Transcript Slide 1

Properly Classifying
Hourly & Salaried
Employees
Presented by
Nancy C. Rodgers, Esq.
Paul D. Godec, Esq.
EE vs. IC
Employees vs. Independent Contractors
Independent contractors
• Individuals who are in an independent
business
• Offer their services to the general public
• Have control over what and how the
work is done to arrive at the end
product for a company
Employees
• Individuals who perform services for
an employer
• Employer has control over what will be
done and how it will be done
• Employer has the right to control the
details of how the work is performed
Independent Contractors
What is the attraction?
• No required “wages”
• No expectations of benefits or
employee perks
• Short-term relationship
• Typically less cost to the company
• No employment taxes such as FICA,
FUTA and workers’ compensation
EE vs IC: Dept. of Labor’s “Test”
CAUTION: no single rule or test controls
• DOL’s “Test”
– The extent to which the services rendered are an
integral part of the principal's business
– The permanency of the relationship
– The amount of the contractor's investment in
facilities and equipment
– The nature and degree of control by the principal
– The contractor's opportunities for profit and loss
– The amount of initiative, judgment, or foresight in
open market competition with others required for
the success of the independent contractor.
– The degree of independent business organization
and operation
EE vs IC: Dept. of Labor’s “Test”
• Immaterial factors
– Where work is performed
– Absence of a formal employment
agreement
– Licensing by State/local government
– Time or mode of pay
EE vs IC: IRS “Test”
CAUTION: no single rule or test controls
• IRS “Twenty Factor Test” has been retired
• IRS “11 Main Test”
– Assesses the level of control over the worker
– Behavioral Control
• Degree of instruction
• Amount of training
EE vs IC: IRS “Test”
• IRS “11 Main Test” continued…
– Financial Control
• Unreimbursed business expenses; worker’s financial
investment
• services available to the market
• pay (salary/hourly vs flat fee)
• worker’s realization of profit or loss
– Type of Relationship
• Written contract; benefits and “perks”
• permanency of the relationship
• extent to which worker provides key
aspect of the company’s business
Congratulations, it’s an ….
EMPLOYEE
Employees and their money…
The Fair Labor Standards Act
The Colorado Wage Act
29
Colorado Wage Order No. ____
The Fair Labor Standards Act
• Applies to employees
• 40 hour work week
• Minimum Wage (currently $7.78/hour)
for all hours worked
• Overtime
• Record keeping
• Youth employment
The FLSA does not require…
• Pay or even time for vacation, holiday,
or illness
• A five day work week
• Pay raises or benefits
• Written discharge documents
• Premium pay for holidays or weekends
• Any limit on the hours an employee
can work in one day or one week
– Except for young employees
FLSA: Today’s Topics
• Numerous exemptions and exceptions
from the FLSA’s requirements
– Exempt Employees
• Exempt from minimum wage and overtime pay
– Non-Exempt Employees
• Must be paid for all hours worked; must be paid
overtime
• Pay Issues
– Hours worked
– Deductions
FLSA: Exempt Employees
• No overtime for hours worked over 40
• Do not have to work 40 hours per week
to earn their salary
– Do not get to work just 40 hours per week to
earn their salary
• Three tests for exempt employees
– Salary level
– Salary basis
– Job duties
Exempt: Salary Level and Basis
• To Be Exempt:
– Receipt of a pre-determined amount
each pay period
• At least $455 per week ($910 biweekly;
$1971.66 monthly)
– No reduction in pay because of the
quality or quantity of work performed
– Paid a full salary for any week in which the
employee performed any work
• Be very cautious of deductions
FLSA: Deductions for Absences
If the exempt employee is
ready, willing, and able to work,
deductions cannot be made
for time when work was not
available.
Absences occasioned by the employer,
such as holidays, weather closures
FLSA: Deductions for Absences
• Permitted Deductions under the FLSA
– Absences from work for personal reasons
• Can use PTO/vacation time for compensation
– Absences from work for sickness or illness
• Only if the employer has a bona fide sick time plan
– Unpaid disciplinary suspension (good faith)
– Partial pay for the first or last week of
employment
– Unpaid medical leave pursuant to the FMLA
• Partial-day deductions are not allowed
– Can deduct partial day from PTO/vacation
bank
Exemptions
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Executive
Administrative
Professional
Outside Sales
Computer Employees
FLSA: Executive Exemption
• Primary Duty
– Managing dept. or subdivision
– Supervises 2+ employees
– Has hiring and firing authority
• recommendation on hiring and firing
is given significant weight
• Working supervisors and leads
– Do not meet exemption
• “Sole charge” exception
– Person in sole charge of a geographically
separate facility
FLSA: Administrative Exemption
• Primary duty is
– Performance of office or non-manual work
– Work is directly related to management or
general business operations of the
employer or the employer’s customers
– Discretion and independent judgment on
matters of significance
• Significant authority
• Substantial consequences
– All three factors must exist
Mgmt or General Business Ops?
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Tax
Finance
Accounting
Budgeting
Auditing
Insurance
Quality Control
Purchasing
Procurement
Advertising
Marketing
Research
Safety and Health
Human Resources
Employee Benefits
Labor Relations
Public and Govt
Relations
• Legal and Regulatory
Compliance
• Computer Network,
Internet, and Database
Administration
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Independent Judgment
The more …
– Guidelines
– Assistance
– Procedures
– Standards
– Precedents
– Supervision
… the less likely the job is exempt.
FLSA: Professional Exemption
• Learned Professional
– Performance of work requiring knowledge
of an advanced type in a field of science
or learning customarily acquired by a
prolonged course of specialized
instruction
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Law, accounting, teaching,
engineering, theology, medicine
FLSA: Professional Exemption
• Creative Professional
– Performance of work requiring invention,
imagination, originality, or talent in a
recognized field of artistic or creative
endeavor
FLSA: Professional Exemption
• Doctors
• Registered Nurses (not
LPNs)
• Lawyers (not paralegals)
• Teachers
• Accountants (not
bookkeepers)
• Pharmacists
• Engineers (not techs)
• Actuaries
• Chefs (not cooks)
• Certified athletic trainers
• License funeral directors
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Musicians
Composers
Conductors
Soloists
Essayists
Short-story writers
Screen writers
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Actors
Painters
Photographers
Cartoonists
– Who choose their own
subjects
FLSA: Outside Sales Exemption
• Primary Duty is
– Making sales or obtaining
orders or contracts from
customers
• Away from the employer’s
place of business
• Does not need to meet the
salary basis or level test
FLSA: Computer Exemption
• Systems
– Analysis
– Design
– Creation/modification
• Does not include
– Computer operation and
maintenance
• Pay can be either salary
(at least $455/week) or hourly
($27.63/hour)
FLSA: Motor Carrier Exemption
No overtime due if:
• Employed by a motor carrier subject to the
power of the Secretary of Transportation
• Engaged in activities that directly affect the
operational safety of commercial motor
vehicles
– Drivers, driver’s helpers, loaders, or mechanics
• The vehicles the employee works on must
transport property or passengers on public
highways in interstate or foreign commerce
BUT still due minimum wage for all hours worked
FLSA: Pay for all hours worked
• “Suffered or Permitted to Work”
– If an employee works for you, the employee
must be paid for that time
– Volunteers
• Employee works when he shouldn’t?
• Pay the employee for the
time work, including any
overtime
• Discipline the employee for
the violation
FLSA: Pay for all hours worked
• Waiting time
– Time is controlled by employer
• On-Call time
– Employee has little of no control over time
• Meal periods/Rest Periods
– Not relieved of all duties; less than 30 minutes
• Training
– Mandatory training;
– benefiting employer
• Travel
– Control and direction of
employer; not a commute
Colorado Wage Act (8-4-101)
• Requirements on when to pay employees
– final pay, pay periods and paydays, and pay
statements
• Deductions from wages
– Loans, advances, goods – pursuant to a
written agreement
– Money or value of property employee
did not return
• Defines “wages” to include
vacation, commissions, bonuses
Colorado Wage Order No. 29
7-CCR Sec. 1103-1
• Covers
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Retail and Service
Food and Beverage
Commercial Support Service
Health and Medical
• Overtime due for hours over 12 in one workday
(as well as for hours over 40 in one workweek)
– Similar exemptions to the FLSA
• 30 min. meal period for shifts over 5 hours
• Compensated 10 minutes rest period in the
middle of each four hour work period
Calculating Overtime
• No matter how you pay, if
an employee is non-exempt,
overtime must be paid
– Hourly rate, piece-rate, salary,
commission, day rate, mileage rate
• Overtime pay is computed on the basis of
the regular rate.
– Includes all payments made by the employer
to the employee
– Does not include: expenses, premium pay,
discretionary bonuses, gifts, vacation/
holidays/sick pay
Misclassification: How to Fix It
• Change the classification immediately and
adjust the pay as needed
• Financial consequences
– Failure to classify as an employee
– Failure to classify non-exempt
• Any overtime due?
– Risk / benefits of paying monies due
• Communicate with the employee
– Explain any policy changes (no more overtime)
– Explain and change in pay (hourly vs salary)
Questions?
Nancy C. Rodgers
Email: [email protected]
Phone: (303) 320-6100
Paul D. Godec
Email: [email protected]
Phone: (303) 320-6100
For upcoming HR Workshops, go to
www.bigroupinc.com/hrdevelopment
www.bigroupinc.com Twitter: @BIGbenefits