Draft Application for Early Retiree Reinsurance Program and Interim Final Regulations

Monday, June 14, 2010

The U.S. Office of Management and Budget (OMB) has released a initial draft application form and supporting documents for the new early retiree reinsurance program created by the Patient Protection and Affordable Care Act. The program became effective on June 1, 2010 and the interim final regulations were released in May of this year. This is only a draft the finalized application is expected later in June of this year.

The Early Retiree Reinsurance Program provides a financial offset to employer costs associated with pre age 65 retirees for both private and public employers.

The program is intended to

• Make it easier for employers to provide coverage to early retirees.

• Employers who are accepted into the program will receive reinsurance reimbursement for medical claims for retirees age 55 and older who are not eligible for Medicare, and their spouses, surviving spouses, and dependents.

• Health benefits that qualify for relief include medical, surgical, hospital, prescription drug, and other benefits that may be specified by the Secretary of Health and Human Services, as well as coverage for mental health services.

• The amount of this reimbursement to the employer plan is up to 80% of claims costs for health benefits between $15,000 and $90,000. Claims incurred between the start of the plan year (often January 1) and June 1st are credited towards toward the $15,000 threshold for reimbursement. However, only medical expenses incurred after June 1, 2010 are eligible for reimbursement under this program.

• For example: If an individual incurs costs of $30,000 between the start of the plan year and June 1, and $40,000 after that date. The amount which may be reimbursed is $40,000 – the costs above the $15,000 threshold that occur after June 1.

• If a plan incurs $90,000 or more in expenses before June 1, it is treated as having met the $15,000 threshold and is eligible for reimbursement for costs incurred after June 1.

• These limits apply and claims are filed for individual’s costs. Firms cannot add two or more individuals together to attain the threshold.

• Both self-funded and insured plans can apply, including plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions, and other employers.

Forms and directions are located at: http://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201005-0938-012

EBSA Issues Final QDRO Timing Rules

Friday, June 11, 2010

On June 10, 2010, The Employee Benefit Security Administration (EBSA) of the U.S. Department of Labor released its final rules on the timing and order of Qualified Domestic Relations Orders (QDRO). Generally, QDRO’s are court orders directing retirement plan administrators and/or other responsible parties to transfer up to 50% of the value of an employee’s or retiree’s retirement plan value to an alternate payee. Most often, this action is being taken as the result of a divorce and the alternate payee is usually the ex-spouse. The final rule finalizes an interim final rule released on March 7, 2007, and was adopted in response to § 1001 of the Pension Protection Act of 2006 (PPA). The section required the Secretary of Labor to issue regulations clarifying issues relating to both the timing and order of QDRO’s under § 206(d) (3) of the Employee Retirement Income Security Act of 1974 (ERISA). The rule provides guidance on the qualified domestic relations order (QDRO) requirements under ERISA and is effective on August 9, 2010.

ERISA § 206(d) (3) and the related provisions of § 414(p) of the Internal Revenue Code (Code), establishes an exception to the prohibitions against retirement plan benefit assignment and alienation as contained in ERISA § 206(d) (1) and Code § 401(a) (13). Under this limited exception, a retirement plan benefit may be assigned to an alternate payee, defined as the participant’s spouse, former spouse, child, or other dependent. This assignment is pursuant to a “qualified” domestic relations order (QDRO). If the plan administrator determines the order meets ERISA QDRO requirements, the plan administrator must then distribute the designated portion of the benefits to the alternate payee or payees.

The plan’s procedures to “qualify” a QDRO must be reasonable, in writing, require prompt notification and disclosure to participants and alternate payees upon receipt of an order, and must permit alternate payees to be allowed to assign representatives for notice purposes.

The plan administrator must execute the determination (qualifying) and notification process for participants and alternate payees within a reasonable period after receipt of the order. Potential alternate payee’s interests are protected during the determination (qualifying) and notification process for a period of up to 18 months. During this period, the plan administrator must separately account for amounts that would have been payable to the alternate payee if the order had been immediately treated as a QDRO up on receipt and must pay these amounts to the alternate payee if the order is later determined to be a valid QDRO.

The full final rule is available in Federal Register / Vol. 75, No. 111 / Thursday, June 10, 2010 / Rules and Regulations, http://edocket.access.gpo.gov/2010/pdf/2010-13868.pdf

How Are Creative Employees Defined For FLSA?

Wednesday, June 09, 2010

The Code of Federal Regulations, Title 29, Chapter V, Part 541, Subpart B, defines the rules for exemption of executive, administrative, professional (creative), computer and outside sales employees for the purposes of FLSA. If we focus our attention on creative employee exemptions, it becomes very clear that an analyst must look carefully at the duties of any employee or position believed to be exempt.

In general, to be considered a “creative” employee and eligible for professional exemption the position or employee must meet the following:

Compensated on a salary basis at a rate of not less than $455 per week exclusive of board, lodging or other facilities;
Primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor, including music, writing, acting, and graphic arts.
``Invention, imagination, originality or talent'' distinguishes the creative professions from work that primarily depends on intelligence, diligence and accuracy. Duties vary widely and exemption as a creative professional depends on the extent of the invention, imagination, originality or talent exercised by the employee.

This requirement generally is met by:
Actors, musicians, composers, conductors, and soloists;
Painters who may be given the subject matter of their painting;
Cartoonists who are merely told the title or underlying concept of a cartoon;
And
Essayists, novelists, short-story writers, and screen-play writers

Journalists may satisfy the requirements for the creative professional exemption if their primary duty is work requiring invention, imagination, originality or talent.

Journalists may qualify as exempt creative professionals if their primary duty is performing on the air in radio, television or other electronic media; conducting investigative interviews; analyzing or interpreting public events; writing editorials, opinion columns or other commentary; or acting as a narrator or commentator.

As with any issues dealing with legal compliance, employers should seek, qualified professional assistance before making changes in their work place practices.

How Are Administrative Employees Defined For FLSA?

Tuesday, June 08, 2010

The Code of Federal Regulations, Title 29, Chapter V, Part 541, Subpart B, defines the rules for exemption of executive, administrative, professional, computer and outside sales employees for the purposes of FLSA. If we focus our attention on administrative employee exemptions, it becomes very clear that an analyst must look carefully at the duties of any employee or position believed to be exempt.

In general, to be considered an “administrative” employee and eligible for exemption the position or employee must meet the following:

Compensated on a salary basis at a rate of not less than $455 per week exclusive of board, lodging or other facilities;

Primary duty is performance of office or non-manual work directly related to the management/general business operations of employer or employer's customers;

And

Primary duty includes the exercise of discretion/independent judgment with respect to matters of significance;

Or;

Primary duty is performing administrative functions directly related to academic instruction/training in an elementary, secondary school system, an institution of higher education or other educational institution establishment or department or subdivision.

``Directly related to the management or general business operations'' refers to work performed by the employee. An employee must perform work directly related to assisting with running or servicing the business.

Work directly related to management or general business operations includes:

Work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations, government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities.

An employee may qualify for administrative exemption if the employee's primary duty is performance of work directly related to management/general business operations of employer's customers.

An employee's primary duty must include:

Exercise of discretion and independent judgment with respect to matters of significance;
Exercise of discretion and independent judgment involves comparison and evaluation of possible courses of conduct;
Acting/making a decision after various possibilities have been considered;
And
``Matters of significance'' refers to the level of importance or consequence of the work performed.

``Discretion and independent judgment'' must be applied in light the facts involved in the particular employment situation. Factors to consider:

Whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to whether the employee:

Has authority to formulate, affect, interpret, or implement management policies or operating practices;
Carries out major assignments in conducting the operations of the business;
Performs work that affects business operations to a substantial degree, even if the employee's assignments are related to operation of a particular segment of the business;
Has authority to commit the employer in matters that have significant financial impact;
Authority to waive or deviate from established policies and procedures without prior approval;
Authority to negotiate and bind the company on significant matters;
Provides consultation or expert advice to management;
Is involved in planning long- or short-term business objectives;
Investigates and resolves matters of significance on behalf of management;
And
Represents the company in handling complaints, arbitrating disputes or resolving grievances.

Exercise of discretion/independent judgment implies the employee has authority to make independent choice, free from immediate direction/supervision.

Employees can exercise discretion/independent judgment even decisions/recommendations are reviewed at a higher level.

The fact that many employees perform identical work does not mean the work of each employee does not involve discretion/independent judgment with respect to matters of significance.

Exercise of discretion/independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.

Employees do not exercise discretion/independent judgment with respect to matters of significance merely because the employer will experience financial losses if employees fails to perform the job properly.

As with any issues dealing with legal compliance, employers should seek, qualified professional assistance before making changes in their work place practices.

How Are Executive Employees Defined For FLSA?

Monday, June 07, 2010

The Code of Federal Regulations, Title 29, Chapter V, Part 541, Subpart B; defines the rules for exemption of executive, administrative, professional, computer and outside sales employees for the purposes of FLSA. If we focus our attention on executive employee exemptions, it becomes very clear that an analyst must look carefully at the duties of any employee or position believed to be exempt.

In general, to be considered an “executive” employee and eligible for exemption the position or employee must meet the following:

Compensated on a salary basis at a rate of not less than $455 per week exclusive of board, lodging or other facilities;

Primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;

Customarily and regularly directs the work of two or more other employees;

In addition, has the authority to hire, fire employees or whose suggestions/recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

``Employee” also includes a person who owns at least 20% equity interest in the enterprise in which the employee is employed, regardless of whether the business type of organization, and who is actively engaged in the management of the enterprise.

``Management'' of an organization includes,
Interviewing, selecting, and training of employees;
Setting/adjusting rates of pay and hours of work;
Directing the work of employees;
Maintaining production or sales records for use in supervision or control;
Appraising employees' productivity and efficiency for recommending promotions or status changes;
Handling employee complaints and grievances;
Disciplining employees;
Planning the work;
Determining work techniques;
Apportioning work among employees;
Determining materials, supplies, machinery, equipment or tools used or merchandise bought, stocked and sold;
Controlling flow/distribution of materials or merchandise/supplies;
Providing for safety/security of employees/property;
Planning/controlling the budget;
And
Monitoring/implementing legal compliance measures.

A “recognized department or subdivision'' is generally defined to mean:

Organizational unit with a permanent status and a continuing function;
The employee in charge of multiple establishments within an enterprise is considered in charge of a recognized subdivision of the enterprise;
A recognized department or subdivision may not be physically located within the employer's establishment and may move from place to place;
And
Continuity of the same subordinate personnel is not essential to the existence of a recognized unit with a continuing function.

To meet the exemption criteria as an executive,

The employee must customarily and regularly direct the work of two or more full time employees or their equivalent;
Supervision can be distributed among two or more employees, but each such employee must customarily and regularly direct the work of two or more other full-time employees or the equivalent;
Assisting a manager of a department and supervises two or more employees only in the manager's absence does not meet this requirement;
Hours worked by an employee cannot be credited more than once to different executives;
And
Concurrent performance of exempt and nonexempt work does not automatically disqualify an employee from the executive exemption.

As with any issues dealing with legal compliance, employers should seek, qualified professional assistance before making changes in their work place practices.

California Wage and Hour Provisions

Saturday, June 05, 2010

California is known for many things; including significant differences it its wage and hour provisions covered workers. http://www.dir.ca.gov/dlse/DLSE-FAQs.htm

 

Deductions:

A California employer may withhold wages only: (A) required by state or federal law, or (B) authorized in writing by the employee, or (C) authorized by a collective bargaining agreement, or (D) authorized by court order.

Holidays:

Time worked on holidays, Saturdays, and Sundays are treated like time worked on any other day. California employers are not required provide employees with paid holiday time or time off in lieu of any particular holiday.

Independent Contractors:

Under California Independent contractors are exempt from California labor law. While here is no set definition of an "independent contractor" employers should carefully analysis the relationship between the business and an individual classified by the business as an "independent contractor".

Lactation Accommodation:

California employers are required to accommodate nursing mothers with periods of suitable time and place to express milk. The break time is to be concurrent, if possible with any existing break times already available to the employee.

Meal Periods:

California employers are required to provide employees with a minimum of a 30-minute meal break for every 5 hours of paid time per day.

Minimum Wage:

California’s employee minimum wage, effective January 1, 2008, is $8.00 per hour. Some employees are exempt from the minimum and include outside salespersons, individuals who are the parent, spouse, or child of the employer, and apprentices. Exceptions also apply to learners, who can be paid at 85% of the minimum wage during their first 160 hours of work. Additional exceptions apply for mentally or physically disabled, employed for nonprofit organizations such as sheltered workshops.

Overtime:

In general, overtime provisions apply to nonexempt employees 18 years of age and to employees 16 or 17 years of age, not required by law to attend school.

A.1 ½ times regular rate of pay for hours in excess of 8 hours up to and including 12 hours in any workday.

B. 2 times regular rate of pay for hours in excess of 12 hours in any workday and for hours worked in excess of eight on the seventh consecutive day.

Paydays, Pay Periods, and Final Wages:

With some exceptions, California employees must be paid twice during each calendar month. Overtime must be paid no later than the payday for the next regular payroll period. Employees discharged must be paid all wages at the time of termination. Employees, who are laid off due to seasonal employment in the curing, canning, or drying of any variety of fruit, fish or vegetables, must be paid within 72 hours after the layoff. Employees engaged production of motion pictures laid off and require special computation of wages, must be paid by the next regular payday. Employees engaged in oil drilling laid off must be paid within 24 hours after discharge. Special considerations are provided for employees for theatrical or concert events. Direct deposits of wages are immediately terminated upon separation, UNLESS the employee has voluntarily authorized that deposit.

Personnel Files and Records:

California employers most allow employees and former employees to view their personnel files. Employers must do one of the following: (1) keep a copy of each employee’s personnel records, (2) make the personnel records available, or (3) permit the employee to inspect the records. Personnel files and records exclude those relating to, (a) investigation of possible criminal offense, letters of reference, (b) were obtained prior to employment, (c) prepared by identifiable examination committees, or (d) obtained in connection with promotional exam.

Reporting Time Pay:

Partial compensation for employees who report for work but not work is available due to inadequate scheduling or lack of proper employer notice. Reporting time pay is not counted as overtime. For each day, an employee reports for work and is physical and mental able to work but no work is available, the employer is required to pay not less than two hours and no more than four hours, at their regular rate of pay. Exceptions include work not being available due to (1) threats to employees or property, (2) when directed by civil authorities, (2) failure of public utilities, (3) Acts of God or (4) other cause beyond the employer's control.

Rest Periods:

California employers must allow nonexempt employees a rest period of 10 minutes for each 4-hour period, or fraction part. Suitable rest periods and locations (excluding bathrooms) must be provided to nursing mothers to express milk. Rest periods are considered time worked. Employees in construction, drilling, logging and mining industries may be required stagger rest periods to maintain continuous operations. However, employers must make-up missed rest periods within the same workday or compensate the employee. Crewmembers on commercial passenger fishing boats on overnight trips are permitted at least 8 hours rest time during each 24-hour period.

Retaliation/Discrimination:

California employers are prohibited from discharging, threatened to discharge, demote, suspend, or otherwise discriminate and/or retaliate against employees who engage in a "protected activity".

Tips and Gratuities:

California employers are prohibited from sharing any portion of a “voluntary” gratuity left for employees by a customer. It is illegal for employers to take deductions from gratuities, or use gratuities as direct/indirect credits for wages. Gratuities are the sole property of employees who received them.

Vacation:

California employers are not required provide employees with paid or unpaid vacation time. Provided that an employer has vacation policy, practice, or agreement, then California imposes certain restrictions. Earned vacation time is considered wages, and vacation time is earned, or vests, as labor is performed. Vacation pay accrues and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination.

Waiting Time Penalty:

California imposes a penalty on employers who “willfully” fall to pay employees for their “full and prompt payment of wages”. The penalty is computed at the employee’s daily rate of pay and is calculated by multiplying the daily wage by the number of days that the employee was not paid, up to a maximum of 30 days. Waiting time penalty is not considered wages, therefore, no deductions are taken from the penalty payment.

As always, in dealing with any Federal, state or local governmental regulations and oversight, you should seek out qualified professional legal advice and counsel before talking any potential action that might place the organization at some risk.

Computer Employees: Exempt vs. Non-Exempt FLSA Classifications

Friday, June 04, 2010

Is it possible that some “computer” jobs can be classified as exempt for the Fair Labor Standards Act (FLSA) while others could be non-exempt?

Misclassification of any job as exempt vs. non-exempt may result in significant liabilities for the organization. Furthermore, the US Department of Labor appears to be stepping up their FLSA and other labor law enforcement activities as evidenced by an annual report from the by Chicago-based law firm of Seyfarth Shaw L.L.P. in which they reported the top 10 private FLSA payments in 2009 totaled $363.6 million, a 43.9% rise over 2008. In a January 25, 2010 article in Business Insurance written by Judy Greenwald, it is reported that, “The Obama administration's emphasis on regulation and enforcement led to more government-initiated litigation over workplace issues, and employers are expected to encounter more investigations and governmental enforcement lawsuits in 2010.”

Section 13(a)(17) of the FLSA provides that certain computer professionals must paid at least $27.63 per hour, however they are exempt from the overtime provisions of the FLSA. This effectively sets a “minimum wage” for selected “computer” jobs, while at the same time exempting those same jobs from the overtime provisions of the FLSA. While this may seem like a contradiction in terms, there are precedents for this provision in other job families. For example, Farm implement salespeople are exempt from the overtime provisions of the FLSA, but not minimum wage provisions. FLSA provides for a number of “targeted” exemptions from minimum wage, overtime, and even the child labor provisions of the law. To add to the complexity and confusion, the US Department of Labor allows some computer related jobs to be exempt for both minimum wage and overtime under the executive, management, and/or administrative provisions provided it can be shown that those jobs meet the exclusion test for executive, managerial, and/or administrative functions. To compound the issue even more, it is possible that individual job duties within any job can vary between exempt and non-exempt work depending on the specific work assignment. Thus, it is feasible, that any given job could be 40% exempt and 60% non-exempt.

How can you be confident that “your” computer related jobs are properly classified as exempt or non-exempt? Only a detailed job and/or position analysis will yield the information needed to make a sound judgment call. To reach that level of confidence, the organization should consider the following:

1. Review the written job or position description, if available.

2. Interview the incumbent employee(s), if available.

3. Interview the immediate supervisor or manager of the employee or position.

4. Compare and contrast the findings from the job or position description and/or

    interviews with the exemption criteria.

5. Document various aspects of the job or employee under review and determine

    which exemptions do or do not apply.

6. Remember, a given job or employee maybe exempted under the

    provisions for executive, managerial and/or administrative functions.

7. If audited, this documentation could prove invaluable to halting any

    litigation beyond the audit stage.

8. If it is discovered that a specific job has been misclassified as exempt,

    the organization should consider determining if there have been lost

    wages due to failure to pay minimum wage and or overtime and

    compensate the impacted employee(s).

As always, in dealing with governmental regulations and oversight, you should seek out qualified professional legal advice and counsel before talking any potential action that might place the organization at some risk.

Exempt FLSA Classification for Computer Employees

Thursday, June 03, 2010

The Fair Labor Standards Act (FLSA) provides a special exemption from both the minimum wage and overtime provisions of the law for “computer” employees. To meet the “facts and circumstance” test for FLSA, the employee or position must satisfy all aspects of the test. The standard method of analysis for determining if the employee or position meets the threshold is to:

1. Review the written job or position description, if available.
2. Interview the incumbent employee(s), if available.
3. Interview the immediate supervisor or manager of the employee
    or position.
4. Compare and contrast the findings from the job or position
    description and/or interviews with the exemption criteria.

Exemption Criteria for Computer Employees

1. The employee must be compensated either on a salary or fee basis
    (as defined in the regulations) at a rate not less than $455 per week
    or,
    if compensated on an hourly basis, at a rate not less than
    $27.63 an hour;

2. The employee must be employed as a computer systems analyst,
     computer programmer, software engineer or other similarly skilled
     worker in the computer field performing the duties described below;

3. The employee’s primary duty must consist of:

  a) The application of systems analysis techniques and procedures,   
       including consulting with users, to determine hardware, software
      or system functional specifications;

  b) The design, development, documentation, analysis, creation,
       testing or modification of computer systems or programs,
       including prototypes, based on and related to user or system
       design specifications;
 
  c) The design, documentation, testing, creation or modification
      of computer programs related to machine operating systems;

or

  d) A combination of the aforementioned duties, the performance
      of which requires the same level of skills.

As an analyst, you should be careful not to draw any conclusions associated with an employee’s job or position title. Rather, examine the work performed, the conditions under which the duties are carried out, the results or output of the work effort, and the type and level of directions given to the employee. Provided the incumbent employee(s) or position meets the exemption criteria for computer employees as published by the US Department of Labor, the employee(s) or position will be exempt from Federal minimum wage and overtime provisions of FLSA.

Remember, exemption from Federal minimum wage and overtime provisions of FLSA DOES NOT automatically provided for an exemption State or local wage and hour laws. When dealing with Federal, State or local wage and hour laws, it is best to consult with a qualified labor law professional.

FLSA Classification: Exempt vs. Non-Exempt

Wednesday, June 02, 2010

A common task for employee compensation professionals is the determination whether or not a position or an employee is considered “exempt “under the Fair Labor Standards Act (FLSA). This analysis determines if the employee is eligible for not only Federal minimum wage, but may affect eligibility for state minimum wage provisions. Several states have adopted their own version of minimum wage laws, which in some situations have a higher wage rate than the Federal minimum wage. Thus, in those cases where an employee is eligible for Federal and state minimum wage laws, the employee is generally entitled to the higher of the two. The Fair Labor Standards Act also controls eligibility for overtime pay. FLSA covered nonexempt employees must be paid for hours worked over 40 per workweek at one and one-half times the employee’s regular rate of pay.

FLSA requires a “facts and circumstance” analysis of the duties performed by incumbent employees to determine whether an employee or position is “exempt” from Federal minimum wage and overtime pay provisions of the law. Exemption from Federal minimum wage and overtime pay DOES NOT grant automatic exemption from any state or local wage and hour laws. In matters pertaining to Federal, state, and local wage and hour provisions, you should always consult with a qualified attorney or other labor law professional.

FLSA covered employees of organizations include any one, “engaged in interstate commerce, producing goods for interstate commerce, or handling, selling, or otherwise working on goods or materials that have been moved in or produced for such commerce”.

FLSA provides for limited exemptions from minimum wage and overtime pay provisions.

Executive

  Employee must be compensated on a salary basis at not less than $455 per week;
  Employee’s primary duty must be managing the organization or a recognized
  of the organization;
  Employee must regularly direct the work of other full-time employees or their
  equivalent; and
  Employee must have the authority to hire, fire, recommend advancement,
  promotion or other changes

Administrative

  Employee must be compensated on a salary basis at not less than $455 per week;

  Employee’s primary duty must be the performance of office or non-manual work and

  Employee’s primary duty includes the exercise of discretion and independent
  judgment

Professional

  Employee must be compensated on a salary basis at not less than $455 per week;

  Employee’s primary duty must be the performance of work requiring advanced
  knowledge;

  Advanced knowledge must be in a field of science or learning; and

  Advanced knowledge must be customarily acquired by a prolonged course of
  specialized study

Creative professional

  Employee must be compensated on a salary basis at not less than $455 per week;
  Employee’s primary duty must be the performance of work requiring invention,
  imagination, originality or talent in a recognized field of artistic or creative
  endeavor.

Computer Employee

  Employee must be compensated on a salary basis at not less than $455 per week;

  Employee must be employed as a computer systems analyst, computer programmer,
  software engineer;

  Employee’s primary duty must consist of:

    1) Application of systems analysis techniques and procedures;
    2) design, development, documentation, analysis, creation, testing, modification
       of computer systems;
    3) Design, documentation, testing, creation, modification of programs related to
        machine operating systems; or a combination of the aforementioned duties.

Outside Sales

  Employee’s primary duty must be making sales, obtaining orders or contracts; and
  Employee must be regularly engaged away from the employer’s place of business.

Highly Compensated Employees

  Highly compensated employees paid total annual compensation of $100,000 or more;
  Employees performing office or non-manual work; and
  Regularly perform exempt executive, administrative or professional employee duties.

Employees of certain seasonal amusement/recreational organizations

  Does not operate for more than seven months in any calendar year.

  33-1/3 % Test.

Farm workers

  Farm workers employed by anyone who used no more than 500 "man-days"
  of farm labor

  Employees who are employed in agriculture;

  Agricultural employees who are immediate family members of their employer;

  Those persons engaged on the range in the production of livestock;

  Local hand harvest laborers who commute daily from their permanent residence;

  Non-local minors, 16 years of age or under, who are hand harvesters.

Casual babysitters/companions to the elderly or infirm

Employee Misclassification Prevention Act

Tuesday, June 1, 2010

Senator Sherrod Brown and others introduced S.3254, “Employee Misclassification Prevention Act” in the US Senate and Representative Lynn Woolsey and others introduced H.R.5107, a companion bill to S. 3254, both bills are designed to amend the Fair Labor Standards Act of 1938 and prevent misclassification of employees as independent contractors. Concern over misclassification of employees as independent contractors re-emerged after a United States Government Accountability Office (GAO) report released in August 2009 titled “EMPLOYEE MISCLASSIFICATION Improved Coordination, Outreach, and Targeting Could Better Ensure Detection and Prevention”. The report concluded, “The national extent of employee misclassification is unknown; however, earlier and more recent, though not as comprehensive, studies suggest that it could be a significant problem with adverse consequences. For example, for tax year 1984, IRS estimated that U.S. employers misclassified a total of 3.4 million employees, resulting in an estimated revenue loss of $1.6 billion (in1984 dollars). DOL commissioned a study in 2000 that found that 10 percent to 30 percent of firms audited in 9 states misclassified at least some employees.”

An IRS audit of Microsoft for tax years 1989 and 1990 found that Microsoft had incorrectly classified a large number its workers as so-called "contingent workers" when in actuality they were common law employees. The IRS applied a 20-factor test to determine whether the workers were contractors or employees. The factors included a review of the workers’ level of supervision, location of work performed, and other issues. The audit resulted in an appeal, which found its way to the US Supreme Count which then ruled that Microsoft had in fact misclassified workers are “contractors” in error. In reaching that decision, the Court rejected IRS’ 20-factor test in lieu of a 12-factor test to conclude that Microsoft had incorrectly classified the workers as contractors. The Court’s 12-factor test originated from an earlier decision in Nationwide Mutual Insurance Co. v. Darden.

1. Skill required;

2. Source of tools and instrumentalities;

3. Location where work performed;

4. Duration of relationship of parties;

5. Hiring party's right (or lack thereof) to assign additional projects;

6. hired party's discretion over when and how long to work;

7. Method of payment;

8. Hired party's role in hiring and paying assistants;

9. Whether the work is part of hiring party's regular business;

10. Whether the hired party is in business;

11. Whether "employee benefits" are provided; and

12. The tax treatment of the hired party.

The Court remanded the case to the lower court for determination using the factors from the Darden case.

As with any issues dealing with legal compliance, employers should seek, qualified professional assistance before making changes in their work place practices.