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Fair Labor Standards Act: Sand Traps and More

Isler Dare, PC

September 23, 2015

Steven W. Ray

(703) 748-2690

http://www.lfccworkforce.com/

Goals and Agenda

Recent trends in wage and hour law

Most common pitfalls of the White Collar Exemptions

Review of the salary basis test

Dept. of Labor proposed overtime regulations

Independent contractor v. employee

Looking ahead

Questions are welcomed during the presentation

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Interview Techniques

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Interview Techniques

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Women Only

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Do You Qualify for Overtime?

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Recent Trends in Wage and Hour A look back in time – trends in employment laws

Pre-1960’s – minimal workplace laws – FLSA & traditional labor

1960’s & 1970’s – civil rights legislation (Title VII, ADEA, PDA, ERISA)

1980’s –harassment and hostile work environment; DOD drug testing regulations; Immigration Reform and Control Act

1990’s – Americans with Disabilities Act (1990); Civil Rights Act Amendments (1991); Family and Medical Leave Act (1993)

2000’s – Intellectual property – enforcement of restrictive covenants; revisions to FLSA and FMLA regulations

2010’s – Wage and hour; Affordable Care Act IslerDare, P.C. 7

Wage & Hour Litigation on the Rise

FLSA Cases in Federal Court 1990 - 2014

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Department of Labor Enforcement on the Rise

Employees Receiving Back Wages 2006 - 2014

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What’s Driving the Increase?

Increasing health of the economy

Employers continue to struggle to comply with complexity of W&H laws

Employees more sensitized to rights under law due to internet and social media

Features of W&H laws are attractive to plaintiff’s attorneys:

All FLSA and state and local laws provide for attorneys’ fees and penalties

Violations are easier to quantify and prove (v. discrimination cases)

Cases more likely to settle early and thereby provide a quick payday

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Overview of the FLSA

• To be exempt under the FLSA:

• Employee must be paid a predetermined and fixed

salary that is not subject to reduction because of

variation in the quality or quantity of work performed

(salary basis test);

• The amount of salary paid must meet a minimum

specified amount (salary level test); and

• Employee’s job duties must primarily involve

executive, administrative, professional or computer

duties as defined by the employee regulations

(standard duties test).

White Collar Exemptions

• Executive Employee:

• Primary duty is management of the company or customarily recognized department or subdivision;

• Customarily and regularly directs the work of two or more other full-time employees; and

• Has authority to hire or fire other employees or to make recommendations as to hiring, firing and advancement, promotion or change of status of employees that are given particular weight.

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• Professional Employee:

• Performing work requiring knowledge of an advanced type, in a field of science or learning customarily acquired through a prolonged course of specialized intellectual instruction; or

• Performing work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

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• Administrative Employee:

• Primary duty is performance of office or non-manual work directly related to management or general business operations of the employer or employer’s customers; and

• Primary duty includes exercise of discretion and independent judgment with respect to matters of significance.

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White Collar Exemptions • Computer Employee:

• Employee who is a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker, whose primary duty consists of:

• Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications

• 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

• Design, documentation, creation, testing or modification of computer programs related to machine operating systems

• Combination of the aforementioned duties

• Paid on an hourly basis of not less than $27.63 per hour or on a salary basis of not less than $455 per week

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• Highly Compensated Employee

• Total annual compensation of $100,000 paid on a salary basis.

• Customarily and regularly performs any one or more of the exempt duties of the Executive, Administrative, or Professional exemptions (primary duty includes office or non-manual work).

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Salary Basis Test

• General Rule: In any week in which the employee performs any work, the employee must receive the same predetermined minimum guarantee of not less than $455 per week irrespective of the quality or the quantity of the worked performed.

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Salary Basis Test

• Specific Applications of Salary Basis Test

• Minimum Guarantee Plus Extras

• Tracking Hours of Exempt Personnel

• Weather Closings and Government Shutdowns

• 2010 Snowstorm

• 2013 Sequestration

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Proposed Overtime Regulations

• Overview of the Proposal

• March 13, 2014, President signed a Memorandum directing the DOL to update the white collar regulations defining which employees are protected by the FLSA’s minimum wage and overtime standards.

• Instructed DOL to “modernize and simplify” the regulations.

• Following the issuance of the memorandum, DOL engaged in an outreach program to stakeholders, conducting several listening sessions.

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• Past Changes

• Since 1938, the DOL has updated the salary level requirement 7 times.

• Most recently, the DOL updated the regulations in 2004.

• Raised the salary level for the first time since 1975

• Set the salary level at the 20th percentile of weekly earnings for full-time salaried workers based on CPS data ($455 per week ($23,660 per year))

• Abandoned the concept of separate long and short duties tests; opted for one standard test.

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• Increased Salary Level

• The proposed rule primarily focuses on updating the salary and compensation levels.

• Proposes an increase to the Salary Level Test from $455 a week to $970 a week (projected 2016 data).

• Sets the standard salary level equal to the 40th percentile of earnings.

•$921 per week using 2013 data

• If the Final Rule is adopted, Department will likely use data from the first quarter of 2016.

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• Highly Compensated Employees

•Proposes salary increases to the “highly compensated employee” exemption from $100,000 in total annual compensation to $122,148.

•This would set the salary standard at the 90th percentile of all full-time salaried workers.

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• Automatic Annual Salary Updates

• To prevent the salary levels from becoming outdated, the DOL is proposing to include a mechanism to automatically update the salary and compensation thresholds on an annual basis using either a fixed percentile of wages or the consumer price index.

• This was proposed in the 1970 and 2004 rulemaking, but the DOL did not adopt it.

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● Non-Discretionary Bonuses and Incentive Pay

The DOL has also asked for feedback on allowing non-discretionary bonuses and incentive payments, such as bonuses tied to productivity and profitability, to count toward 10% of the standard weekly salary level for the executive, administrative, and professional exemptions.

Currently, such bonuses are only included in calculating total annual

compensation under the Highly Compensated Employee exemption.

The bonuses would have to be non-discretionary and employees would need to receive the bonuses more frequently than annually (i.e., monthly or quarterly).

The DOL is not considering permitting employers to make a yearly “catch-up” payment.

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• Duties Requirements

• DOL is seeking commentary on whether, in light of the salary level proposal, changes to the duties tests are warranted.

• DOL believes that the proposed salary level increase, coupled with automatic updates to maintain the effectiveness of the salary level test, will address concerns relating to the application of the white collar exemptions.

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• Timeline for Adoption

• The Proposed Rule is currently in the Notice and

Comment period, which closed on September 4, 2015.

• DOL is currently reviewing comments.

• The Final Rule will go into effect 60 days after

publication.

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• No Better Time Than the Present

• While the Final Rule likely will not become effective until 2016, employers should not hesitate to analyze their employee classifications.

• The DOL estimates that after these rules become effective, 4.6 million currently exempt white collar employees and 36,000 highly-compensated employees will become entitled to minimum wage and overtime protection.

• Employers may be required to reclassify a significant number of employees from exempt to non-exempt status. Thus, employers should analyze who will and will not be affected by these regulations and be ready to implement changes.

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• Practical Tips • Once you identify if the regulatory changes affect you, you should consider the following:

• Operations and Budget

• Will you increase employees’ salaries to meet the Salary Level threshold?

• Will you reduce hours to avoid overtime?

• If you reduce hours, will you be required to hire more workers?

• Will you reduce equivalent hourly pay so workers’ hourly wages plus overtime premiums still equals their current salaries?

• How will this affect employee morale?

• Policies

• How will you implement and communicate new policies for tracking hours worked?

• Will you implement new policies to reduce off-the-clock exposure?

• Access to computer networks, email, company-paid mobile devices?

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Independent Contractor v. Employee

What is driving the trend toward independent contractors?

● Increased need for flexible workforce

● Demand for workers with expertise and knowledge in specific areas

● Workers’ demands for independence and flexibility

● Arrangement viewed as “win-win” by both workers and companies

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What are the pitfalls of misclassification?

● Liability for unpaid overtime

● Disgruntled workers

● Disruption to operations

● Non-compliance with qualified benefit plans

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● Dept. of Labor Guidance

● On July 15, 2015, DOL issued guidance on the identification of employees misclassified as independent contractors.

● DOL noted increasing number of workplaces using independent contractors.

● Misclassification results in lost wages, lack of statutory insurance (e.g., workers compensation) and lost tax revenue to the government.

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● Dept. of Labor Guidance

● Classification is determined by the “economic realities test.”

● Application of test guided by FLSA’s statutory directive that the scope of the employment relationship is very broad

● Derives from the language of the statute that defines “employ” as “suffer or permit to work”

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Economic Realities Test

● Focus is on the economic dependency of the worker

● Factors:

● Extent to which work performed is integral to the employer’s business

● Worker’s opportunity for profit or loss

● Extent of relative investments of the worker and the employer

● Whether the work performed requires special skills and initiative

● Permanency of the relationship

● Degree of control exercised or retained by the employer

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● No one factor is determinative

● Factors must be considered in totality and weighed against one another

● Factors not to be applied mechanically as a checklist

● FLSA is to be liberally construed to provide broad coverage

● Ultimate issue is whether the worker is “in business for himself/herself”

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● Is the work integral to the employer’s business?

● Is the worker performing the work of the employer

● Work performed away from the premises can still be integral to the employer’s business (e.g., teleworking)

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● Does the worker’s managerial skill affect the opportunity for profit or loss?

● Worker must be able to exercise managerial skill to affect opportunity for profit/loss

● Ex.: decision to accept or reject work, purchase materials, rent space, advertise

● Amount of income based on ability to work more or less hours to is not indicative – exists in all workplaces

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● How does worker’s relative investment compare to the employer’s investment

● Worker must have financial investment sufficient to support a business

● However, amount must be measured against the investment of the employer

● Worker’s investment must be more than minor compared to the employer

● Investing in tools and equipment not necessarily a business investment

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● Does the work performed require special skill and initiative?

● Focus is on worker’s business skills, judgment and initiative, not technical skills

● Such skills impact economics of worker’s earnings

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● Permanency of the relationship between the worker and employer

● Indefinite relationship suggest work is an employee

● Short term or one-time projects typical of independent contractor relationships

● Lack of permanence due to operational characteristics intrinsic to the industry will point to employee status

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● What is the nature and degree of employer’s control?

● Worker must actually control meaningful aspects of work performed

● Work from home or flexible schedules is not unique to independent contractors

● Maintenance of strict quality control (e.g. scheduling, appearance, customer satisfaction) via enhanced monitoring can remove independence of worker and convert to an employee (Uber)

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Leased Employees

● Increased use of staffing agencies, POEs and other providers of labor hours over last 15 years

● Typical arrangement – worker is provided to business for a fixed term at a fixed price

● FLSA and most all employment laws view arrangement as “shared worker” aka “joint employment”

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Leased Employees

● Advantages:

● No recruiting

● No payroll

● Ease of termination

● Risks:

● Jointly responsible with staffing provider

● Jointly liable for unpaid or incorrect wages

● Jointly liable for payroll taxes

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Leased Employees

● Minimizing joint employer liability

● Know & trust who you are doing business with

● Obtain indemnification language in shared worker contract

● Trust but verify – require proof of payment of wages to worker and taxes to government entities

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Interns

● Shortage of jobs & increased labor pool has fueled interest in use of unpaid interns

● Dept. of Labor issued regulations in 2010 and began crackdown

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Interns

● To avoid liability, intern must meet all of the following:

● Internship is similar to training that would be given in an educational environment;

● Internship experience is for the benefit of the intern;

● Intern does not displace regular employees, but works under close supervision of existing staff;

● Employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

● Intern is not necessarily entitled to a job at the conclusion of the internship; and

● Employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

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Looking Ahead

• Increase in wage/hour cases/enforcement

• Escalation of minimum wage and living wage

• Increase in notification requirements to employees

• Increase in recordkeeping (classification, hours worked)

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Questions?

ISLER DARE, P.C. 1945 Old Gallows Road

Suite 650 Vienna, Virginia 22182

703-748-2690

Steven W. Ray

[email protected]

mailto:[email protected]

fair labor standards act: sand traps and morewashrm.shrm.org/sites/washrm.shrm.org/files/flsa... ·...

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