wage and hour update - aicum...wage and hour update white collar flsa overtime exemption changes...

Wage and Hour UpdateWhite Collar FLSA Overtime Exemption Changes

&

Evolving Independent Contractor Definitions

October 2, 2015

This information, which may be considered advertising under the ethical rules of certain jurisdictions, should not be construed aslegal advice or a legal opinion on any specific facts or circumstances by Morgan, Brown & Joy, LLP and its attorneys. This material is intended for general information purposes only and you should consult an attorney concerning any specific legal questions you may have.

Daniel S. Field [email protected]

mailto:[email protected]

© Morgan, Brown & Joy, LLP 2

Wage Hour Introduction & Overview

W-H Laws Regulate wages, hours & recordkeeping

FLSA of 1938 -Federal law from 1930’s

State law from 1870’s

FLSA designed to encourage employers to minimize hours and hire

Outdated and often ill-adapted to modern workplace

Overtime, minimum wage, child labor, prompt payment

Record-Keeping requirements

State v. Federal: law of the higher standard


Overtime Non-exempt employees must be paid at least

one and one-half times their regular rate of pay for all hours worked in excess of 40 per week

An employee who works overtime, even without permission, is entitled to overtime pay


Wage & Hour Law Class action epidemic- big and small

Record-keeping and reporting rules

Working time rules

Overtime law basics Exemptions

Hours worked rules

Understanding the regular rate of pay

Wage payment/Misc.


Current Overtime & Exemption Fundamentals

“White Collar” Executive, Administrative, Professional Exemptions, Outside Sales. Three Part Tests:

Salary Level at Least $455 Per Week Guaranteed Salary Basis Docking Salary Plus Exceptions Evidence of salary arrangement needed

Teachers, Doctors, Lawyers & Computer Prof. No Salary Requirement

Job Duties Tests


Overtime Duties Test Summaries

Executive Primary Duty, Managing; 2 or More Subordinates, in

a Recognized Department/Subdivision; Decision Maker or Recommendations Given Weight in Hiring, Firing, Promotion, Compensation.

Administrative Primary Duty Directly Related to Management or

Internal or Client Bus. Operations w/ Discretion and Independent Judgment as to Matters of Significance

Professional Primary Duty Involves Work Requiring Advanced

Knowledge; Prolonged Study, Advanced degree in Recognized Field of Higher Learning; or Equivalent


Overtime Exemption – Highly Compensated

Highly Compensated Workers Total annual compensation of at least $100,000 Customarily and regularly perform one or more of

the duties of an executive, administrative, or professional exempt employee

Earn at least $455/week in salary Remainder of the total annual compensation may include

commissions, nondiscretionary bonuses, and other nondiscretionary compensation

Doesn’t include “fringe benefits”

Compensated on a salary or fee basis


Overtime Duties Tests Academic Setting

Academic Administrative Work related to the academic operations and functions in a school

rather than to administration along the lines of general business operations

Operations directly in the field of education Teaching Professional Primary Duty Involves Work Requiring Advanced Knowledge;

Prolonged Study, Advanced degree in Recognized Field of Higher Learning; or Equivalent

In an educational establishment Imparting knowledge No salary requirement

Employees who perform a combination of exempt duties (executive/administrative/professional/outside sales/teaching/computer employees) may qualify for exemption


Proposed Changes to Regulations

March 13, 2014 – President Obama signed a Presidential Memo directing DOL to update white collar OT regulations DOL embarked on outreach program and

missed several deadlines July 6, 2015 – proposed regulations

released with comment period - closed 289,918 comments received


USDOL-WHD Proposed Changes

Increase the standard salary level to the 40th percentile of full-time salaried employees―$455 $921/week―$23,660 $50,440/year

Set the salary threshold for the streamlined duties test applicable to “highly compensated employees” at the 90th percentile―$100,000 $122,148


USDOL-WHD Proposed Changes Install mechanism to automatically update

salary level on an annual basis either using Consumer Price Index (CPI) “Fixed Percentile” approach would permit the

Department to reset the salary level; fixed percentile of wage earnings for full-time salaried workers

Would require annual ER review and possible salary adjustment


USDOL-WHD Proposed Changes Include bonus payments in salary test? Nondiscretionary compensation would count

in salary level ― Require the payment of bonuses on a monthly (or

more frequent) basis―Or limit the amount of nondiscretionary

compensation counted toward the salary threshold to 10% of the employee’s annual salary

Seeks comment on duties tests but no proposal


Commentary AFL-CIO

―Changes needed, but salary level should be higher Weekly salary ~$1,000

―Supports salary threshold updating automatically, but calculation based on Employee Cost Index (ECI)

―Duties test should be changed – employees who spend more than 50% of their time performing non-exempt work should receive overtime.


Commentary U.S. Chamber of Commerce―DOL should withdraw changes ―Negative impact on flexibility, benefits,

opportunities for advancement―Nonprofit, medical, small businesses most

acutely affected―“Being eligible for overtime is not the same

thing as earning overtime[.]”


Commentary National Retail Federation

―Negative impact for workers and business―If employers made no changes to their pay and

scheduling structure, overtime costs would run businesses $9.5 billion under the proposed changes.

―Particularly concerned about retailers in rural locations and other low-cost areas of the country that could see a disproportionate impact on their payrolls as a result of the increase in their salary level.


Commentary

AFSCME― Submitted a file of over 24,122 comments gathered, the

overwhelming majority in support

CUPA-HR ― An increase to the minimum salary threshold is due, but

the proposed levels are too high― “To comply with the proposed changes, colleges and

universities would increase salaries for a few individuals whose current pay is closest to the new threshold, but would have to reclassify the vast majority of impacted employees to hourly [non-exempt] status.”


Hypothetical

Athletic Department Assistant who is also part-time swim coach, earning $40,000 a year ($770/week) plus bonuses, usually works 50 hours a week.

Eligible for overtime under current or proposed regulations?


1. Maybe Yes2. Almost Certainly No Duties test: what is primary duty? Supervision,

administrative, combo.? See salary level

―Salary basis? Bonus level? Duties test? Solutions compensation: Drop her hourly rate so that pay still won't top $40,000, even

with her 10 extra hours of work every week? Cut schedule to fewer than 50 hours = pay cut since only be paid

for the hours she works. Even if salary maintained, she may see changes to her benefit

plan, vacation time, bonuses; if hourly must track of work hours


Effects Higher overtime costs

― Increased costs in general Reclassifying some salaried employees as hourly

workers and strictly limiting weekly hours to 40―Interrupting benefits and flexibility in the

workplace Require salaried workers to keep close count of every

hour they work Hire additional workers, including part-time


Independent Contractors

Employee (W-2) vs. Independent Contractor (1099) When does the FLSA & MA require a worker to

be treated as an employee? “Economic Realties Test” – whether a worker is

dependent on the employer is in business for him or herself


New Guidance July 15, 2015 – Department of Labor issued

new guidance regarding independent contractors ―Goal: Sharply reduce worker

misclassification FLSA – Broad – “Suffer or permit work”


Federal Independent Contractor Changes

Massachusetts employers – little practical effect― Massachusetts has the nation’s strictest state independent

contractor rules

New federal guidance emphasizes factors other than the nature and degree of an employer’s control over a worker’s activities

Exercise care to ensure that the presumption of employee status can be overcome― Review all independent contractor arrangements


Additional Factors to Consider More detailed analysis of the “economic realities” test, with no

one factor determinative― Is the work performed by the individual an “integral part of

the employer’s business?”― Does the individual’s “managerial skill” affect his or her

opportunity for profit or loss? ― How does the worker’s investment compare to that of the

company?― Does the work performed require special skill and

initiative?― Is the relationship between the worker and the company

permanent or indefinite?― What is the nature and degree of the employer’s control?


Presumption of Employment Worker Must be Free From ER Direction &

Control Close to control tests See federal law for guidance

Service Outside Usual Course of ER Business

Independent Trade, Occupation or Business Worker must have established independent business Work must be similar

Massachusetts 3-Part Test§148B

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Unemployment Statute; “ABC Test”

Massachusetts Common Law developing in a series of unemployment law cases.

ABC Test; There is Significant Common Law in Other States, Which Massachusetts Supreme Judicial Court and Appeals Court Have Both Cited.

Four Important Unemployment Cases Provide Helpful Analysis of the ABC Test

Coverall, Town Taxi, Athol, Boston Bike Messenger, Boston Pads, Sebago

Massachusetts Test


IRS & Related Tests Are Useful In Determining If A Worker Is Free From Control, As Required by Part A.

Behavior Control

Town Taxi; Sebago v. Boston Cab Dispatch, Inc. - driver discretion

“A” Direction & Control


The AG Advisory 2008/1

AG “Core Business” Concept Provides limited guidance.

Cases Provides Grim Guidance Monell v. Boston Pads Depianti Athol Daily News

“B” Usual Course of Business


Hypothetical University engages attorneys as part-time

instructors for business law classes for both fall and spring semesters. These instructors are licensed professionals, with law practices and are either partners or employees at law firms. They do not usually teach. Can the university continue to characterize them as 1099 workers?


Answer Presumption of Employment Free From ER Direction & Control Service Not Outside Usual Course of

University Business May or May Not have Independent

Trade, Occupation or Business That is Same As Provided here


Questions and Answers

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Daniel S. FieldMorgan, Brown & Joy, LLP200 State Street Boston, MA [email protected]

http://www.morganbrown.com/

mailto:[email protected]

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