Entries in wage and hour (2)

Tuesday
Nov272012

FLSA Dissonance: Exempt or Nonexempt?

Over the last few weeks, FLSA issues have surfaced in places I would least expect.  Otherwise savvy clients, it turns out, sometimes incorrectly characterize and pay part-time and other hourly workers as exempt, or have been paying overtime to salaried workers in exempt positions.  It seems that even when good intentions are there, complicated FLSA requirements can confuse employers. But, it is not as hard to sort it all out as it may seem.

The Fair Labor Standards Act, 29 U.S.C. 201, et seq., requires employers to pay workers a minimum hourly wage and to pay at least one and one-half times the regular hourly wages for all hours worked in excess of 40 in a single week.  The FLSA also establishes certain exemptions to the overtime payment requirements.  The most well known exemptions are those that apply to workers employed in bona fide executive, administrative, or professional capacities; outside sales workers; and well-compensated computer systems analysts, computer programmers or software engineers.  (Some lesser-known FLSA exemptions include certain railway workers, agricultural employees, domestic employees and reporters for small newspapers.)  

To qualify for an exemption, employees generally must meet certain Department of Labor tests regarding their job duties and be paid on a salary basis of not less than $455 per week.  Job titles do not determine exempt status.  The DoL provides online Fact Sheets to help employers understand whether employees qualify for the executive, administrative, professional, computer or outside sales exemptions.  The administration of FLSA requirements does not end with properly classifying employees.  Once an employee is considered exempt from FLSA overtime requirements, the employer must be careful not to make certain deductions from pay, even when the employee does not work the usual assigned hours, or the claimed exemption may be jeopardized.  

As if FLSA rules were not complex enough, state wage and hour rules can further complicate matters. Many states set their minimum wage above the federal level.  In addition, state wage laws may require that employers pay overtime for work done in excess of daily rather than weekly limits (such as in Alaska, California, Nevada and Colorado) or provide narrower, different or fewer exemptions to overtime pay requirements (such as in Hawaii and Pennsylvania).  No matter where you are located, it is important to know and understand both the FLSA and the applicable state wage and hour laws. As the penalties for misclassification or non-payment of overtime wages under federal or state law can be severe, it is important to keep an eye on these issues, especially as employees move from part-time to full-time employment, or when they move from short-term contractor positions to regular employees.  

For help determining proper FLSA and state law classifications or to determine if employees have been misclassified, contact an employment attorney immediately.  Please feel free to contact me through the Contact page of this website or directly at shari@kleinerlegal.com.   

Wednesday
Oct102012

Consultant or Employee?

So many companies are finally hiring - but are they hiring employees?  It seems that many workers who have finally landed jobs after long waits on unemployment, or after just plain waiting for a great new opportunity, have accepted jobs as consultants or independent contractors.  Or at least they think they have.  Under the Massachusetts Independent Contractor Law (MICL), regardless of the designation given, there is a rebuttable resumption of employee status for purposes of wage laws.  This presumption is nearly impossible to overcome when the workers in question are providing services that are within or close to the company’s usual course of business.  The MICL provides a difficult to pass three-prong test in order for a worker to be classified as an independent contractor.  And the consequences of failing, yet being treated as an independent contractor, are not negligible.

Why do businesses use independent contractors? Independent contractors provide flexibility and cost savings and often possess specialized knowledge and skills. For some companies, the use of independent contractors is part of the companies’ business models. Various types of consulting firms use independent contractors to provide the consulting work performed at client locations. Similarly, many home health care businesses use independent contractors to provide services to clients in their homes.

For many businesses the primary motivation for using independent contractors rather than employees is the cost savings. Businesses generally do not spend the time and money training contract workers. Further, businesses receive significant tax savings, including avoiding paying the employer share of FICA and Unemployment Tax and state unemployment and workers compensation insurance, not to mention the substantial savings from not providing employee benefits plans. This windfall however, is not without significant legal risk. 

While enjoying the savings, employers must accept the inherent risk that a government authority (federal or state) will determine that individuals in question are employees and not independent contractors for taxes, wage and hour, unemployment, workers' compensation and/or employee benefits purposes. Any such claim could lead to significant penalties.  The MICL gives the Attorney General and private litigants the ability to win stiff penalties (civil and criminal), treble damages, and the right to recover attorneys’ fees and costs.  In the Massachusetts Attorney General's Office's 2008 Advisory Report,  the three prongs of the MICL test are explained and analyzed, and some helpful enforcement priorities are explained.  

So what to do?  If you are a company using independant contractors to get your work done, or a consultant who believes you may really be a misclassified employee, do not wait until someone else brings the issue to light.  Contact me or any other competent employment attorney to make sure you understand the various legal criteria involved - including the IRS test (federal tax purposes), the DoL test (federal wage and hour laws) and the MICL or other state law test to understand your potential risks and exposures.  Evaluating whether to convert contractors to employees or to take steps to limit potential exposure by paying certain relevant taxes or limiting hours worked may save you great headaches and potential damages.  It is never too late to make changes.