Tag: Overtime Pay

DOL Announces New Independent Contractor Rule

On January 9, 2024, the United States Department of Labor (“DOL”) announced a new rule, effective March 11, 2024, that could impact countless businesses that use independent contractors. The new rule establishes a six-factor analysis to determine whether independent contractors are deemed to be “employees” of those businesses, and thus imposes obligations on those businesses relating to those workers including:  maintaining detailed records of their compensation and hours worked; paying them regular and overtime wages; and addressing payroll withholdings and payments, such as those mandated by the Federal Insurance Contributions Act (“FICA” for Social Security and Medicare), the Federal Unemployment Tax Act (“FUTA”), and federal income tax laws. Further, workers claiming employee status under this rule may claim entitlement to coverage under the businesses’ group health insurance, 401(k), and other benefits programs.

The DOL’s new rule applies to the federal Fair Labor Standards Act (“FLSA”) which sets forth federally established standards for the protection of workers with respect to minimum wage, overtime pay, recordkeeping, and child labor. In its prefatory statement that accompanied the new rule’s publication in the Federal Register, the DOL noted that because the FLSA applies only to “employees” and not to “independent contractors,” employees misclassified as independent contractors are denied the FLSA’s “basic protections.”

Accordingly, when the new rule goes into effect on March 11, 2024, the DOL will use its new, multi-factor test to determine whether, as a matter of “economic reality,” a worker is truly in business for themself (and is, therefore, an independent contractor), or whether the worker is economically dependent on the employer for work (and is, therefore, an employee).

While the DOL advises that additional factors may be considered under appropriate circumstances, it states that the rule’s six, primary factors are: (1) whether the work performed provides the worker with an opportunity to earn profits or suffer losses depending on the worker’s managerial skill; (2) the relative investments made by the worker and the potential employer and whether those made by the worker are to grow and expand their own business; (3) the degree of permanence of the work relationship between the worker and the potential employer; (4) the nature and degree of control by the potential employer; (5) the extent to which the work performed is an integral part of the potential employer’s business; and (6) whether the worker uses specialized skills and initiative to perform the work.

In its announcement, the DOL emphasized that, unlike its earlier independent contractor test which accorded extra weight to certain factors, the new rule’s six primary factors are to be assessed equally. Nevertheless, the breadth and impreciseness of the factors’ wording, along with the fact that each factor is itself assessed through numerous sub-factors, make the rule’s application very fact-specific. For example, through a Fact Sheet the DOL recently issued for the new rule, it explains that the first factor – opportunity for profit or loss depending on managerial skill – primarily looks at whether a worker can earn profits or suffer losses through their own independent effort and decision making, which will be influenced by the presence of such factors as whether the worker: (i) determines or meaningfully negotiates their compensation; (ii) decides whether to accept or decline work or has power over work scheduling; (iii) advertises their business, or engages in other efforts to expand business or secure more work; and (iv) makes decisions as to hiring their own workers, purchasing materials, or renting space. Similar sub-factors exist with respect to the rule’s other primary factors and are explained in the DOL’s Fact Sheet.

The rule will likely face legal challenges by business groups. Further, according to the online newsletter of the U.S. Senate Health, Education, Labor and Pensions Committee, its ranking member, Senator Bill Cassidy, has indicated that he will seek to repeal the rule. Also, in the coming months, the United States Supreme Court is expected to decide two cases that could significantly weaken the regulations issued by federal agencies like the DOL’s new independent contractor rule, Loper Bright Enterprises v. Raimondo and Relentless Inc. v. U.S. Dept. of Commerce. We will continue to monitor these developments.1

In the meantime, we recommend that businesses engaging or about to engage independent contractors take heed. Incorrect worker classification exposes employers to the FLSA’s significant statutory liabilities, including back pay, liquidated damages, attorneys’ fees to prevailing plaintiffs, and in some case, fines and criminal penalties. Moreover, a finding that an independent contractor has “employee” status under the FLSA may be considered persuasive evidence of employee status under other laws, such as discrimination laws. Additionally, existing state law tests for determining employee versus independent contractor status must also be considered.

1 The DOL’s independent contractor rule is not the only new federal agency rule being challenged. On January 12, 2024, the U.S. House of Representatives voted to repeal the NLRB’s recently announced joint-employer rule, which we discussed in our Client Alert of November 10, 2023.

Eric Moreno contributed to this article.

© Copyright 2024 Sills Cummis & Gross P.C.
For more on the Independent Contractor Rule, visit the NLR Labor & Employment section.

Supreme Court Takes Up FLSA High Earners Exemption

On October 12, 2022, the U.S. Supreme Court heard oral arguments in a case that considers whether a supervisor who earned over $200,000 annually may still be eligible for overtime pay under the Fair Labor Standards Act (FLSA). The case centers on the interpretation of the regulatory scheme surrounding highly compensated employees and their exemption status under the FLSA.

The Plaintiff in the case was a worker in a supervisory role on an oil rig and his compensation was based on a daily rate. The plaintiff argued that his daily rate of pay did not constitute a salary.  Prior to the Supreme Court, the Fifth Circuit en banc agreed with the Plaintiff and found that he was not paid a salary such that he was not an exempt employee under the FLSA.

This case has implications for how employers will pay workers, and whether there is potential exposure for overtime claims, even for highly compensated employees.

For more Labor and Employment legal news, click here to visit the National Law Review.

© Polsinelli PC, Polsinelli LLP in California

Breaking Federal Developments in Labor and Employment September 2017

Salary Test for Exempt Status Invalidated

Under the prior administration the DOL had issued amendments to certain exemptions from the overtime requirements of the Fair Labor Standards Act (“FLSA”), which would have dramatically increased the number of employees eligible for overtime pay to over 4 million workers within the first year of implementation. The amendments were to be effective on December 1, 2016, however their implementation was stayed by a federal judge last November, as reported in our November 2016 Client Alert.

The new regulations were to essentially double the salary threshold for employees who would be exempt from overtime payments, assuming they met one of the three exemptions, from $455 per week or $23,660 per year, to $913 per week or $47,476 per year. Under these regulations, even if employees performed duties that would otherwise indicate they were exempt from overtime, if they made less than $47,476 per year, their employers would have to pay them overtime regardless of their duties. Just last week, a federal judge in Texas invalidated the new regulations, and specifically found that, while a salary test was permissible, the minimum threshold of over 47K per year was too high, and in fact obviated the need for any other duties based analysis, which has always been at the heart of the executive, administrative, or professional exemptions.

Employer Tip

For the time being, employers can feel comfortable relying on the duties test to determine eligibility for overtime, however, the DOL has indicated that it is still looking at the minimum salary threshold, and employers should expect that threshold to increase from the current number of $23,660. Employers would be well advised to take a look at their currently classified exempt employees making between 24-35K per year to determine whether such employees truly meet the duties test, and whether such employees are being paid at appropriate levels.

EEO-1 Salary Reporting Requirements Blocked

The new EEO-1 forms with reporting information for 2017 were to have included salary information in addition to the usual reporting requirements. The EEOC was presumably intending to use such information to target companies for Equal Pay investigations and complaints. Reporting is still due using the EEO-1 forms in March 2018, but the OMB has just announced that the forms are not going to require the reporting of salary information by gender and other protected characteristics, so employers have a reprieve with respect to federal reporting requirements.

Employer Tip

Employers should be mindful that the state and federal equal pay laws are still applicable, and it is always a good idea to do a self-audit of comparative pay data based on gender, race, and other protected characteristics in order to ensure compliance with such laws. Please also refer back to our April 2017 Client Alert with respect to NY pay equity laws and the salary history ban that goes into effect next month for NY employers.

New I-9 Form in Effect September 18, 2017

Employers should be aware that a new I-9 form is going into effect on September 18th. The link to the new form can be found here.

This post was written by David I. Rosen of Sills Cummis & Gross P.C. © Copyright 2017

Café Manager Seeks Class Action for Overtime Pay

Barnes and Noble OvertimeA Chicago-based Barnes & Noble Café Manager filed a collective action on September 20, 2016 in federal court, Southern District of New York, seeking overtime compensation for herself and similarly situated individuals who have worked as Café Managers “or in comparable roles with different titles”, for Barnes & Noble anywhere in the United States. According to the complaint, Barnes & Noble operates 640 retail stores in the 50 states. Brown v. Barnes and Noble, Inc., 1:16-cv-07333-RA (S.D.N.Y. 2016).

The plaintiff, Kelly Brown, claims that Barnes & Noble deliberately understaffs its Cafés, and strictly manages hours worked by non-exempt Café employees to avoid paying them overtime. As a consequence, the suit claims, Café Managers “spend the vast majority of their time performing the same duties as non-exempt employees, such as: making coffee and other beverages, preparing food, serving customers, working the cash register and cleaning the Café.” Ms. Brown claims that Café Managers regularly work in excess of forty hours and frequently work ten or more hours a day.

The lawsuit asserts that Café Managers are not exempt “executive” employees because they: (1) are closely supervised by their Store Managers and their work is specifically defined by corporate policies and procedures; and (2) are not responsible for the overall performance of the stores, or for coaching, evaluating, hiring or firing employees.

To be exempt from overtime as an executive employee, the employee must satisfy both the duties and the salary test:

Duties Test

The “executive” exemption requires that the employee:

1. regularly supervises two or more other employees;

2. has management as the primary duty of the position; and

3. has some real input into the job status of other employees (such as hiring, work assignments, promotions and/or firing).

With regard to the first factor, the supervision must be a regular part of the employee’s job. The “two employees” requirement may be met by supervising two full-time employees or the equivalent number of part-time employees.

For the second factor, the FLSA Regulations set forth a list of typical management duties, which, in addition to supervising employees, includes:

    • interviewing, selecting, and training employees;
    • setting rates of pay and hours of work;
    • maintaining production or sales records (beyond the merely clerical);
    • appraising productivity; handling employee grievances or complaints, or disciplining employees;
    • determining work techniques;
    • planning the work;
    • apportioning work among employees;
    • determining the types of equipment to be used in performing work, or materials needed;
    • planning budgets for work;
    • monitoring work for legal or regulatory compliance; and
  • providing for safety and security of the workplace.

An employee may qualify as performing executive job duties even if she performs a variety of “regular” job duties, such as preparing food or drinks and/or serving customers. However, she must also perform at least some of the tasks a “boss” would typically perform, as set out above. For example, the executive must have genuine input into personnel matters. This does not require that the employee be the final decision maker, but the employee’s input must be given “particular weight.”

Salary Test

Ms. Brown’s salary of $33,000 is above the current salary threshold for exempt employees, $23,600. However, the new USDOL Rule will raise the threshold to $47,476 effective December 1, 2016.

Recent Attorneys General Court Challenge to New Salary Test

On September 20, 2016, the same day that Ms. Brown filed her lawsuit, officials from 21 U.S. states filed a lawsuit claiming that the DOL acted unlawfully in issuing the new salary limit, which the states assert will place a heavy burden on state budgets. Hours after the states announced their lawsuit, the U.S. Chamber of Commerce and other business groups filed a separate challenge to the rule in the same federal court in Sherman, Texas. Business groups and Republican officials say that the rule will force employers to demote salaried workers to hourly positions and create more part-time jobs.

Whether this challenge is sustained, the Barnes & Noble case serves as a reminder that an employee must meet both the duties and the salary tests to qualify for the exemption.

TAKE-AWAYS:

  1. Regardless of which salary threshold applies, the “duties” test remains unchallenged.
  2. The restaurant and related-food and drink businesses are targets for plaintiff class action lawyers.
  3. Assistant Managers in larger operations have asserted claims similar to Ms. Brown’s here: that is, that they primarily do the same work as the rank-and-file employees.
  4. All employers should conduct regular audits of the jobs currently classified as exempt. We are reminded again and again in the case law that the employee’s job title is not the a significant factor in the outcome.

  5. Non-compliance will result in exposure for the overtime pay owed plus heavy penalties; double damages under federal and Connecticut law, treble damages under Massachusetts law.

ARTICLE BY Barry J. Waters of Murtha Cullina

© Copyright 2016 Murtha Cullina