Legally Paying Employees Under the New and Anticipated Fair Labor Standards Act Rules

by Admin | September 30, 2015

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Written by Platinum Website Sponsor, Gammage and Burnham

For most service providers working with physically and mentally challenged individuals, the biggest cost by far is payroll.  Recent and proposed changes to the rules governing minimum wage and overtime may make the job of providing services more complicated and probably more expensive.

Starting at the beginning, employees fit into two categories—those exempt from overtime and those entitled to overtime.  To be considered exempt from overtime, the employee must, as their primary duties, perform services that meet the definition for administrative, executive, or professional workers.  These are often referred to as the white-collar exemptions.  Until January 1, 2015, there were also special exemptions for persons providing companionship care or that met the definition of a live-in domestic services worker.


1. The White-Collar Exemptions

At present, if an employee’s duties meet the definition of an administrative employee, executive, or learned professional, to be exempt from overtime, they must be paid on a salary basis of at least $455 per week ($23,660 per year).  To be paid on a salary basis means that the employee is paid the same amount every week regardless of hours worked or productivity.  The employer cannot reduce the employee’s pay because they left early to attend a parent-teacher conference, or a doctor’s appointment.

The proposed rule is going to increase the minimum required salary for exempt employees to a projected $970 per week, or $50,440 a year, starting in 2016.  It is estimated that this change will impact 4.6 million workers who would otherwise qualify as exempt.  Stated another way, even if the primary duties of an employee qualify her as exempt, that employee will be entitled to overtime if she makes less than $50,440 a year.

Also included in the Notice of Proposed Rulemaking are provisions that will make it harder for smaller organizations to meet the white-collar exemptions.  It is not unusual for administrative employees in small companies to wear many hats.  The administrative exemption requires an employee to perform office or non-manual labor work directly related to the management or general business operations of the employer as their primary duties.  There is a particular emphasis on an administrative employee exercising discretion and independent judgment in matters of significance.  But what if this administrative employee also spells the receptionist, processes billing, stuffs fund-raising mailers, and cleans up the break room?  Possible rule changes could cap non-exempt work at 50% and/or eliminate the concept of concurrent duties, making it harder to maintain the exemption even if you could afford to pay this person more than $50,440 a year.


2. Companionship and Live-In Domestic Workers

As of January 1, 2015, any provider organization that places workers in a home setting to provide services is going to be required to pay workers both minimum wages and overtime for hours worked.  Previously, these types of workers were exempt from minimum wage requirements, and for companionship services also exempt from overtime.  The client, or the client’s immediate family, will still be able to use the exemption as long as the worker does not provide medical care and only limited services related to activities of daily living.

Definitions of hours worked will not be changing.  Therefore, for live-in services where the employee works a 24-hour or more shift, sleep (up to 8 hours), meal time (if more than 30 minutes), and off-duty time will not be counted as hours worked.  However, if for example two employees work 12-hour shifts, they have to be paid minimum wage for every hour worked, including sleep time.

The exact status of the rule changes related to home aides, companions, and in-home direct service providers was somewhat in the air until recently.  The new rules were supposed to go into effect January 1, 2015.  However, in the Fall of 2014, the DOL announced that it would not enforce the rules until June 30, 2015, and then later extended the non-enforcement period to the end of 2015.  A federal court judge’s decision put the rules on hold, but an appeals court has now determined that the new rules can go into effect.

Provider organizations that have not yet implemented minimum wage and overtime policies for the impacted workforce need to do so immediately.  While failure to do so may not result in enforcement actions by the DOL during 2015, there is a risk that effected employees could still file individual claims seeking payment of minimum wages or overtime.  Court rulings have not yet clarified this potential liability.


3. Independent Contractors

Given these new FLSA rules, some service providers may be inclined to try changing employees into independent contractors.  The direct, and simple, advice is, do not do that.

Misclassification of employees as independent contractors is viewed by the Department of Labor as one of the most serious problems in the workplace.  Expect to see tightening guidelines on this issue in line with a July 15, 2015, Administrative Interpretation intended to make it harder to maintain independent contractor status.

To qualify as an independent contractor, the DOL will consider:  (1) the extent to which the work performed is an integral part of the employer’s business, (2) the worker’s opportunity for profit or loss based on their managerial skills, (3) extent of relative investments of the employer and the worker, (4) whether the work performed requires special skills and initiative, (5) permanency or indefiniteness of the worker-employer relationship, and (6) the degree of control exercised or retained by the employer.  This is often referred to as the economic realities test.

A worker providing services for a provider’s clients does not fit the definition of an independent contractor.  The employer assigns the work, schedules the work, controls the worker, the relationship is long-term, the worker’s only investment is his or her time, and the worker is not at risk for profit and loss based on their skill.  The plumber who comes in to install the dishwasher in the breakroom is an independent contractor.  The persons performing the services that are the entire purpose for your organization are employees.

If you have questions or concerns about wage and hour issues, please call Rick Mahrle at Gammage & Burnham, P.L.C., 602-256-4433.

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