator’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

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Signifies 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

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Focus

– 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

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Factors

, continuedWorker’s opportunity for profit or loss depending on management skillExtent of relative investmentsWhether the work requires special skills and initiative

DOL Administrator Interpretation

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Factors

, 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

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Think 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

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Compliance 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

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This 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

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Ann Abrams Price, Esq.

ann@boulettegolden.com

512-732-8900

Employment

Law Update:

Exempt

or Non-Exempt; Employee or Independent Contractor