Well … it’s been 15 months since a judge in Texas put the Obama Administration’s updated Fair Labor Standards Act (FLSA) regulation changes on hold and we’re no closer to knowing where things will end up. The most significant change would have more than doubled the salary threshold for employees to be considered exempt. Employers across the country breathed a sigh of relief when the regulations were sidelined … then many blocked all FLSA issues out of their minds. Big mistake! While the FLSA regulations may have been put temporarily on ice, the Department of Labor (DOL) has not gone away. Investigators are as vigilant as ever at going after businesses for FLSA violations – particularly misclassified employees. Just ask JP Morgan Chase. The bank recently paid out $8.3 MILLION dollars to settle an FLSA case over improperly classified assistant bank managers.
The JP Morgan case is a cautionary tale to employers to remember to properly classify employees as “exempt” or “non-exempt” from the FLSA’s minimum wage and overtime provisions. Don’t forget that the formula for exemption is: SALARY + DUTIES = EXEMPT. Many employers, like JP Morgan, focus only on the “salary” aspect of the formula without also looking at the “duties” test. That’s where they get into trouble. If an employee is improperly classified as “exempt,” they are entitled to overtime pay for all hours worked over 40 in a workweek. If the employer does not have accurate time records (as is usually true for exempt employees), the DOL investigator will most likely believe the employee’s word over the employer’s. That adds up quickly. Very, very quickly.
A related FLSA issue is improperly classifying individuals as independent contractors when they should be employees. The DOL and IRS each have tests to determine contractor vs. employee status. Fortunately, the tests are similar. Unfortunately, they are not identical and there is no single determinative factor. As with exempt/non-exempt status, it is vitally important for companies to review the independent contractor factors with legal counsel before making a classification decision. The investment to do it right on the front end will yield tremendous cost savings on the back.