exempt or not exempt and other big agency employment issues ann price, j.d. boulette golden, l.l.p

Exempt or Not Exempt and Other Big Agency Employment

IssuesANN PRICE, J.D.

Boulette & Golden, L.L.P.

Fair Labor Standards Act of 1938• Exemptions (and anticipated

changes)• Employee or independent

contractor statusRegulatory Climate• Government – new rules expected

to issue in late 2016, recent DOL action

• Lawsuits • “Sharing Economy” e.g., Uber

Overview

FLSA Lawsuits

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Number of FLSA Cases

FLSA Lawsuits

Causes of the more than 600% increase since 1991 • Law is complex, vague, and

antiquated• Interpretation shifts with political

winds• Greater awareness of rights• Plaintiff attorney’s fee awards• Collective actions

–Opt in

Assuming employer coverage and employee status

• Minimum wage ($7.25/hour)• Overtime pay (if more than 40

hours worked in workweek) • Exemptions from minimum wage

and/or overtime• Recordkeeping, especially hours

worked by nonexempt employees

Fair Labor Standards Act

“White Collar” Exemptions• Executive• Administrative• ProfessionalCertain computer employeesOutside sales employeesFunky “Good Lobbyist” Exemptions

Exemptions

• Liability for unpaid overtime and/or minimum wages within limitations period – Two years– Three years if the violation is “willful”

• Liability for “liquidated damages” equal to above amount (essentially double damages)

Consequences of Violation

• Court can reduce or eliminate liability for “liquidated damages” if the employer demonstrates it acted in “good faith” and had “reasonable grounds” to believe it was not in violation

• Reasonable attorney’s fees, and costs

Consequences of Violation

“Salaried” = ExemptNot always truePayment on a salary basis alone is not sufficient to establish an exemption

Common Misconception

Generally, three tests must be satisfied in order to prove an exemption1. Primary duty2. Manner of compensation -

payment of a “salary” is usually required, and

3. Amount of compensationNew regulation is expected to change #3, but may also change #1

What are the tests?

The principal, main, major or most important duty that the employee performsHow is this determined? Proportion of time spent or otherwise?

Test 1 - Primary Duty

• Managing the enterprise or a customarily recognized department or subdivision

• Customarily and regularly directing the work of at least 2 full-time employees or the equivalent

• Have the authority to hire or fire or recommendations are given particular weight

Executive Primary Duty

• Performance of office or non-manual work directly related to management or general business operations, e.g.,– Tax, finance, accounting, auditing,

budgeting, insurance, marketing, advertising, human resources, public and governmental relations, legal and regulatory compliance, computer network, internet and database administration

– Not production workers

Administrative Primary Duty

• Exercise of discretion and independent judgment with respect to matters of significance– Consideration of possibilities and

choice or action free from immediate direction or supervision

– High level of importance or significance, not just risk of loss

– Not skill in application of standards

Administrative Primary Duty,

continued

• Insurance claims adjusters• Certain financial services industry

workers (not if primarily selling)• Team leader on major projects

(purchasing or selling a business, negotiating real estate purchase)

• HR managers• Some systems analysts and

computer programmers

Administrative Exemption Examples

Learned Professional • Performance of work requiring

advanced knowledge in a field of science or learning

• Customarily acquired by a prolonged course of specialized intellectual instruction

• Consistent exercise of discretion and judgment

Professional Primary Duty

• Commonly exempt professionals–Lawyers, teachers, accountants,

pharmacists, engineers, actuaries, certified athletic trainers, chemists, chefs, etc.

• Not exempt–Licensed practical nurses,

bookkeepers, cooks, paralegals, engineering technicians

Professional Exemption Examples

• The application of systems analysis techniques and procedures, including consultation with users, to determine hardware, software or system functional specifications

Exempt Computer Primary Duty

• The 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,

Exempt Computer Primary Duty,

continued

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

• A combination of the above which requires the same level of skills

• Not repair, help-desk, or CAD workers

Exempt Computer Primary Duty,

continued

• Making sales / obtaining orders or contracts for services or facilities

• Customarily and regularly engaged away from the employer’s place of business in performing the primary duty – not sales made by mail, telephone or the internet unless merely an adjunct to personal calls

Outside Sales Primary Duty

• Salary basis–Predetermined amount not subject to reduction because of variations in the quality or quantity of work performed

Test 2 - Manner of Compensation

• Salary basis, continued–Unless a specific exception applies, must pay the full salary for any workweek in which the employee performs any work

–Need not pay for any workweek when no work is performed

Test 2 - Manner of Compensation

• Salary Basis – Permitted Deductions–Full day absences for personal reasons other than sickness or disability

–Full day absences due to sickness or disability under a bona fide system for replacement wages

Test 2 - Manner of Compensation

• Salary Basis – Permitted Deductions, continued–To offset amounts received as jury fees, witness fees or military pay

–Penalties imposed in good faith for violating safety rules of major significance

Test 2 - Manner of Compensation

• Salary Basis – Permitted Deductions, continued–Full day disciplinary suspension imposed in good faith for violations of written workplace conduct rules

–Proration in first or last week–Unpaid FMLA leave

Test 2 - Manner of Compensation

• Fee Basis – Professional and Administrative (can be problematic when determining whether the amount is sufficient)

• Different rule for Outside Sales both as to manner and amount

Test 2 - Manner of Compensation

Current Minimum Levels• Salary or Fee Basis - $455/week

or $23,660/year• Highly Compensated Employees

- $100,000/year (and $455/week salary)–Easier primary duty test; at least one customarily and regularly

Test 3 - Amount of Compensation

• Peg minimum salary to that of the 40th percentile of full-time workers

• Peg amount necessary to be a highly compensated employee to the annualized earnings of the 90th percentile of full-time workers

• Establish a mechanism for automatic updates

Proposed Changes to Exemptions

• Minimum salary expected to more than double to $970/week or $50,440/year

• Annual compensation of approximately $122,148 necessary to qualify as a highly compensated employee

Proposed Changes to Exemptions

• May also change primary duty test

• Possibly require more than 50% of time be spent on primary duty

Proposed Changes to Exemptions

• Nearly 5 million workers now properly classified as exempt will be eligible for OT (unless their pay is increased to meet new test)

• New rule is expected to issue in late 2016

• What else happens then?

Proposed Changes to Exemptions

• Consequences of classification– Employee rights and

protections • Laws (FLSA, Title VII, ADA,

FMLA, NLRA, etc.)• Health insurance, other

employee benefits, unemployment and workers’ compensation

Employee v. Independent Contractor

• Consequences, continued– Taxes

• Withholding income tax and FICA

• Making employer FICA contributions

• Reporting of earnings

Employee v. Independent Contractor

• Independent Contractor–A business – opportunity for profit or loss, not subject to control except final product

• Employee –Recipient of services has the right to control means and manner of work

Conceptual Definitions

• What determines status?–The facts of the relationship–The legal test applied to the facts

–Not the labels or titles applied by the firm or the worker

Employee v. Independent Contractor

“Employ” includes to suffer or permit to workFLSA legal test is an economic reality testBroader than traditional common law concept of control

FLSA Definition of Employment

• Administrator’s Interpretation No. 2015-1, Issued July 15, 2015

• Not necessarily a new test, but first time set out in this format

• May affect the weight given by courts on this interpretation

DOL Administrator Interpretation

• Signifies DOL’s belief of widespread “misclassification” which deprives employees of important protections, lowers tax revenues, and creates an “uneven playing field”

• Conclusion (by DOL) – most workers are employees

DOL Administrator Interpretation

Focus – Whether the employee is economically dependent on the employer, regardless of skillFactors

–Extent to which the work is integral to the employer’s business

DOL Administrator Interpretation

Factors, continued–Worker’s opportunity for profit or loss depending on management skill

–Extent of relative investments–Whether the work requires special skills and initiative

DOL Administrator Interpretation

Factors, continued–Permanency of the relationship–Degree of control exercised or retained by the employer

–No single factor is determinative, FLSA should be construed to give broad coverage

DOL Administrator Interpretation

• Think through classification in advance, err on side of employment

• Eliminate artificial barriers to employment status

• Limit (well drafted) contracts to legal entities other than sole proprietors

• Proper 1099 reporting for contractors

Classification Best Practices

• Compliance Audit–Exempt v. Nonexempt–Employee v. Independent

Contractor–Work with your lawyer to maximize application of privilege for attorney-client communications

• Budget for possible changes• Plan for transition

Practical Tips

This presentation is not intended to serve as a substitute for legal advice. For advice specific to a given situation, please consult with an attorney.

The Fine Print

Ann Abrams Price, Esq.ann@boulettegolden.com

512-732-8900

Employment Law Update: Exempt or Non-Exempt; Employee or

Independent Contractor