S T E P H E N W . S C H U E L E R 1 1 0 0 J P M O R G A N C H A S E T O W E R 6 0 0 T R A V I S S T R E E T H O U S T O N , T E X A S 7 7 0 0 2 ( 7 1 3 ) 6 5 0 - 2 7 6 3 S S C H U E L E R @ W I N S T E A D . C O M
AGENDA • Overview of the FLSA • Employee vs. Independent Contractor • General Requirements for Exemptions • “White Collar” Exemptions • Application to Public Agencies
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) • Exempt ptio ions ns to to overtime time pay (focus of most FLSA litigation) • Youth employment • Recordkeeping • Classifies employees as exempt (not covered by the FLSA) or non non-exem empt (covered by the FLSA), and all employees are presumed umed to be non-exem empt unless the employer establishes that the position meets specific exemption criteria.
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
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
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
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
SUPPORT FOR EMPLOYEES • WHD’s Timesheet App (iOS) • Record hours worked • Calculate amount owed by employer, including overtime pay • Sends an email 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
EMPLOYEE VS. INDEPENDENT CONTRACTOR • In order for the FLSA to apply, there must be an emplo loym yment ent relati tion onshi ship between the “employer” and the “employee” • Implications of Misclassifications: • Workers' Compensation • Unemployment • Taxes • Employee benefits • Payment of overtime and minimum wage • Discrimination • Recordkeeping
HOW IS CONTRACTOR STATUS DETERMINED? Contract tract with h individ vidua ual and Simp mply y paying ng on a 1099 are not ot det etermi minat ativ ive! e! • More than one test exists: • IRS and TWC test = "Right to Control“ • USDOL test = "Economic Reality“ • Common law test • Highly factual intensive tests
IRS AND TWC – “RIGHT TO CONTROL” TEST • Rev. Rul. 87-41 contains a 20-factor test to determine worker classification, including (also contained in Treas. Reg. 31.3121(d)-1(c)(2) and IRS Manual – Audit, Part IV, Exhibit 4640-1): • 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
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 in busi sine ness ss for himsel self ”? • Plumber • Is the work an integr gral 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?
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.
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
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)
HERE IS ALL YOU NEED TO REMEMBER TO AVOID MISCLASSIFICATION
EXEMPT VS. NON-EXEMPT • Genera erally, 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 and • Be paid on salary basis for the job, not ot the number of hours worked • “White Collar” Exemptions: • Executive employees • Administrative employees • Learned or creative professionals • Computer professionals • Outside sales employees
THE SALARY BASIS TEST • Employee “regularly receives each pay period on a weekly, or less frequent basis, a prede determin ermined ed amount nt constituting all or party of the employee’s compensation, which amount is not ot subject ect to reducti duction n becau ause e of va varia iati tions ons in the quality ity or quantit tity of the work rk performed ormed ” • Minimum salary of $455.00/week ($23,600/year) • No pay docki king! ng! 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.)
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
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