Transcript 21st Annual IL Statewide APA Conference

st
21
Annual IL Statewide
APA Conference
August 22, 2014
Cooking Up Trouble:
Independent Contractor vs.
Employee Misclassification and
Other Common Wage & Hour Mistakes
William R. Pokorny
Partner
Franczek Radelet, P.C.
21st Annual IL Statewide APA Conference – August 21-22, 2014
Key Wage & Hour Laws
Fair Labor Standards Act
• Minimum wage
• 1.5 x “Regular Rate” for all hours over 40
• Recordkeeping
• Child labor
Illinois Minimum Wage Law
• Similar to FLSA
• Some differences
• Higher minimum wage
• Exemptions
• Follow whichever is best for the employee
Wage Payment and Collection Act
• Requires payment of wages / final
compensation
• Easy claims procedure for employees
• Strict limits on payroll deductions
Mistakes Can Be Costly
• 10 employees
• $800/week
• For 35 hrs
• 45 hrs/week
• 13 weeks/yr
$800 / 35hrs = $22.86/hr
O.T. prem. = $22.85 / 2 = $11.43/hr
45 hrs x $22.85/hr = $1,028.57
5 hrs x $11.43/hr = $57.14
Total due = $1085.71
Total paid = $800
Difference = $285.71
x 13 weeks = $3,714.29
x 10 employees = $37,142.86
x 3 years = $111,428.57
x 2 (liquidated damages) = $222,857
+ Attorney fees, state penalties
Common Problems
Deductions
Oscar Overpaid
• Payroll error: $100 / paycheck, approx. $2,600
• Asked Oscar – he does not want to repay
• Oscar’s supervisor wants to deduct the money
from his next paycheck – would barely cover
Oscar Overpaid
• Document overpayment – get
acknowledgement from employee
• Agree on repayment schedule if possible
• Use disputed deduction process if needed
• Consider employee relations issues – worth the
headache / ill will?
Fired Fred
• Custodian
• Terminated: Damaged equipment, suspected theft
• Final pay:
• 2 weeks unused vacation
• 1 week pay through termination date
• Next pay day – this Friday
• Supervisor:
• Can we deduct value of damaged property from final
pay?
• Can we withhold final pay pending theft investigation?
Deductions from Final Pay
• With consent of employee
• At time of deduction
• “Cash Advance” agreements – signed at time of advance
• Can’t deduct for:
• Lost/damaged property
• Business losses
• Other debts owed by employee, absent cash advance
agreement
• Disputed deduction process
Misclassification
Not Necessarily Exempt
• Salaried employee
• “Manager”
• Supervisor / foreperson
• Confidential employee
• Non-union employee
• Office staff
• IT personnel
Key Exemptions
• “White
Collar”
• Industry-specific
• Outside sales
• Commissioned retail sales
• Auto / parts sales
• Agricultural
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“White Collar” Exemptions
•Salary Amount - $455 / week
minimum
•Salary Basis
•Duties
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Salary Basis
• Fixed amount
• For any week in which work is performed
• No variance for
• Hours
• Quantity of work
• Quality of work
• Deductions strictly limited
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Effects of improper deductions
• Exemption lost for the period deduction made
• Affects not only employee to whom deduction made but
also . . .
• All employees in the same job class working for the same manager
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Executive
• Primary duty: managing enterprise or customarily
recognized department or subdivision
• Customarily and regularly directs at least 2 FTEs or
equivalent
• Authority to hire / fire, or recommendations as to hiring,
firing, advancement, promotion, or change of status carry
“particular weight”
• IL: Max. 20% of time on activities not “directly and closely
related” to the above. (40% for retail / service; not
applicable to sole-charge of separate branch or owner of at
least 20% share.)
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Assistant Managers
• Reports to Store Manager
• Spends significant time on on-exempt activities
• Makes schedules, some supervisory
responsibility
• No independent hiring / firing authority
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Administrative
• Primary duty of office work
• Directly related to the management or general
business operations of the employer or the
employer’s customers
• Regularly exercises discretion and independent
judgment
• e.g. HR Director, Sales Manager
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Office Manager
• Primary duties:
• Generally in charge of office operations
• Prepares and analyzes payroll, monthly and quarterly
reports and financial statements
• Scheduling
• Other Duties:
• Typing
• Filing
• Bookkeeping
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“Learned” Professional
• Advanced knowledge in a field of science or
learning
• Customarily acquired through prolonged
course of specialized intellectual instruction
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“Creative” Professional
• Primary duty is original or creative work in
recognized field of artistic endeavor
• Result depends primarily on the invention,
imagination, or talent of employee
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Professionals - IL
• Consistent exercise of discretion and judgment
• Predominantly intellectual and varied in
character, and such that the output cannot be
standardized in relation to a given period of
time
• No more than 20% of time on work not
“essential and necessary” to the above.
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Independent Contractors
• Control
• Profit/Loss
• Investment
• Special skills
• Permanence
• Integral to the business of the principle
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Practical Considerations
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Independent Contractor
Self-directed; controls
details of how the work is
performed
Works for multiple
employers
Paid on a project basis
Does not receive training
from Company
Does not receive benefits
Uses own equipment
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Employee
Works for one employer
Employer provides work
direction and tools
Paid a guaranteed regular wage
Employment related out-ofpocket expenses are paid by
employer
Training from employer
Receives benefits
Illinois Employee Classification Act
• Applies to “contractors” – basically any employer in
the construction industry
• Extremely stringent definitions of independent
contractor
• Severe penalties for misclassification
• up to $2,000 per worker per day.
Prevention:
• Analyze job duties
• Update job descriptions
• Review payroll practices
• Track hours for exempt workers?
• Change policies / classifications?
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Limiting Misclassification Damages
• 10 employees
• $800/week
• For all hours
• 45 hrs/week
• 13 weeks/yr
$800 / 45hrs = $17.78/hr
O.T. prem. = $17.78 / 2 = $8.89/hr
45 hrs x $17.78/hr = $800
5 hrs x $8.89/hr = $44.44
Total due = $844.44
Total paid = $800
Difference = $44.44
x 13 weeks = $577.78
x 10 employees = $5777.78
x 3 years = $17,333.33
x 2 (liquidated damages) = $34,666.67
+ Attorney fees, state penalties
Calculating Overtime
General Overtime Calculation
1. Total all non-excluded compensation
2. Divide by total hours worked to determine the “regular rate”
3. Divide the “regular rate” by 2 to determine the overtime
premium rate
4. Calculate overtime hours by subtracting
40 from the total hours worked
5. Multiply the total overtime hours by the overtime premium
rate
General Overtime Calculation
1. Total non-excluded compensation:
$20 x 46 hours = $920
 46 total hours
 $20/hour
2. Regular Rate = $20 / hour
3. OT premium = $10 / hour
4. Total OT hours = 46 – 40 = 6 hours
5. 6 hours x $10 / hour = $60
Total pay = $920 + $60 = $980
OT for Salaried Employees
1. Regular rate - $1,000 / 37.5
hours = $26.66
 46 total hours
 Salary = $1,000 /
week
 Salary covers 37.5
hour week
2. 2.5 hours additional straight-time pay: $26.66 x 2.5 =
$66.67
3. 6 hours OT pay:
4. $26.66/hr x 1.5 x 6 hours = $239.94
Total pay = $1,306.61
($1,000 + $66.67 + $239.94)
Multiple Jobs, Different Rates
• Must pay OT for all hours over 40
• Means All Hours – even if in different jobs
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Multiple Jobs, Different Rates
Unless the employee is exempt or the work is
occasional or sporadic:
• Track and total all hours worked in all jobs
• Pay OT if total hours are over 40
• Calculate OT using either:
• Weighted average
• Negotiated rate for work being performed during
OT hours
Multiple Jobs, Different Rates
• Bob makes a current hourly rate of $20 per hour and works as a
secretary for 37.5 hours per week
• He also works as assistant coach for the volleyball team
• One Saturday, he works at a volleyball tournament for 8 hours,
for which he is paid a stipend of $100
• The total straight time compensation for the week is ($20 x 37.5 +
$100), or $850
• Bob is entitled to 5.5 hours of OT pay
Weighted Average Method
• $850 / 45.5 total hours worked = $18.68/hour
• $18.68/hour is Bob’s weighted average pay
• For each OT hour, Bob is owed ½ of the weighted average
rate
• Thus, Bob’s additional OT is calculated as follows:
• $18.68 x ½ x 5.5 OT hours = $51.37
Negotiated Rate Method
• Depends on what the employee is doing when
the OT work is performed
• If the workweek starts Saturday and ends
Friday:
• $20 x ½ x 5.5 OT hours = $55
Negotiated Rate Method
• Depends on what the employee is doing when
the OT work is performed
• If the workweek starts Sunday and ends
Saturday:
• $100 stipend / 8 hours = $12.50/hour
• $12.50/hour x ½ x 5.5 hours = $34.38
Brian Bartender
• Works total of 40 hours as a bartender at
$7/hr., plus tips
• 10 hours as banquet staff at $10/hr, plus
share of service charge ($50)
• How do you calculate overtime for this
week?
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Brian Bartender
• Straight Time:
• $7 hours x 40 = $280
• 10 hours x $10 = $100
• Total: $380
• Overtime:
• ($7.00 ÷ 2) x 10 hours = $35
• Total Pay:
• Straight Time: $380
• Service charge: $50
• OT: $35
• Total: $465
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Brian Bartender
• Determine total non-overtime compensation
• $8.25/hr x 40 ($7/hr rate plus $1.25 tip credit) = $330
• $10/hr x 10 = $100
• $50 service charge
• Total: $480
• Regular rate - $480 ÷ 50 = $9.60
• OT ($9.60 ÷ 2 = $4.80)
• Total pay:
• $7/hr x 40 hrs = $280
• $10/hr x 10 hrs = $100
• $4.80/hr x 10 OT hrs = $48
• $50 service charge
• Total: $478
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Calculating Overtime
• Use weighted average rate (absent agreement)
• Include all compensation in regular rate
• Bonuses
• Service charges
• Tips (only amount used to satisfy minimum wage)
• Incentive pay
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Tracking Work Hours
Dedicated Dwight
• Bookkeeper
• Hourly
• Responsible for monthly
TPS Reports
• Solid performer, highly dedicated
• Has been taking TPS reports home, completing them afterhours
• Has not recorded this time
• Not looking for pay
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Helga Housekeeper
• Helga works as a hotel room attendant
• Lately, she has been working through her
breaks
• Does not tell anyone she is not taking
breaks
• Automatic deduction of 30 minutes each
shift for meal break
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Addressing Off the Clock Work
• Investigate immediately
• Determine scope of the problem
• Ensure practice stops
• Counseling / discipline for employee
• Counseling / discipline for management
• Determine hours
• Verify through available sources (security logs, email, etc.)
• Obtain employee’s written estimate
• Written acknowledgement of payment
• Ounce of prevention …
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Travel / Commuting Time
• Hourly employee
• 6:00 a.m. – logs in, checks & responds to email
• 7:00 a.m. – ½-hour commute home to work
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Travel / Commuting Time
• Ordinary home to work travel – No
• Travel as part of principal work activities – Yes
• Special circumstances:
• Emergency / call back
• Overnight travel
• Special one-day trips
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Travel / Commuting Time
• Technician
• Company vehicle
• Picks up work crew on way to work
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Training
Counts as work time unless all of the following apply:
• Outside working hours
• Voluntary
• Not directly related to employee’s job
• No productive work performed
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Training
• Customer service employees
• Spanish-language training
• Outside of work hours
• Voluntary
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Pre/Post-Shift Activities
• Is the activity required by the nature of the job
duties?
• Is it “de minimus”?
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Pre/Post-Shift Activities
• Call center operator
• Boots computer, launches applications, logs in.
• 3-5 minutes
• While waiting, uses restroom, gets coffee, etc.
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Correcting Mistakes
Hi, I’m from the
Department of Labor …
Responding to an Onsite Visit
• Train reception staff to call management
• Get key information
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What agency?
Scope of investigation?
What information requested?
Response deadline?
• Get business card / credentials
• Avoid answering substantive questions
• Be polite!
• Call the lawyers!
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Required Records - Exempt
• Full name and employee number/identification number
• Home address and zip code
• Date of birth, if under age 19
• Gender and occupation
• Time and day the workweek begins
• Total wages paid each pay period
• Date of payment and pay period covered by payment
• Describe the basis for the wages paid, for example, the amount
of salary, commissions, and fringe benefits which are paid during
the period
Required Records – Non-Exempt
• Regular hourly rate of pay if overtime is due, and the
basis for the regular rate, including any exclusions
• Hours worked each workday, and total hours worked
each workweek
• Total daily or weekly straight time wages
• Total premium pay for overtime hours
• Total additions and deductions from wages each pay
period, and an explanation for each addition and
deduction
Other Key Records
• Job descriptions
• “Unofficial” time records
• Policies and employee communications
• State requirements vary
Retention Period
• Federal laws require 2-3 years
• State law varies
• Best practice depends on state statute of
limitations – in IL at least 10 years
Action Items
• Don’t wait for a lawsuit or DOL audit
• Review exemptions
• Review policies and audit implementation
• Train supervisors
• Verify recordkeeping compliance
• Provide hotline / complaint mechanism
• (Carefully) correct mistakes
• Get legal advice
Thank You for Attending!
21st Annual IL Statewide APA Conference – August 21-22, 2014