Expanding FLSA Over the Years

Over the years, FLSA has been expanded to include other areas of employee protections, such as restrictions on employing children, and employee documentation and recordkeeping. In recent months, the US Department of Labor released an “Administrative Interpretation” (AI) to clarify the definition of “clothes” under the FLSA.

The Definition of “Clothing”

Currently, the FLSA excludes time spent “changing clothes or washing” at the start or end of a workday from compensable time, and the vague exemption has led to many lawsuits and conflicting court decisions on what constitutes ‘clothes.’ The AI provides clarity by stating that the time spent changing into or out of protective gear or equipment required by law, the employer, or the nature of the job, is indeed compensable.

The AI further clarifies that even if ‘changing clothes’ does not fall under a compensable activity or time, it may still trigger the ‘continuous workday rule’ if the subsequent activities after changing clothes would be compensable under FLSA, activities such as walking, waiting, or other travel time. Employers should review their compensation policies or practices to reflect this change to remain compliant with the law.

The guidelines covered by the FLSA can be confusing, and costly, if not adhered to. Speak with a CPEhr HR Consultant for an audit of your FLSA practices.

Source:  EPLI Pro News, July 2010

Below are three common employment scenarios that are often misunderstood which we would like to review:

1. Travel Expenses – Most states require employers to indemnify an employee for expenses incurred in the course of “discharging their duties” for their employers. This means that employers must reimburse for items such as mileage or reasonable travel expenses. The reimbursement is generally not taxable income, and can be paid through a company accounts payable department. Employers who reimburse employees for mileage at the IRS rate are deemed to have indemnified the employee for all expenses associated with using their car for work (gas, insurance, wear and tear, etc.). Therefore, we recommend employers adopt the IRS rate.

2. Tip Sharing – Occurs when a server shares the earned tips with “any employee who participates with the server in rendering some personal service to the patron.” Whether tip sharing is lawful and who may participate is determined by state law. Often, only those who are in the direct line of service may participate, and in other states, employees without direct service (e.g. cooks, dishwashers) may participate. Employers should carefully review their tip sharing practices, and determine if they are being applied in accordance with state law, as there have been many lawsuits regarding this issue recently.

3. Waiting Time – If an employee arrives to work, and is not put to work, but instead asked to wait until work is available, they are considered to be “under the control of the employer.” This means simply, they must be paid for the waiting time. If an employee is instead “on call”, where they are not required to report, and are free to engage in their own pursuits, but must be able to report within a certain time frame, they are generally not owed compensation.

If you have any questions regarding payroll, wages, IRS reimbursement or other employment-related issues, please do not hesitate to contact our Human Resources Consulting experts who will be happy to assist you.

Source: www.eplipro.com June 2010

Disclaimer

Key points of various topics appear below. To hear the complete presentation, follow this LINK.

The HIRE Act.

The Act provides a wide range of incentives for employers including a tax holiday for hiring “new” workers and a tax credit for retaining such workers. The goal of the plan is to stimulate the economy and bring people back to work.

The key highlights of the “Tax Holiday” are:

•    Relieves a “covered employer” of its obligation to pay its 6.2% match for Social Security on the first $106,800 of wages (potential savings of $6,622)
•    Applies to those workers hired after 2/3/10 but before 1/1/11 on wages paid between 3/19/10 and 12/31/10

Health Care Reform.

Two bills were signed into law on March 23rd and 26th, 2010 – The Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act, respectively. Both laws have important consequences for employers and group health plans.

Effective 01/01/2014 employers with 200 or more fulltime employees must automatically enroll new hires in health coverage. Employers with more than 50 fulltime employees that do not offer coverage must pay a penalty of $166/month per employee (excluding first 30).

Disability Discrimination.

Recent California case law has changed the playing field, once again, in regards to disability discrimination. The two key updates are:
1.    In the event an employee has been previously granted special accommodations for a disability, the employer has a continuing duty to inform new supervisors of these accommodations. Failure to do so can place the employer at risk of being sued.
2.    Employers are required to actively identify and offer available positions to disabled employees – it is not sufficient to merely “allow” the disabled employee to apply for a new position.

Harassment Claims.

Attorneys have previously advised managers that “being a jerk” on the job, while impolite and unprofessional, does not violate the law, so long as the negative behavior was work related. However, a recent case made its way to the California Supreme Court (Roby v. McKesson) wherein an employee claimed her manager demonstrated particular hostility towards her, despite the fact that the behavior was in the context of job and performance criticism. The Court ruled in favor of the plaintiff, stating the manager’s behavior created a hostile work environment. The clear message to managers: don’t be a jerk to your staff in the office!

Additional topics covered included defending discrimination cases, arbitration agreements, spying on employees at work, protecting business trade secrets, and non-solicitation of employees and customers.

Once again, if you missed the presentation, we highly encourage you to hear it at your convenience. It can be downloaded HERE.

If you have any questions about these, or any other HR related topics, do not hesitate to contact a CPEhr Human Resources Outsoucing Representative.

The IRS sets forth clear eligibility guidelines for what determines independent contractor status. The following is taken directly from the IRS website:

Common Law Rules

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Facts that provide evidence of the degree of control and independence fall into three categories:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Understanding the Implications of Misclassification.

Employers should understand the implications of misclassifying employees as independent contractors.  Employers who misclassify employees as independent contractors may find themselves responsible for employment taxes and penalties, as well for various benefits that the misclassified employee may be eligible for such as health insurance, pension, vacation and sick benefits, worker compensation, unemployment, etc.  It is important for employers to review their 1099s, identify independent contractors who may be misclassified and reclassify them appropriately.

The “Twenty Factor Test”

Perhaps the most famous determinant of independent contractor status is the IRS’s 20 Factor Test. The IRS created the test as a tool to help employers identify if their worker is an independent contractor or employee. Although, a worker does not necessarily have to meet all 20 factors to be considered either an employee or an independent contractor, it is important to view the circumstances of each individual case. You can download a copy of the 20 Factor Test here.

For more information on independent contractor classifications, please contact CPEhr for a complimentary qualification consultation.

Thi Ha, HR Account Manager at CPEhr, contributed to this post.

Disclaimer

• federal and state tax,
• workers compensation insurance,
• unemployment insurance,
• employee benefits,
• overtime, vacation and sick pay.

However, now more than ever, employers must be aware that federal and state lawmakers are beginning to crack down on employers who hire ICs that do not meet the strict IRS requirements.

What are the guidelines to be an Independent Contractor?

The following are excerpts from the IRS website, Section 762 – Independent Contractor vs. Employee:

• Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means.
• Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:

1. The extent to which the worker has unreimbursed business expenses
2. The extent of the worker’s investment in the facilities used in performing services
3. The extent to which the worker makes his or her services available to the relevant market
4. How the business pays the worker, and
5. The extent to which the worker can realize a profit or incur a loss

• Type of Relationship covers facts that show how the parties perceive their relationship. This includes:
• Written contracts describing the relationship the parties intended to create
• The extent to which the worker is available to perform services for other, similar businesses
• Whether the business provides the worker with employee–type benefits, such as insurance, a pension plan, vacation pay, or sick pay
• The permanency of the relationship, and
• The extent to which services performed by the worker are a key aspect of the regular business of the company

Government crack-down

As the government is looking for ways to bring in revenue in a down-economy, they are paying serious attention to the losses incurred by the usage of ICs. Reports estimate the misuse of ICs lowers income tax revenues by about $4.7 billion annually. In Illinois, for example, the  University of Missouri–Kansas City Department of Economics estimates that from 2001 through 2005, the state lost $124.7 million PER YEAR year in income taxes as a result of IC misclassification by employers.

In August, Congress began reviewing several bills that tighten restrictions on the use of ICs and exact tougher penalties on employers who bend the rules. The IRS also announced plans to randomly audit six thousand businesses nationwide to curb abuse.

Don’t take shortcuts

If your company engages the use of ICs, don’t let the lure of bypassing a few tax and insurance dollars distract you from the real-life risks at hand. You should take the time to seriously review your IC relationships and determine if they do, in fact, match the IRS guidelines. If you are uncertain where to begin, there are professional human resource outsourcing and consulting firms that specialize in these employment relationships and can guide you to make the right decision for your company.

Discretionary and Non-Discretionary Bonuses

Employers usually pay two types of bonuses: non-discretionary and discretionary.

Discretionary bonuses are usually paid as a gift for past services and are not measurable by an employee’s work performance, and/or hours worked.  An example of a discretionary bonus is a holiday bonus or special occasion bonus.

Non-discretionary bonuses are bonuses that are intended to increase an employee’s performance and efforts.  For example, bonuses paid on work performance efficiency and quality, attendance, years of service, and bonuses promised to employees at time of hire are considered non-discretionary.

When paying out non-discretionary bonuses, you must also pay the overtime “premium” on the bonus.  According to the Department of Labor, since the bonus was earned during the regular hours as well as the overtime hours, the overtime “premium” on the bonus is paid on half-time or full-time (for double time hours) on the regular bonus rate (from DLSE Manual). Unfortunately, you cannot just pay an employee a $100 bonus, if they worked any overtime in the pay period for which the bonus was earned.  You must reference the bonus on their pay stubs and note the workweek(s) that the bonus was earned.

Example On How to Calculate Overtime Premium When a Bonus is Paid:

Regular hourly rate of pay………………………………………………………………………………………..$10.00

Overtime rate of pay………………………………………………………………………………………………..$15.00

Total hours worked in workweek = 50

Total regular hours worked= 40 (8 hours x 5 days)

Total overtime hours at time and one-half = 10 (2 hours x 5 days)

Bonus………………………………………………………………………………………………………………………$100.00

Regular bonus rate:

$100.00 (bonus) ÷ 50 (total hours worked) =

$2 .00 ÷ 2 (for half of the regular rate) =

$1.00 x 10 (Overtime Hours) = $ 10.00

Total earnings due for the workweek:

Regular hours: 40 hours @ $10.00 ………………………………$400.00

Overtime: 10 hours @ $15.00 ……………………………………..$150.00

Bonus ……………………………………………………………………………$100.00

Overtime on bonus…………………………………………………………$ 10.00

Total ……………………………………………………………………………$660.00

Remember, wage and hour laws vary by state, it is important that you understand that as an employer you are mandated by law to pay your employees for all hours worked.

The Bottom Line

Confused yet?? There is a lot to know, and a lot to implement. If you are concerned about tackling wage and hour compliance alone, you may want to consider outsourcing some of these complicated laws to professionals who can guide you every step of the way. Please contact us for a free wage and hour consultation.

Contributed by: Thi Ha and Monique Stennis, CPEhr

The Department of Labor states the following on their website:

The Fair Labor Standards Act (FLSA) establishes standards for minimum wages, overtime pay, recordkeeping, and child labor. These standards affect more than 100 million workers, both full‑time and part‑time, in the private and public sectors.

The Department of Labor uses a variety of remedies to enforce compliance with the Act’s requirements. When Wage and Hour Division investigators encounter violations, they recommend changes in employment practices to bring the employer into compliance, and they request the payment of any back wages due to employees.

Willful violators may be prosecuted criminally and fined up to $10,000. A second conviction may result in imprisonment. Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to civil money penalties of up to $1,100 per violation.

Recent Lawsuits

A New Jersey federal court jury unanimously awarded $2.5 million to Staples, Inc. employees in a class-action lawsuit for failing to comply with the laws that require the correct classification of employees (e.g. exempt or non-exempt) and paying for overtime wages. In another case, Valero Energy Corp. is currently involved in a class-action lawsuit that seeks $100 million in damages. The suit, brought on by three current employees, alleges that Valero required employees to work overtime hours “off the clock” without compensation.

As an employer, it is important that all wage and hour laws are adhered to, including payment of overtime and the pay-out of bonuses.

Understanding California Overtime Hours

While the Federal standards of the Act are complicated enough, California employers must adhere to a different set of guidelines. Most fundamentally, California requires that all hours worked in excess of eight (8) regular hours in one workday or forty (40) regular hours in one workweek will be treated as overtime. Non-exempt hourly employees are compensated as follows for working overtime:

• Time and a half the regular rate of pay for hours worked beyond eight (8) in a workday;
• Double the regular rate of pay for hours worked beyond twelve (12) in a workday;
• Time and a half the regular rate of pay for the first eight (8) hours worked on the seventh consecutive workday in a workweek;
• Double the regular rate of pay for hours worked beyond eight (8) on the seventh consecutive day worked in a workweek;

Time and a half the regular rate of pay for hours worked beyond 40 in a workweek. There is no “pyramiding,” which means you will not be paid overtime twice for the same hours of work.

Outsourcing Solutions

Considering the complex laws and potentially expensive implications of non-compliance, many employers have elected to outsource the management of their FLSA compliance to outside experts who specialize in these laws. Human Resources specialists recognize violations and can offer immediate solutions to remedy them. Additionally, most small business owners are unable to remain abreast of developing laws and changing regulations. In contrast, Human Resources Outsourcing firms are constantly on the lookout for new laws that my impact their clients, and can quickly implement them. We encourage you to investigate the benefits of outsourcing your payroll and wage compliance to an HR Outsourcing firm familiar with the laws in your state. Contact us for more information.

In our upcoming posts, we will examine how overtime laws impact Bonuses and how to calculate overtime pay based on a sample workweek.

Contributed by: Thi Ha and Monique Stennis, CPEhr

Why do employers break the law?

In a previous post we reviewed the significant penalties attributed to improper documentation of employees. So why would employers put so much at risk to seemingly save a few dollars? The answer according to ICE all boils down to two simple words: big money.

According to ICE, employers hire undocumented workers for reasons such as:

• obtaining a financial advantage over their competitors by paying lower wages
• offering few if any benefits
• failing to comply with tax laws
• avoiding health and safety related complaints

Improving the workplace, not fines.

Contrary to popular belief, the recent increase in ICE’s activities is not to create an additional revenue stream for the government agency. The following quote was made by Marcy Forman, Director, Office of Investigations, Immigration and Customs Enforcement in April, 2009:

However, we are not interested simply in a punitive approach to worksite enforcement. Our goal is an approach that incorporates compliance and prevention. To this end, ICE has established a robust industry outreach program, our IMAGE (ICE Mutual Agreement between Government and Employers) program. Since 2006, ICE has partnered with industry to provide “best practices,” training, and recommended tools industry can use to comply with worksite laws and requirements. Currently there are 46 IMAGE members, associates, and endorsees of the program. In FY 2008, ICE outreach coordinators in our 26 field offices made IMAGE presentations to more than 8,300 businesses. Based on our comprehensive strategy to address worksite enforcement, we believe that we are creating the conditions of a culture of industry compliance.

Don’t play dumb.

While the lure of saving a few dollars by avoiding taxes, benefits or offering lower wages may entice some employers to break law, may others are simply unaware of the federal requirements. As stated in the earlier post, the rules are complicated so often times employers will unwittingly violate the law. Government agencies are apt to work with an employer that exhibits a willingness to clear up their operations, only issuing fines for intentional, flagrant or repetitive violations.

If you or someone you know employs illegal workers, or is currently being audited by the DHS, please contact us immediately for assistance.

As a result of this shift in DHS’s priorities regarding worksite enforcement, employers should ensure that they have appropriate documentation for current employees and those employers lawfully prepare and maintain the Form I-9, Employment Eligibility Verification, for all newly hired employees. Employers should review their immigration compliance procedures, which should include:

• Regularly scheduled in-house audits of I-9 records to ensure proper completion and retention, and to correct any discrepancies
• Ongoing training of human resources professionals involved in the I-9 process
• A procedure for appropriately responding to a Social Security No Match letter, a DHS Notice of Suspect Documents, or other evidence indicating that they might have “constructive knowledge” that a certain worker does not have work authorization.

High Priced Penalties

The fines attributed to I-9 violations can lead to catastrophic results. The key to understanding the severity of these penalties is “Knowledge”.  The basic penalty for improper completion of the I-9 form can range from $100 – $1,100 for each I-9, and they grow from there:

• Improper retention or hiding from inspectors can range from $100 to $3,000 for each I-9.
• Knowingly hiring or continuing to employ unauthorized workers fines range from $250 up to $11,000 per violation.
• Firms who continually hire unauthorized workers can face criminal penalties of as much as $3,000 per employee and may be subject to prison time.

Complex regulations, simple solutions

While small and mid-sized employers may have the ability to implement a compliant I-9 audit, the rules are complicated and the bar has just been raised even higher. A single audit of improperly maintained I-9s can result in fines in the tens-of-thousands of dollars. It is highly recommended that you engage the services of a professional Human Resources Outsourcing firm that is familiar with the rules, can manage the process, and can be your first line of defense in the event of a DHS audit. Staffed with employment experts, the HRO firm is well equipped to remain abreast of the changing regulations, and to provide the necessary direction before, and during, a DHS audit.

CPEhr can assist you with Immigration Law Enforcement. If you have further questions, please call 1.800.850.7133 or email info@cpehr.com.

• The tax code (the basic law written by Congress) is 2,840 pages.
• The IRS regulations add an additional 46,000 pages.
• The combined number of forms for businesses and individuals is now over 480

Internal Revenue Code (IRC) 6656 reviews penalties for late payments of payroll deposits. A deposit only ONE day late will result in a penalty equal to 2% of the delinquent amounts. It jumps to 5% for payments made 6 days late, and doubles to 10% for payments made 16 or more days late. A recent report states that over 1 MILLION tax penalty statements are sent out quarterly.

Three Common Payroll Tax Mistakes

Simple attention to the details can often reduce the risk of missing a tax payment, or making an incorrect deposit. Below are three common mistakes that can typically be avoided easily:

1. Submitting Deposits Late
Once you have withheld taxes from the employee, it is important to know when and how these taxes, along with the employer contributions, must be paid.  There are many regulations at the Federal and State levels that dictate when and how payments are to be remitted.  If payments are late, penalties and interest can be assessed. Contact your accountant, bookkeep or payroll vendor to find out your payment obligations.

2. Late or Incorrect Payroll Tax Return Filings
There are numerous Federal and State returns that must be filed for payroll taxes, including withholding, unemployment, local and school district taxes.  All have different reporting requirements (paper, e-file, mag media, etc.) and due dates.  If proper procedures are not followed, penalties and interest can be assessed.

3. State Unemployment Insurance Rates not Updated

Most States update employer SUI rates annually.  It is important to update the payroll software with the new rates, so taxes are properly paid.  Underpayment of taxes can result in penalties and interest. Once again, contact your CPA for this information.

Avoid the Obligations Altogether – Outsource it.

Most small employers recognize they are unable to stay abreast of all their payroll tax obligations. Many outsource payroll to a payroll vendor, such as ADP or Paychex. However, many more employers are now turning to Professional Employer Organizations (PEOs). A PEO “co-employs” the client’s worksite employees and assumes the payroll and tax obligations of the client. The payroll is reported under the PEO’s Federal Tax ID Number, which in turn provides a layer of compliance to the business. IRS audits, payments and inquiries are directed to the PEO, which has teams of payroll and tax specialists on staff.

While the concept may sound foreign at first, thousands of employers have found that a PEO is precisely the cure to the payroll tax headaches they have been looking for. Learn more about PEO Payroll Tax services here.