Which Agency Employees Can Be Exempt Employees for Overtime Pay Purposes?

In last week’s post, I mentioned the concept of exempt and nonexempt employees and provided a brief description of what makes an employee exempt from the requirement under the Fair Labor Standards Act (“FLSA”) that employees be paid extra compensation for any work done in excess of 40 hours per week.  This subject is an important one, as the misclassification of an employee as being exempt when in fact they are not can be very costly to the employer, as explained later in this post.

A few weeks ago, I listened to a webinar that focused on whether certain employees of insurance agencies could be classified as exempt employees.  In particular, what it would take for customer service representatives, or account executives, and producers to be classified as exempt employees.  The presenter discussed in some detail the two main exempt categories that may apply to the former type of employees, known as the executive and administrative employee exemptions.  As noted in last week’s post, at this time, to qualify for either exemption an employee must be paid on a fixed salary basis in an amount that equals at least $455 per week ($23,660 per year) and that salary cannot be reduced based on the quality or quantity of the work performed by the employee during any one work week.

I say at this time because, at the direction of President Obama, the Department of Labor has been reviewing those and the other exemptions from the overtime pay requirement and is expected to release updated regulations for them sometime this Spring. Most knowledgeable commentators expect the minimum salary requirement for the administrative and executive exemptions to be increased significantly.

The most likely exemption for customer service representatives would be the administrative exemption, which requires that the employee’s primary duty be the performance of “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers” and include the “exercise of discretion and independent judgment with respect to matters of significance” to the employer’s business.  Such employees can engage in some sales activity on behalf of the employer, but that activity cannot be their primary duty. (Click here for a more detailed explanation of the requirements of the administrative exemption.)

For producers, the most likely exemption is one for outside sales persons for the reasons discussed in a 2009 opinion by the Wage and Hour Division of the Department of Labor that focused on life insurance producers, but the language of which would apply equally to property and casualty or health insurance producers.  That exemption requires the employee’s primary duty to be the making of sales or the obtaining of orders for services and they must “customarily and regularly” perform that duty outside of the employer’s place of business, which for this purpose means at the home or office of the customer or potential customer. (Click here for a more detailed explanation of the outside sales person exemption.)

If an agency’s producers don’t meet the second part of the outside sales person exemption, it is possible that they can meet what is known as the commissioned sales person exemption.  That exemption requires that the employee be paid at a rate in excess of the overtime pay rate (at this time $10.88) for every hour worked and that more than half of their total compensation be from commissions. (Click here for a more detailed explanation of the commissioned sales person exemption.)

An employee who was not paid overtime compensation when they should have been has the right to sue the employer in federal court to recover the extra compensation they should have been paid for up to three years before the lawsuit is filed.  In addition, if the employee convinces the court that the employer willfully violated the FLSA, they can receive liquidated damages up to double the amount of extra compensation they should have been paid.  Finally, a successful employee is entitled to an award for the attorney fees and other litigation expenses incurred by them, which award can sometimes be far higher than the amount of extra compensation the employee recovers.  Last year, an employee in Georgia who was awarded a little over $6,500 in extra compensation, also received an attorney fees award of over $173,000.00.  It is easy to see why lawsuits for unpaid overtime compensation are the most frequently filed employment related lawsuits in Georgia and elsewhere.

Must An Employer Pay Its Employees If Its Offices Are Closed?

With ice and snow falling on the Atlanta area and most of North Georgia and more such weather predicted for tomorrow, I thought it would be a good idea to remind my readers of what an agency’s obligations are with respect to the payment of its employees when the office is closed due to severe weather or any other reason.  This issue was the subject of an article that I wrote for the Summer 2011 issue of the Dec Page Quarterly, a magazine published by the Independent Agents of Georgia.  At that time, parts of Georgia were experiencing significant flooding problems.  Now it’s ice and snow, but the principles remain the same.

The answer to the question posed in the title of this post depends for the most part on whether an employee is classified as an exempt or nonexempt employee for purposes of the Fair Labor Standards Act and then on whether the agency’s offices are closed for a full day or only part of a day.  An exempt employee is one who does not have to be paid extra if they work more than 40 hours in any one work week.   A nonexempt employee is one that must be paid at a higher rate for any time worked in excess of 40 hours in any one work week.  How you decide whether a particular employee is a nonexempt or exempt employee is beyond the scope of this post, but generally speaking exempt employees must have some management responsibility or the ability to exercise discretion in making significant decisions related to the conduct of the employer’s business.  In addition, an exempt employee must be paid on a fixed salary basis in an amount that equals at least $455.00 per week and that salary cannot be reduced based on the quality or quantity of the work performed by the employee during any one work week.   All other employees are considered nonexempt employees, who must be paid at least the minimum wage, but only for the time they actually perform services on behalf of the employer.

Thus, if an agency’s offices are closed for any reason and a nonexempt employee does not perform any services for the agency from home, such an employee need not be paid for the time period the offices are closed.  This is true regardless of whether the nonexempt employee is being paid a salary or on an hourly basis by the agency.  If the agency’s offices are closed for a full day for any reason and an exempt employee does not perform any services on behalf of the agency from home on that day, such an employee’s salary may be reduced by the equivalent of one day’s pay.  If either type of employee performs any services on behalf of the agency on a day that its offices are closed for any reason, they must be paid.  The nonexempt employee need only be paid for the time they actually performed services, but the exempt employee must be paid for a full day.  This is true even if they have been told not to do any work.

For those in the northern part of Georgia, stay warm and drive safely these next couple of days.

Cyber Liability Insurance – A Great Opportunity For Agents

Two major events last week made clear the dangers faced by any business that stores important personal information about its customers, as well as its own employees, on a computer system.  Late last week Anthem Insurance disclosed that its computer system had been hacked and the names, addresses, birth dates, social security numbers, and other information of over 80 million customers and employees had been obtained by the hackers.  Since Anthem Insurance owns Blue Cross and Blue Shield of Georgia, it is probable that many Georgia residents were included in the group of people whose personal information was obtained by the hackers. (Click here for a news release published today by the Insurance Commissioner’s Office that provides more information on the situation and recommends actions that Georgia residents can take to protect themselves.)

Although it appears that no credit card or health related information of those persons was obtained, what hackers can do with the personal information that was obtained was demonstrated by Intuit’s announcement the next day that it was suspending the electronic filing of state income tax returns by users of its Turbo Tax software.  The suspension was done in response to reports of many fraudulent tax returns being filed electronically by persons who had obtained the name, address, and social security number of legitimate taxpayers.  The Georgia Department of Revenue has confirmed its receipt of such returns and announced that it will increase its scrutiny of tax returns filed using Turbo Tax’s software, which will lead to a delay in their acceptance.

All businesses are at risk of a cyber attack and the increasing frequency of reports of successful attacks has led many industry observers to state that cyber liability insurance will be one of the hottest growth areas in 2015.  The recent announcements by Nationwide Insurance that it will begin offering endorsements for cyber liability risks and Liberty Mutual Insurance that it will begin offering cyber liability coverage for small businesses is evidence of that fact.  When cyber liability insurance first became available, I checked into it for my law firm, but the conditions that had to be met before a policy would be issued were such that it was not economically feasible for my firm.  Those conditions have now been relaxed considerably, to the point that businesses with no more than a firewall and anti-virus software can obtain coverage.  Of course, the premium charged for such businesses will be higher, but based on my conversations with company representatives at a recent insurance industry event I attended the premium would still make sense for a small business given the protection provided.

The increased awareness of the need for some protection in the event of a data breach should make many business owners more receptive to a solicitation from agents for such coverage.  That awareness also gives agents an opportunity to “add value” to their services by providing advice about what can be done to reduce the possibility of a data breach and what to do if one occurs.  Click here for an article that discusses ten tips to help businesses both prevent and prepare for such an event.  There are many other sources for such information that can be easily found on the internet (click here for one).  Don’t miss out on this opportunity to round out your commercial business accounts and give your customers, old and new, one more reason to consider you a trusted advisor.



UGA Risk Management Program Ranked #1

I have always heard how well-regarded the University of Georgia’s risk management program is.  That it is not just talk by UGA boosters and graduates of the program has been confirmed by U.S. News & World Reports.  Its latest rankings of the top undergraduate programs in insurance and risk management have UGA’s Terry College Risk Management-Insurance Program as the number 1 such program in the country.  According to the College’s website, it is also the largest such program in the country.  In attaining this ranking, UGA beat out such outstanding schools as the University of Pennsylvania’s Wharton School, the University of Wisconsin, Temple, and New York University.

The most surprising college in the top 10, at least to me, was Georgia State University.  It’s Department of Risk Management and Insurance was ranked number 5 in the country.  According to the Department’s website, this is nothing new for Georgia State, as it has been ranked in the top 10 undergraduate insurance and risk management programs every year since 1999.  One reason for that consistency is the existence of two research centers on campus: the Center for Risk Management and Insurance Research and the Center for Economic Analysis.  Their existence has led to Georgia State having one of the largest full-time research faculties in the world for the study of insurance issues.

With these two highly rated insurance and risk management undergraduate programs, Georgia agencies should have a steady stream of qualified candidates to fill positions for years to come.  However, according to the most recent Best Practices Study done by Reagan Consulting, while having a regular presence on college campuses and providing internships to prospective employees were very important predictors of a successful producer hire, having a degree in risk management turned out to be not so important.  I tend to think that, if the study focused on just graduates from the insurance and risk management programs at UGA and GSU, the results would be quite different.  For a complete analysis of the best practices for producer recruitment and development click here for the report released last Fall by Reagan Consulting.



Georgia’s YAC – Another Great Year

Last week, I took the time to listen to a webinar involving Georgia’s Young Agents Committee.  The Immediate Past Chair, Kelli Dean, the Chair, Jarrett Bridges, the Vice Chair, Robbie Moore, and the Secretary-Treasurer, Jimbo Floyd, participated in the webinar, which was broadcast nationwide by the IIABA.  They described all the activities of Georgia’s YAC during 2014 that lead to it being named the Outstanding Young Agent’s Committee of the year during the Young Agents Leadership Institute at the IIABA Fall Conference last September. (Click here for my blog post about the award.)

In the 2013-2014 year, the Georgia YAC departed from precedent and used an overnight retreat of its board members to set their goals for that year, instead of having the Chair determine them.  This lead to increased “buy-in” by the board members for those goals, which was evidenced by the fact that every one of them was not only achieved, but surpassed.  The Board decided to focus on three areas, raising awareness of InsurPac, increasing their registered membership by 35%, and increasing attendance at the annual Sales and Leadership Conference by 10%.

Using the slogan “Commit to the I”, the committee encouraged its members to sign up for a recurring monthly contribution to InsurPac, instead of a one time contribution, and was able to get 24 members to do so.  Those members, along with others who contributed, including 100% of the Board members, enabled Georgia’s YAC to surpass its annual goal for InsurPac by over 70% within the first 45 days of 2014.  They had similar success with increasing the registered membership.  Sixty-five new members were added for an increase of 59%.  They weren’t quite as successful with attendance at the Sale and Leadership Conference, but 15 first time attendees were among the 102 agents and company partners who did come.

The key to the committee’s success was focusing on creating relationships among the Board members, in particular, and the membership in general.  They did not look at each other as competitors, but as friends working to achieve a common goal, while having fun.  As they have done in the past, the committee made extensive use of social media to communicate with their members and encourage participation in their events.  If you are interested in the details on how this was done, click here for a link to the webinar. (It’s toward the bottom of the page.)

As I said in my post back in September, the future of the Big I is in good hands with these outstanding young agents and its strong Young Agents Committee in general.

Is an Agent Required to Maintain a Trust Account?

This is the second of the two questions referred to in my first post of 2015 that I was asked by a caller to the Free Legal Service Program that I run for IIAG.  The short answer to it is No, but it is not an unqualified No.

The statute that governs this subject is O.C.G.A. Section 33-23-35.  On the one hand, it states that “all funds representing premiums received or return premiums due the insured by any agent or subagent . . . shall not be commingled with the licensee’s personal funds.”  From this statement, it would seem that the portion of premium payments that do not represent commission due the agent cannot be deposited into the bank account used by him or her to pay their other bills.  But the very next sentence of the statute says, “Nothing contained in this Code section shall be deemed to require any agent or subagent to maintain a separate bank deposit for the funds of each principal, if the funds so held for each principal are reasonably ascertainable from the books of accounts and records of the agent or subagent.”

So it is permissible for an agent to commingle their funds with funds belonging to an insurance company or insured, but only if their accounting methods will allow the amount due to each such company or insured to be “reasonably ascertainable.”  What that phrase means  would be up to the Insurance Commissioner’s Office to decide, as there have not been any court cases that addressed that question and there are no regulations that define it.  However, its meaning would likely be influenced by the duty of an agent and subagent to “promptly” account for and pay to the insurance company or insured the money owed them.

To be safe, an agent that does not maintain a separate account for premium payments should be able to tell from their accounting records at any time how much of the money in their operating account or accounts belongs to each insurance company and insured with whom they deal.  Given the complexity of the accounts current calculations that must be done for each such insurance company, being able to satisfy the statutory duty will require a sophisticated accounting system or software program.

The importance of being able to satisfy that duty is made clear by the last paragraph of the above code section.  The first sentence states, “Any violation of this Code section shall constitute grounds or cause for action by the Commissioner, including, but not limited to, probation, suspension, or revocation of the license.”  The Commissioner is also given the authority to impose fines and other penalties for such violations and a willful violation of the code section that involves an amount greater than $500 is declared to be a felony.

Although the commingling of premium payments due an insurance company or insured with an agent’s personal funds is permissible under the Georgia Insurance Code, the better practice would be to maintain a separate account for such payments.  Doing so will eliminate the possibility of inadvertently using such payments to pay other bills, which could expose the agent to disciplinary action by the Commissioner’s Office, and will make keeping track of how much is owed each insurance company or insured easier.

A Holiday Wish Come True

My readers may remember that in my last post of 2014, I made some Holiday wishes.  To my surprise, one of those wishes came true at the end of last week.  In two days, the Congress enacted a bill that renewed the terrorism reinsurance program and created a mechanism for the nonresident licensing of agents and agencies without having to go through the insurance commissioner’s offices of each state.  If Congress could act as quickly to deal with other problems facing our nation, 2015 may turn out to be a very good year.

The Terrorism Risk Insurance Program Reauthorization Act of 2015 made some changes to the previous program.  The federal government’s share of any losses related to terrorist acts will gradually decrease to 80%, the trigger for the program will gradually rise to $200 million in such losses, and the amount that insurance companies must pay back to the federal government will gradually rise to $37.5 million, which amount will then increase every year based on a formula in the Act.  Other more technical changes were also made in the program.  The IIABA has prepared a summary of the Act’s provisions which can be read by clicking here.

As you might suspect from the name, the National Association of Registered Agents and Brokers Reform Act authorizes the creation of an entity known as the National Association of Registered Agents and Brokers (“NARAB”).  Membership in this entity will enable an agent or agency to conduct business in states other than their home states without having to obtain a non-resident license from the insurance commissioners of those other states or a certificate of authority from their secretaries of state.  Instead, the agent or agency will just pay NARAB the licensing fee required by those other states and it will notify the insurance commissioners of those states that the agent or agency is now authorized to conduct insurance business in them.  The insurance commissioners of those states do have the ability to contest the fact that an agent or agency has satisfied the NARAB’s membership criteria, but they cannot object to the conduct of business in their states by the agent or agency on the grounds that their licensing criteria have not been satisfied.

The best way to think of NARAB is as a nationwide Insurance Commissioner for licensing, except that membership in it is voluntary.  NARAB will establish its own criteria for membership, which must at least meet the standards for personal qualifications, education, training, and experience that are found in the National Association of Insurance Commissioner’s (“NAIC”) Producer Licensing Model Act and will require, at a minimum, that the agent or agency’s license in their home state be in good standing.  There will, of course, be a fee to join NARAB and membership will have to be renewed every two years.  NARAB will have the authority to discipline its members for violations of its rules, and its members will also be subject to the disciplinary powers of the insurance commissioners of each state in which they are authorized to do business for the violation of their rules.  Those agents and agencies that don’t want to deal with the NARAB’s rules will still be free to get non-resident licenses directly from the insurance commissioners of each state.

Unfortunately, it will take some time before agents and agencies can apply for membership in the NARAB (the Act calls for NARAB to be operational two years after its actual creation which is still some months away).  Perhaps the most significant hurdle for the NARAB will be the necessity to raise the funds required to set it up, as the Act prohibits the use of federal funds for this purpose.  Stay tuned for further developments.  In the meantime, IIABA has created a summary of the Act’s provisions and a member guide that explains those provisions in more detail for those who are interested.





Who Can Be The Owner Of An Insurance Agency?

Over the Holidays, I received a couple of calls on the Free Legal Service program I operate for the members of the Independent Insurance Agents of Georgia that were about some basic issues involved in conducting the business activities of a Georgia insurance agency.  I will address the issues raised by one caller’s question in this post and the issues raised by the other caller’s question in a later post.  The first caller asked whether a person had to have an insurance agent’s license to be the owner of an insurance agency.  The answer to that question is No.

In fact, it is possible under the Georgia Insurance Code that none of the owners of an insurance agency have an insurance agent’s license.  That Code only requires those persons associated with an insurance agency who “sell, solicit, or negotiate insurance contracts” to have such a license or that of a limited subagent or counselor.  As long as an owner of the agency does not take part in the sale, solicitation, or negotiation of an insurance contract, as those terms are defined in the Code, the owner is not required to be licensed in any way by the Insurance Commissioner’s Office.  However, such an owner’s name, date of birth, social security number, and residence address must be provided to that Office to obtain a license for the agency.  For some reason, the same information must also be provided for each officer and director of an agency who does not have a license issued by that Office.

Under the Georgia Insurance Code, the only prohibition on who can be an owner of an insurance agency involves a person who has had a license refused, revoked, or suspended by the Insurance Commissioner’s Office.  Even then, if the agency is a corporation, such a person could be an owner of the agency, as long as they did not own 10 percent or more of its issued and outstanding stock.  However, such a person could not be an officer or director of the agency under any circumstances.  This Code section does not refer to limited liability companies, so it is unclear whether a person who has had a license refused, revoked, or suspended by the Insurance Commissioner’s Office could be a less than 10 percent owner of an insurance agency that is organized as a limited liability company.


Holiday Wishes

This will be my last post of 2014, and I thought it would be a good time to  make some wishes for 2015.  First, I wish the Insurance Commissioner’s Office will address the issues that have arisen regarding insurance certificates since the passage of the statute and the issuance of its regulation.  There is still a lot of uncertainty among agents over what information can and cannot be included on a certificate and what law applies when a request for a certificate comes from outside Georgia.

A related wish is for insurance companies in Georgia to take more responsibility for the issuance of insurance certificates in their name.  They need to let their agents know what procedures should be followed and establish systems for making sure they are followed, so those agents who try to “play by the rules” are not put at a disadvantage by others who are not as concerned with doing so.

Nationally, I wish the new Congress will quickly pass the terrorism reinsurance bill (known as TRIA) and the agent reciprocal licensing bill (known as NARAB II).  Both bills had significant bipartisan support and were poised for passage in the recently completed lame duck session of Congress, but were derailed by Senator Coburn of Oklahoma.  Fortunately, he has retired and with the support of the IIABA, which has made quick passage of these two bills a top priority, this wish may actually come true.

I also wish that the economic recovery, which now seems to be reaching Main Street as well as Wall Street, continues its accelerated pace (5% in the third quarter) and that all the insurance agencies and other businesses in Georgia have a happy and prosperous New Year as a result.

If that happens, the job of the new executive director of IIAG, Michael T. Walsh, will be a little easier.  I wish him the best of luck in his new job.  He has some big shoes to fill, but he has a strong resume and a good staff, so the transition should go well.

Finally, I wish that the spirit of the Holiday Season, especially the peace on Earth and goodwill toward men (and women) part, will continue throughout 2015.  If everyone would just show a greater tolerance and respect for others who are different from them, I think that would go a long way toward achieving my last and most important wish.

Insurance Certificates – Another New Issue

Last week I wrote about an insurance certificate issue that was discussed at some length at IIAG’s Commercial Lines Committee meeting.  It concerned the scope of Georgia’s law and the regulation issued by the Insurance Commissioner on insurance certificates.  A related question was also briefly discussed.  Is an insurance agent required to sign an insurance certificate to make it valid?

Like most people, I had assumed that since the approved forms for insurance certificates contained a signature block for the “Authorized Representative”, that someone had to sign the certificate for it to be valid.  Since agents who have signed certificates that became the subject of litigation have been sued, whether an agent is required to sign the certificate to make it valid is an important question.  After reviewing Georgia’s statute and regulation, I am not sure what the answer to that question is under Georgia law.

The instructions to ACORD’s insurance certificate form state that the signature block is for the “authorized representative” of the insurance company whose policy or policies are the subject of the certificate, but they acknowledge that such a signature is not required by the law of every state.  The comment was made at the Commercial Lines Committee meeting that ACORD intended to change its instructions to make clear that no signature was required unless the applicable law said one was necessary.  Georgia’s statute and regulation both define an insurance certificate as a document that “is prepared or issued” by an insurance company or agent.  Nothing is said about whether anyone has to sign that document to make it valid.

In the absence of any specific language in Georgia’s law or regulation, whether an agent must sign a certificate of insurance to make it valid would be governed by the rules of the insurance company whose policy or policies are the subject of the certificate.  Georgia’s regulation requires all insurance companies to “provide to their producers written instructions clearly outlining the insurer’s procedures and each party’s responsibilities for issuing and servicing certificates.”  Those procedures should address whether an agent’s signature on the certificate is required to make it valid.  If not, it becomes an open question whether such a signature is required for an insurance certificate issued for property, operations, or risks located in Georgia.  As noted in last week’s blog, for property, operations, or risks located in another state, the agent would have to look to the law of that state for an answer to this question.

Based on the comments made at the Commercial Lines Committee meeting, it seems there will be an effort made to make some changes to Georgia’s regulation on insurance certificates in 2015.  This subject should be added to the ones discussed at that meeting.

On another note, the Commercial Lines Committee was told that 83 complaints have been made to the Insurance Commissioner’s Office using the e-mail address that is found on its website devoted to insurance certificates.  Of those, five have been referred to the fraud division for investigation.  Not bad numbers for roughly one year of operation. For anyone who may be concerned about the repercussions of making a complaint using that e-mail address, the committee was assured that the identity of all the people who make complaints is kept confidential.