Unprecedented Winds of Change at U.S. Department of Labor Aim to Require Overtime Pay for Millions by “Reclassifying” Workers - from Exempt to Non-exempt and from Independent Contractors to Employees

July 2015

By: James B. Sherman, Esq.

Within the past month, the U.S. Department of Labor (DOL) has taken two separate actions to greatly expand the reach of the Fair Labor Standards Act (FLSA) to require overtime pay for millions more workers.  The first action taken on June 30th, was the DOL's release of proposed regulations aimed at doubling the minimum salary needed to meet the so-called white collar exemption to the FLSA's minimum wage and overtime requirements.  If the proposal becomes final it will result in the reclassification of an estimated 4.6 million workers from exempt to non-exempt status, entitling them to overtime pay.  The DOL's second action was taken on July 15th, when the Wage and Hour Division of the DOL released an "Administrator's Interpretation" addressing what was termed the "misclassification" of workers as independent contractors rather than employees.  This interpretation may result in many more workers who presently are treated as independent contractors, being reclassified as employees for purposes of the FLSA and, thus, entitled to overtime pay.

While many employers have heard about the DOL’s proposed new minimum salary for exempt employees, few have heard about its position on “misclassification” of independent contractors.  In either case, employers should brace for the impending changes that these new measures will soon bring.  In addition to keeping records on millions more workers who are expected to be entitled to overtime pay, all of those reclassified individuals represent a new pool of potential plaintiffs to join the ever growing surge of wage and hour lawsuits.    

1.       The Proposed New White Collar Exemption Regulations

This is only the second time in more than 50 years that the DOL has proposed revisions to its regulations implementing the exemption from minimum wage and overtime pay under the Fair Labor Standards Act (FLSA) for executive, administrative, professional, outside sales, and computer employees. The nearly 300 pages of bureaucratic data and legalese of the proposal can be summarized as follows:

• More than doubling the minimum salary for the white collar exemption, from $455/week ($23,660 annually) to a figure equivalent to the 40^th percentile of earnings for all full-time salaried workers.  The current estimate for the first quarter of 2016 when the proposed rule may go into effect, is a new minimum salary requirement of approximately $970/week ($50,440 annually).

• Increasing the “highly compensated employee” definition from $100,000 to $122,148 annually (equal to the 90th percentile of earnings for full-time salaried workers);

• Automatic annual updates to these foregoing minimum salaries based on a fixed percentile of earnings or cost of living indicators; and

• While not yet making specific proposals to modify the “duties test” for white collar exemptions, the DOL is seeking further comments from the public over its concern that some exempt employees may be performing a “disproportionate amount of non-exempt work.”

The DOL is accepting comments from the public on its proposed rule before it issues the final version. Timely comments must be recovered by the Department no later than August 29, 2015. To learn more about these proposed regulations and how they may impact whether employees currently regarded as exempt, may soon be non-exempt and entitled to overtime pay, attend our TIMELY WEBINAR (see below to register).

2.       The Independent Contractor Administrative Interpretation

According to this new interpretation individuals previously thought to be independent contractors rather than employees, will now be assessed under a new standard.  According to the DOL’s new interpretation, the key question in whether a worker is an independent contractor or an employee for purposes of the FLSA is whether the worker is economically dependent on the employer or in business for him or herself. The interpretation goes on to list and describe the following six factors to be considered in determining whether a worker is an employee or independent contractor (with examples for each): (1) Is the work an integral part of the employer’s business?  (2) Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? (3) How does the worker’s relative investment compare to the employer’s investment?  (4) Does the work performed require special skill and initiative?  (5) Is the relationship between the worker and the employer permanent or indefinite?  (6) What is the nature and degree of the employer’s control?  No single factor is determinative, and the interpretation states that these factors should all be interpreted within the broader concept of “economic dependence.” 

The DOL’s new interpretation openly declares that under the foregoing analysis most workers will be considered employees rather than independent contractors.  The close timing of these two measures highlights the DOL’s intention to expand the FLSA’s minimum wage and overtime requirements to millions more workers.  Employers should act now to prepare for the potential of having numerous exempt employees and/or independent contractors who soon may be eligible for overtime pay and all the many related concerns of tracking time worked, lunch breaks, work from home, etc. 

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To prepare for these sweeping changes or for assistance in determining whether your workers are properly classified as employees vs. independent contractors, or exempt vs. non-exempt, contact attorney James Sherman in our Minneapolis office, at (952) 746-1700, or email him at jasherman@wesselssherman.com.

Wisconsin Legislative Update

June 2014

By: Alan E. Seneczko, Esq.

The Wisconsin legislature recently enacted two laws that affect Wisconsin employers. The laws, which took effect in April 2014, are not particularly “earth-shattering,” but they are nonetheless worth noting.

Recordkeeping, Exempt Employees – One of the weird anomalies of Wisconsin wage and hour law has always been its requirement that employers keep records of the hours worked by exempt, salaried employees. I am sure that many of you are now saying “it did,” but have no fear. It no longer does. 2013 Wis. Act 286 amended the Wisconsin minimum wage law to expressly provide that employers are not required to keep records of the hours of employment of employees who are exempt from the requirement to be paid overtime and not paid on an hourly basis.

Social Media Account Access – By now, employers should know that they cannot access an employee’s Facebook page, personal email account, etc., without the employee’s authorization, given that such conduct is prohibited by the federal Stored Communications Act. As a result, 2013 Wis. Act 208, “Internet Privacy Protection,” should be old news.

Effective April 10, 2014, the law prohibits a Wisconsin employer from requesting or requiring an employee or applicant to disclose access information for, grant access to, or allow observation of a personal internet account (an account “created and used by an individual exclusively for purposes of personal communications”) as a condition of employment; and from discharging, refusing to hire or otherwise discriminating against a person who refuses such a request or opposes such practices. An employer may, however:

• Discharge or discipline an employee for transferring confidential information or financial data to the employee’s personal internet account without authorization.
• Conduct an investigation of misconduct, if the employer has reasonable cause to believe that activity in the employee’s personal internet account relating to the misconduct has occurred. Examples include alleged unauthorized transfer of proprietary information; job-related misconduct; violations of the law or the employer’s work rules as specified in an employee handbook. In such circumstances, an employer may require an employee to grant access to or allow observation of a personal internet account, but may not require the employee to disclose access information for that account.
• Restrict or prohibit a person’s access to certain internet sites while using a device or network supplied or paid for by the employer.
• Request or require access to a device, account or service supplied or paid for by the employer, which is provided by virtue of the employment relationship or is used for the employer’s business purposes.
• View, access, or use information about an employee or applicant that is available in the public domain or that can be viewed without access information.
• Request or require disclosure of an employee’s personal email address.

An employer that inadvertently obtains access information through use of an electronic device or program that monitors the employer’s network, or through an electronic communications device supplied or paid for by the employer is not liable for possessing that information as long as the employer does not use that information to access the employee’s personal internet account.

Simple rule of thumb:  If it is personal and you need the employee’s password to see it; you cannot look. If you can see it in the public domain without a password, no problem.  

Questions? Please contact WS Attorney Alan E. Seneczko at (262) 560-9696, or email alseneczko@wesselssherman.com .

 

When Can an Employer Make Deductions from an Employee’s Salary without Destroying the Employee’s Exempt Status?

January 2015

By: James B. Sherman, Esq.

We frequently are asked whether and under what circumstances an employer may make deductions from an employee’s salary without impacting the employee’s exempt status for purposes of overtime under wage and hour law.  HR professionals know that in order to be exempt from overtime, an employee must be paid on a salaried basis and making deductions from that salary can sometimes destroy the exemption.  At the same time salaried employees frequently do things (or fail to do things) that may cause their employers to want to make deductions from their pay.  Consequently, knowing which deductions are permissible and which would ruin the employee's exempt status, is extremely important to employers.

The following is a “cheat sheet” employers may use as a quick reference addressing some of the more common circumstances where deductions may legally be taken from an exempt employee’s salary and where deductions are not allowed.

            DEDUCTIONS ALLOWED

• Full day absences taken for personal reasons. Example: An exempt employee who misses 1 ½ days of work for personal reasons, such as golfing or helping a family member move, could be docked 1 full day of salary because the absence was for personal reasons, but could not deduct for the additional half day.
• Full day absences occasioned by sickness or disability, if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability. Example:  An employer that maintains a bona fide policy or practice which pays all or a portion of an employee’s salary during absences for sickness or disability, can deduct from an employee’s salary for any related absence occurring before, during and after such payments are exhausted, for any period of full day absences covered by this policy.
• Infractions imposed in good faith for violation of safety rules that are of major significance. Example: An employer may legally make a deduction from an exempt employee’s pay as a penalty for a serious safety rule violation such as smoking in a coal mine.
•  Disciplinary suspensions imposed in good faith for infractions of “workplace conduct rules” – must be pursuant to a written policy applicable to all employees.  Example: An employer may legally impose a three-day unpaid suspension for violating a written policy applicable to all employees prohibiting sexual harassment.
• Exempt employees who are on unpaid FMLA leave need not be paid under that law.

            DEDUCTIONS NOT ALLOWED

• Less than full day absences regardless of reason.
• Full day absences occasioned by sickness or disability, where there is no bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability.
• Infractions of safety rules that are not of major significance.
• Infractions of unwritten workplace conduct rules or rules that address things other than workplace conduct (e.g. attendance infractions for tardiness).

Another question we frequently hear from employers is how to discipline an exempt employee for not working enough hours as may be expected of them.  An example would be a salaried exempt employee who does not miss full days of work but shows up late, leaves early, or worse, comes late/leaves early.  Although this appears to present employers with a dilemma based on the above summary of Department of Labor (D.O.L.) regulations, the short list of answers is: (1) fire the employee; (2) demote the employee; or (3) if it is apparent the employee is never going to work a 40 hour week, much less a week exceeding 40 hours (i.e. where there is no risk of incurring overtime) change the employee’s method of pay from salary to hourly – this will make the individual non-exempt, regardless of their job duties, but if there is no risk of incurring overtime liability it is better to pay only for the work an employer is getting, right?

Wage and hour law can be tricky and any of the above rules can be impacted by any number of nuances.  Accordingly, for questions regarding exempt employee status, salary deductions, or related issues please contact attorney James Sherman at 952-746-1700 or jasherman@wesselssherman.com.