Fair Labor Standards Act (FLSA)

New guidance released July 15, 2015, from the Department of Labor (DOL) narrows independent contractor classification so that “most workers are employees under the FLSA.” The DOL’s guidance makes it clear that the amount of control an employer has over a worker is not as important in properly classifying the worker. Instead, the DOL details an “economic realities” test that must be used “to determine whether the worker is economically dependent on the employer (and thus the employee) or is really in business for him or herself (and thus its independent contractor.)”

According to DOL, you need to consider the following factors when determining if a worker is truly an independent business or is economically dependent upon the employer:

  1. Is the work an integral part of the employer’s business? DOL says that an independent contractor’s work is unlikely to be an integral part of the employer’s business.
  2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? An independent contractor is one whose managerial decisions (whether to hire others, purchase more equipment, advertise, etc) are more likely to lead to profit or loss beyond the current job.
  3. How does the worker’s relative investment compare to the employer’s investment? The worker’s investment must be significant in magnitude relative to the employer’s investment in the overall business to indicate an independent contractor. DOL emphasized a Tenth Circuit opinion that determined a rig welder’s investment in equipment of $35,000-$40,000 did not indicate the welders were independent contractors when compared to the employer’s investment in the business.
  4. Does the work performed require special skill and initiative? This factor considers special business skills and judgment in moving the business forward, rather than technical skills in performing the work.
  5. Is the relationship between the worker and the employer permanent or indefinite? The more permanent the job, the more likely the worker is truly an employee.
  6. What is the nature and degree of the employer’s control? Again, the DOL guidance de-emphasizes the importance of this factor, explaining that this should not be given undue weight. However, the amount of control an employer has over a worker helps determine if the worker is truly in business for himself or not.

It is clear from the guidance that DOL views most workers as employees; therefore, the classification of independent contractors should be used sparingly. You should review all of your independent contractors in light of this guidance to make sure they are properly classified because a finding of misclassification can result in significant liability for unpaid overtime, unemployment and worker’s compensation insurance premiums, as well as other potential statutory penalties and liabilities.

You can read the full guidance, with examples of each factor, here: http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.pdf

The DOL today issued its long awaited proposed rules changing the salary basis test for those employees classified as exempt under the Fair Labor Standards Act (FLSA).  The salary basis test is one of two tests necessary to determine if an employee is properly classified as exempt. The minimum salary basis for exempt employees is currently $455 a week, yielding an annual minimum salary of $23,660.  This minimum salary basis test has been in effect since August 23, 2004.  The proposed rules purport to update those figures and increase the salary minimum to $970 a week for a minimum annual salary of $50,440.  The DOL believes this would impact about 4.6 million employees.  The DOL has proposed this change to “minimize” the risk that employees legally entitled to overtime will be subject to misclassification based solely on the salaries they receive, without excluding from exemption an unacceptably high number of employees who meet the duties test.”[1]

These amounts were projected after the DOL evaluated the current 40th percentile of weekly earnings for full-time salaried workers because the DOL believes that percentile “represents the most appropriate demarcation between exempt and nonexempt employees.”[2] The proposed rule increases the total annual compensation requirement needed to exempt highly compensated employees from $100,000 to $122,148 annually. The DOL also proposes a mechanism that would automatically update the salary and compensation levels going forward.  The plan is for these rules to take effect in 2016.

The DOL is seeking guidance as to whether to allow nondiscretionary bonuses to satisfy a portion of the salary basis test, whether the standard duties tests are working as intended to screen out employees who are not bona fide white collar exempt employees, and other issues. Comments can be posted electronically at www.regulations.gov or mailed to D.C.[3] Refer to RIN 1235-AA11.

Having been fortunate to offer employment law advice and counsel to employers for years, I can attest that proper classification of those employees considered exempt is an area where even the most sophisticated employer can be non-compliant. Besides providing comments on those areas the DOL is seeking guidance, Employers should audit their FLSA practices regarding who is classified as exempt in their organizations and evaluate how they might address any effect to their financials caused by the mandatory increase in minimum salaries for exempt employees in their employ.

 

Continue Reading Proposed New Rule More Than Doubles Minimum Salary for Exempt Employees

Domino’s is under fire for allegedly not paying its pizza delivery drivers minimum wage.[1] According to a new class action lawsuit, some of Domino’s drivers are receiving less than minimum wage. Despite being paid at least $7.25 an hour, the lawsuit claims that the drivers are below the minimum wage because Domino’s is not adequately reimbursing the drivers for their travel expenses. Is this legitimate?

T1010282_16918873he Fair Labor Standards Act (“FLSA”) generally does not require that companies reimburse their employees for travel or other work-related expenses. However, there is one exception – the so-called “kickback rule.”[2] Under FLSA regulations, an employee’s wages must be final, with no strings attached. In other words, if an employee is required to pay back a portion of his wages, directly or indirectly, and this “kick back” takes that employee under the minimum wage, the employer has violated FLSA’s minimum wage requirement.

For example, if a minimum wage employee spends $10 a week to fuel his or her car for business-related travel, and is not reimbursed for that expense, federal law considers that employee to be making less than minimum wage pursuant to the FLSA kickback rule.

South Carolina employers should carefully review their reimbursement practices, particularly with respect to employees close to minimum wage, to ensure compliance with the FLSA kickback rule. Any work-related expense incurred by an employee that would take the employee below the minimum wage must be reimbursed.

[1] http://www.law360.com/articles/634851/domino-s-franchisee-underpaid-drivers-flsa-suit-says.

[2] 29 C.F.R. § 531.35.

582041_93599733Employers wishing to employ unpaid interns this summer may run afoul of the Fair Labor Standards Act (FLSA) which carries penalties of unpaid wages, attorneys’ fees and, possibly, an award of liquidated damages double the amount of the wage award, not to mention bad publicity.  The FLSA requires employers to pay wages to any person the employer “suffers or permits to work.”  The definition of employment is very broad.  The FLSA permits employers to avail themselves of the services of unpaid interns, but in very limited circumstances.

The Wage and Hour Division of the United States Department of Labor issued Fact Sheet No. 71[1] for those “for profit” private sector employers to use in considering whether they may offer an unpaid internship program.  Interns who are receiving training for their own educational benefit while interning at a “for profit” private sector employers may be unpaid if six criteria are met:  1) the internship is similar to training the intern would be given in an educational environment; 2) the internship experience is for the benefit of the intern; 3) the intern does not displace regular employees but works under close supervision of existing staff; 4) the employer that provides the training derives no immediate advantage from the activities of the intern; 5) the intern is not necessarily entitled to a job at the conclusion of the internship; and 6) the employer and intern understand that the intern is not entitled to wages for time spent in the internship.

Internships structured around a classroom setting and that provide an employee credit hours from an educational facility are more likely to suggest that the internship is an extension of the student’s education.  If the internship provides the intern with skills that may be used in multiple employment settings as opposed to skills specific to a particular employer, the internship is more likely to be considered training.  The business should not be dependent on the work of the intern. If the employer replaces existing employees or would have hired additional staff but for the unpaid interns, then the unpaid internship may likely violate the FLSA.  Interns who are supervised at the same level as the employer’s workforce may implicate an employment relationship.  The internship should be for a fixed time period and should not be used as an extended-interview or trial period for permanent employment.

Some advisors recommend that an employer require an intern to execute an agreement indicating that the intern acknowledges he or she is unpaid.  However, as the FLSA states that an employee may not waive entitlement to wages, a written agreement of this nature would not be particularly helpful.  Aligning itself with the educational entity and insuring that the intern receives credit hours for the work performed is a better way to protect a business wishing to utilize unpaid interns.

For those interns who do not meet the six factor test, Employers should know that interns must be paid at least minimum wage and overtime for hours worked over forty in a week.

Internships with an educational component are good vehicles for businesses to expose themselves to desirable candidates but businesses should plan on paying interns absent the existence of all six of the above criteria.

[1] http://www.dol.gov/whd/regs/compliance/whdfs71.pdf

This information is not to be construed as legal advice or as pertaining to specific factual situations as each circumstance carries with it a set of unique facts that might effect the legal outcome.  Employers should not rely on the legal principles and theories discussed herein to support action, and  are encouraged to seek legal advice as to specific factual situations.