zalewski - employee classification: defining the employment relationship
TRANSCRIPT
Basics of classifications
• Employees (legal or internal designations)
• Legal classification: Exempt & non-exempt
• Internal (part time, seasonal) — usually
defines benefit eligibility
• Employees by any
other name…
• Non-Employees (interns,
independent contractors,
volunteers)
Part I: Exempt classifications
• Wrongful classification can be costly,
especially if many employees are affected
• Back pay for two years
• Three years for willful,
plus damages
• Award of legal fees
• Example case
• Employee got $4,000 back pay, and
over $55,000 to cover his legal fees
Exemptions: Primary duty
• To qualify for a ―white collar‖ exemption:
(Executive, Administrative, Professional, etc.)
• Primary duty must meet the criteria for the
exempt classification
• Some employees may perform a
combination of exempt duties
• Employee must be paid on a salary basis
Exemptions: Salary basis
• Same salary each week, regardless of:
• Payday frequency
• Days or hours worked
• Limited deductions
• Minimum $455 per week
• Not based on 40 hours (cannot pro-rate)
• Can reduce salary with hours reduction
Executive exemption
• Claims often based on the degree of authority
• Primary duty must be management
• Customarily and regularly direct the work of at
least two full-time employees or equivalent
• Authority to hire or fire, or recommendations on
hiring, firing, or other change in status must be
given particular weight (job duty, frequency)
Executive exemption case
• ―Managers‖ did no hiring, firing, or promoting;
were closely supervised with little discretion
• Worked 60 to 70 hours per week, stocking
shelves, cashiering, and janitorial duties
• Violation was found to be willful;
1,400 employees awarded $35 million
• Job description may not reflect the actual duties
• Morgan v. Family Dollar Stores (11th Cir., 2008)
Executive exemption case
• Employees failed to show willful violation
• Company failed to show good-faith efforts;
no expert consultation — documentation
• Issue is not whether employer
could have won, but whether
it could have lost (and it was)
• Evidence did not favor either
side, so the jury ruling in favor
of employees was upheld
• Rodriguez v. Farm Stores Grocery (11th Cir., 2008)
Administrative exemption
Primary duty:
• Office or non-manual work directly related to
management or business operations
• Accounting, budgeting, HR, marketing,
safety, regulatory compliance, etc.
• Include the exercise of:
• Discretion and independent judgment with
respect to matters of significance
Administrative exemption case
• Employee sold advertising space in a magazine
• Direct sales vs. promoting sales in general
• The employee‘s primary duty was making sales,
so she was not exempt
• Employees in retail might ―promote‖ sales, but
are not engaged in marketing
• Reiseck v. Universal Communications of Miami
(2nd Circuit, 2010)
Administrative exemption case
• Bachelor‘s degree and knowledge of accounting,
financial, and administrative services
• Coordinates meetings and interviews with clients,
medical providers, and investment advisors
• Develops procedures, recommends action
• Spends 95% of his time on client services or
support of executives
• Exemption did not apply
• Opinion Letter FLSA 2003-1NA
Learned professional exemption
• Primary duty which requires:
• Advanced intellectual knowledge, and
• Consistent exercise of discretion and
independent judgment
• Advanced knowledge must be:
• In a field of science or learning (includes
accountants and even chefs), and
• Customarily acquired by a prolonged course
of specialized intellectual instruction
Learned professional exemption
• Employee uses the advanced knowledge to
analyze, interpret or make deductions from
varying facts or circumstances
• Not for positions attained through general
knowledge acquired by a degree in any field
• Not for positions where most employees
acquired their skill by experience rather than by
advanced specialized intellectual instruction
• Usually challenged on educational requirement
Learned professional case
• Offered exempt job;
let go after three years
• Position requires 12 years
experience, but no specific
degree (had 20 years)
• Duties qualified, but did not justify exempt status
without the educational requirement
• Young v. Cooper Cameron Corp. (2nd Cir., 2009)
Creative professional exemption
• Primary duty must be work requiring invention,
imagination, originality, or talent in an artistic or
creative field
• Available for actors, musicians, composers,
painters, cartoonists, novelists, and persons
creative writers or graphic designers
• Status depends on the extent of the invention,
imagination, originality, or talent exercised
(not merely following a template)
Computer employee exemption
• Salary rule does not apply (can be hourly)
• Systems analysts, programmers, engineers
• Primary duty is designing or creating systems
• Does not include ―help desk‖
positions
• Opinion Letter FLSA 2006-42
Outside sales exemption
• Salary rule does not apply (often commission)
• Primary duty is making sales or obtaining orders
or contracts for services
• Customarily and regularly engaged away from the
employer‘s place of business
• Inside sales?
Certain commissioned sales of ―big ticket‖ items
Part II: Duties, deductions, and
expectations
• Each exemption has specific duties
• Employees who perform other duties
may question their classification
• Be wary of assigning non-exempt work
• Certain deductions from salary may threaten the
exempt classification — what you cannot do
• Options to keep timesheets, manage vacation,
and change compensation
Related or occasional tasks
• Most exempts perform minor, related tasks
29 CFR 541.703, Directly and closely related
• Occasional non-exempt tasks may be ―exempt‖
29 CFR 541.707, Occasional tasks
1) Are they performed by subordinates?
2) Can they be assigned to non-exempts?
3) Are they performed frequently?
4) Is performing them an industry practice?
Remember Morgan v. Family Dollar
Emergencies
• Non-exempt tasks during emergencies (which
threaten safety or property damage in situations
that cannot be anticipated) can be ―exempt‖ work
• Routine non-exempt
work may threaten the
exempt classification
• 29 CFR 541.706,
Emergencies
Training periods
• Exemptions do not apply to
trainees who don‘t perform the
duties of the exempt position
• Short periods should be okay,
especially if the employee does
not work overtime hours
• 29 CFR 541.705, Trainees
Prohibited salary deductions
• Making improper deductions may threaten the
exemption if the employer did not intend to pay
employees on a salary basis. (29 CFR 541.603,
Effect of improper deductions from salary)
• Partial day absences (except FMLA)
• Absences initiated by the employer or by the
operating requirements of the business
• Unpaid disciplinary suspension
• Damage or loss (Opinion Letter FLSA2006-7)
What does not threaten status?
• Salary deductions for:
• Full-day absences
initiated by employee
• Full-week absences
(including furloughs)
• Vacation advances
(for full days)
• Deductions for the employee‘s benefit
(insurance, retirement, charity contributions)
What does not threaten status?
• Employers ―may require exempt employees to
record and track their hours and to work a
specified schedule‖ (Opinion Letter FLSA 2005-5)
• Employers ―may require an exempt employee to
make up work time lost due to a personal absence
of less than a day without loss of the exemption‖
(Opinion Letter FLSA 2006-6)
• Mandatory use of vacation or PTO, even if the
company initiates the absence
(Opinion Letter FLSA 2009-2)
What does not threaten status?
• Additional compensation may be paid on any
basis (bonus, straight-time hourly, time and
one-half, or any other basis), and may include
paid time off (29 CFR §541.604, Minimum
guarantee plus extras)
• Example: Safety manager gets recertification
• Be careful not to create a direct relationship
between compensation and hours worked
• Comp time is not allowed for private employers
Part III: Internal classifications
and non-employees
• Employees may challenge other classifications:
• Part-time, seasonal, etc.
• Based on your policies or plan documents
• An ―employee‖ might be wrongly classified as a
non-employee (contractor, volunteer)
• Based on specific legal criteria
• Employer has the burden of proof
Internal status changes
• When does part-time becomes full-time?
• Based on the expected annual hours, or
• Based on your policy or plan definitions
• Claims normally fall under contract law
(if unclear, rule in favor of employees)
• No legal obligation to change status to full-time;
your only duty is to follow your policies
Non-employee classifications
• Volunteers
• Interns — paid or unpaid?
• Independent contractors
• Classification suits for overtime, taxes, or benefits
Volunteers
• Employees cannot ―volunteer‖ for their employer
• Any service for the employer must be paid
• Employees cannot ―decline‖ the protections of the
FLSA by performing duties the employer and
employee have characterized as volunteer work
• Opinion Letter FLSA 2001-18
Unpaid interns
• The internship is similar to educational training
• The experience is for the benefit of the intern
• The intern does not displace regular employees
• The employer gets no immediate advantage,
and operations may be impeded
• The intern is not entitled to a job
• Both parties understand that wages are not paid
• Fact Sheet #71, Internship programs
Independent contractors
• Behavioral control (outcome vs. methods)
• Financial control (profit, hiring, equipment)
• Type of relationship (contract, nature of work)
• Potential risk of an ―employment‖ relationship:
• Dependency, duties, and duration
• Proposed rule to document justification
• IRS and DOL criteria vs. state laws
FL Statute Title XXXI, Ch. 440
§440.02 Definitions: Meet at least four criteria:
1) Maintains a separate business (work facility,
truck, equipment, materials, etc.);
2) Has or applied for a FEIN, unless sole proprietor;
3) Paid to a business rather than to an individual;
4) Bank account(s) in the name of the business;
5) Could or does work for another entity without
an employment application process; or
6) Compensated on a competitive-bid basis or
completion of task(s) defined by a contract
(other than a contract for employment).
Independent contractors
• Individual cannot be an employee and contractor
in the same week
• ―It is unrealistic to assume that an employment
and ‗independent contractor relationship‘ may
exist concurrently between the same parties in the
same workweek‖ (Opinion Letter dated July 5,
2000 [not available on DOL‘s website])
• IRS form 1099-MISC vs. wages on W-2s
• No such thing as 1099 employee
Summary of classifications
• Employee or non-employee?
• Cannot be both (volunteer, contractor)
• Document your justification
• Exempt or non-exempt?
• Don‘t rely solely on the job description
• Document your justification
• If uncertain, non-exempt is safest
• Internal classifications (part-time, seasonal, etc.)
• Usually for benefits; use clear definitions
• Employees cannot decline the FLSA protections
Resources
• Opinion Letters from the Wage and Hour Division
www.dol.gov/whd/opinion/opinion.htm
• Fact Sheets from the Wage and Hour Division
www.dol.gov/whd/fact-sheets-index.htm
• Regulations of the Wage and Hour Division
www.dol.gov/dol/allcfr/Title_29/Chapter_V.htm
Part 541 (white collar exemptions)
Part 779 (―inside sales‖ exemption)
• Florida statutes
www.leg.state.fl.us/statutes/
Edwin Zalewski
Editor – Human Resources
J. J. Keller & Associates, Inc.
www.jjkeller.com
(920) 722-2848
[email protected], regulations, and best practices change. The observations and comments drawn
today may not apply to laws, regulations, or best practices as they may be in the future.
J. J. Keller & Associates, Inc. does not assume responsibility for omissions, errors, or
ambiguity contained in this presentation. Individuals needing legal or other professional
advice should seek the assistance of a licensed professional in that field.
2010 J. J. Keller & Associates, Inc.®
Questions?