A Closer Look...

Fair Labor Standards Act

As the broadest piece of labor legislation, the Fair Labor Standards Act covers many areas of concern for companies with employees.

Contractors

Many employers use contractors and, depending on how the contractors are treated, they can rightfully be interpreted as employees. Should the IRS get involved, there is the social security and medicare tax liability that the employer will be responsible for in addition to penalties. There is a sufficient amount of case law where the contractor does not pay their full share of the taxes and claims that they were employees, and again, depending on how they were treated, the IRS may agree and determine that the employer will need to pay these back taxes. Should the IRS become involved and have to make a determination of the contractor/employee status, they use 11 main tests organized into three main groups: behavioral control; financial control; and the relationship of the parties.

Exempt / non-exempt

Many companies never go through the exercise of correctly classifying their employees as exempt or non-exempt. Since exempt employees are excluded from the overtime pay requirements of the law and non-exempt are not excluded and are entitled to overtime, it is important to classify your employees correctly from the beginning of the relationship. Many companies simply give some sort of management title to avoid paying overtime. There is plenty of case law where after years of not being paid overtime, an employee is determined to be non-exempt and owed prior overtime. Generally, once an investigation begins, it extends within the organization, typically within the class of other employees performing similar duties. This can compound the problem and quickly become very expensive and can be a major liability for the employer. There are six exempt categories that can be applied to an employee, depending on that employee's specific job duties. The job title does not determine the exemption, rather it is the specific job duties of the position.

Paying overtime

Overtime pay can seem very straight forward however, many employers incorrectly determine the overtime rate because of nondiscretionary bonuses, shift premiums, production bonuses, commissions, discretionary bonuses, employers' contributions to benefit plans, pay for un-worked hours, or small noncash gifts on special occasions. In addition, it is common practice for some employers to award compensatory time instead of paying overtime. This however is not allowed in the private sector.

Our specific services

We can:

• Audit the contractor controls exercised and examine the employer / contractor relationship to help determine if a potential employer liability exists. We can also help to determine corrective action if it is needed.
• Assist in classifying individual positions or class of positions as exempt or non-exempt to help determine the responsibility of the employer to pay overtime.
• Audit your organization's overtime pay practices and make recommendations on any discovered deficiencies.