What Businesses Does the Fair Labor Standards Act Cover?

My posts during the past two weeks have been about the proposed new salary standard for the administrative and executive exemptions from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”) and the issuance of an Administrator’s Interpretation by the federal agency responsible for enforcing the FLSA of what is required for a worker to be properly classified as an independent contractor.  In both instances, the news was not good for employers who are looking to keep their labor costs down.  In the business section of the July 19 edition of the AJC, there was a story about the impact on Georgia employers of the proposed new salary standard.   The spokesperson for the Georgia Retail Association was quoted as estimating the new standard would affect 53,100 employees in the retail and restaurant industry and according to the story’s author, potentially another 100,000 employees in other Georgia industries could be affected if the national estimates of employees affected were applied proportionally to Georgia.

Those are impressive numbers, but what caught my eye was the statement in the story that, “Overtime pay is not required of companies with revenue of less than $500,000, and the new rules would not change that.”  If correct, that would let many smaller Georgia employers off the hook as far as the proposed new salary standard and the independent contractor issue were concerned.  Unfortunately, that statement is not completely accurate. I would have to give it a “Half True” on the AJC’s politifact meter.

The FLSA’s requirements apply to any employee “who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce.”  An employee is engaged in commerce if they perform any services that have anything to do with “trade, commerce, transportation, transmission, or communication among the several States or between any State and any place outside thereof.”  For insurance agencies and any other business, this would cover any employee who communicated with anyone outside the state of Georgia in any way (telephone, e-mail, text, telefax) while performing services on behalf of the business.  In today’s economy, that would include most of the employees of an insurance agency.

Strictly speaking, if an insurance agency or any other business had one or more employees who did not “engage in commerce” (e.g., a janitor or other cleaning person) as part of the services they performed, those employees would not have to be paid the minimum wage or overtime pay.  This because the FLSA is based on the power of Congress to regulate commerce between and among the states and with foreign countries.  It has no power to regulate persons or activities that do not in some way affect interstate or foreign commerce.  Back in 1938 when the FLSA was first adopted, there were many employees of businesses that “engaged in commerce” but whose duties had nothing to do with such commerce.  To reach those employees of such businesses, the FLSA was made applicable to all the employees of any business that had at least some of its employees “engaged in commerce or in the production of goods for commerce” and that had a specified minimum amount of annual revenue.  Today, that specified minimum amount of revenue is $500,000.00.

So any business that has employees who are not “engaged in commerce” and has gross annual revenue of less than $500,000 does not have to pay such employees the minimum wage or overtime pay.  However, any such business should be prepared to prove that such employees are exempt to the U.S. Department of Labor if they choose not to pay them in accordance with the FLSA’s requirements.

Department of Labor Goes After Independent Contractors

A little over a week after issuing its Notice of Rulemaking that will result in more than doubling the minimum salary that must be paid to an employee for them to be eligible for the administrative or executive exemption from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”)(click here for my blog post on this subject), the Administrator of the Wage and Hour Division of the U.S. Department of Labor (“USDOL”) issued an Administrator’s Interpretation that focused on what workers would be considered employees for purposes of coverage by the FLSA.   In essence, the USDOL will now consider any worker who is “economically dependent” on their employer to be an employee, regardless of what label the employer and worker have placed on their relationship.  The main target of this Administrator’s Interpretation is those workers who are being treated by their employers as independent contractors.

That Interpretation discusses the six factors that will be used by the USDOL to decide whether a worker is “economically dependent” on their employer.  Although not identical, those six factors are very similar to the factors used by the IRS to make the same determination for tax purposes. What can happen to an employer if the IRS determines that a worker it has treated as an independent contractor is really an employee is discussed in an article that I wrote about this subject for an IIAG publication.  That article also applies the IRS factors to a typical agency/producer relationship to see what the likely outcome would be if an agency attempted to treat its producers as independent contractors. The result was not a good one for the agency.

The same result is likely using the six factors identified in the USDOL Administrator’s Interpretation, especially since throughout that Interpretation the statement is made that no one of those six factors is more important than the other and they are not to be mechanically applied (i.e., a majority of them one way or the other will not necessarily answer the question).  Instead, the focus will stay on whether the worker in question is “economically dependent” on their employer.  The Interpretation analyzes the six factors in some detail and gives examples of how they would indicate employee or independent contractor status.

My take on this analysis is that if a worker performs services for only one employer and does not incur significant expenses in doing so for which there is no reimbursement from the employer, the USDOL will consider that worker to be an employee for purposes of the FLSA and thus, entitled to overtime pay for any hours worked in excess of 40 in any one work week, unless they qualify for an exemption.  The employer in that situation would be faced with having to pay overtime for any excess hours worked during the previous three years and unless the employer had kept track of the number of hours worked by the “independent contractor”, it would be stuck with whatever number the worker provided.

In addition, as part of its misclassification initiative, the USDOL would report its finding to the IRS and the taxing authorities of those states with which it has memorandums of understanding for action by them.  Fortunately for Georgia employers, the USDOL does not have a memorandum of understanding with the Georgia Department of Revenue, at least not yet.  Agency and other business owners should carefully review the Administrator’s Interpretation to make sure that any independent contractor relationships they may have will pass the test of economic independence.


Avoiding the Payment of Overtime is About to Get Much More Expensive

In a blog post this past March about which employees must be paid overtime for working more that 40 hours in any one work week, I mentioned that President Obama had directed the U.S. Department of Labor (the “USDOL”) to review the exemptions from the overtime pay requirement and that most knowledgeable commentators expected the minimum salary requirement for the two main exemptions, administrative and executive employees, to be increased significantly.  Last week, we found out just how significant that increase was going to be.  On July 6, the USDOL issued a Notice of Proposed Rulemaking in which it proposed raising the minimum salary that must be paid to a worker before they could be an exempt administrative or executive employee from $455 a week to $921 a week.  That would result in an annual salary increase from $23,660 to $47,892, more than double.

Not only would the annual salary required for a worker to qualify as an exempt administrative or executive employee more than double immediately, it would continue to rise over time automatically.  The USDOL’s proposed new rule would link the minimum required salary to the 40th percentile of weekly earnings for full-time salaried workers.  As the amount of salary earned by that percentile of workers increased, so would the required minimum salary for exempt administrative and executive employees.  The USDOL estimates that doing this would increase the required minimum salary to a little over $50,000 in 2016.

The proposed rule does not change any of the other requirements for the administrative and executive exemptions, but it requests comments on whether and how those requirements might be changed.  The period for making such comments and comments on other aspects of the proposed rule expires on September 4, 2015.  After that, it will be up to the USDOL to review the comments submitted and then propose a final rule.  There is no need for action by Congress to make the final rule effective.  Most commentators expect a final rule to become effective sometime in late 2015 or early 2016.

What this means for agency and other business owners is that if any of your employees have been classified as exempt from the overtime pay requirement as an administrative or executive employee, they will have to be paid at least $921 a week, or $970 a week depending on when the new rule becomes final, to remain exempt from that  requirement.   Any of my readers who have such employees should begin planning now for any necessary pay increases or changes to their jobs to reduce the hours worked below 40 in any one work week, if it will not be feasible to meet the new minimum salary requirements.


Bad Work Habits and How to Break Them

I hope all my readers had a great 4th of July holiday.  I know that I enjoyed my three-day weekend very much.  Having that free time for a holiday that celebrates freedom got me to thinking about ways to create more free time to do the things I enjoy doing.  One of the ways to do so is to work more efficiently, so you can get done what needs to be done in less time.

Overcoming bad work habits will go a long way towards being able to work more efficiently.  I came across a recent article in the LifeHealthPro newsletter that discusses 10 such habits and ways to break them.  Some of the habits mentioned are a result of  technology advances (e.g., constantly checking e-mail, looking at your phone while talking to someone), while others have been around forever (i.e., meetings with no agenda, not delegating tasks, and especially, procrastination).  Others seemed to me to be more common courtesies that adversely affect the ability of others to do their work efficiently (i.e., being consistently late, making too much noise, constantly complaining).

Then there were those that I had not thought about as being bad work habits, multitasking and saying yes or no all the time.  It seems logical that someone who can do more than one task at a time would be more efficient, but according to the article, recent research has shown that when a person is multitasking they are not performing any of the tasks as well as they could if they focused on only one of the tasks at a time (after following many drivers who are talking on their mobile phones, I should have realized this).  Some of the recent research has even concluded that people who multitask on a frequent basis have lowered IQ’s and may even be damaging their brains.

While consistently saying no to every request at work seems like a bad idea on its face, saying yes all the time would seem to show a willingness to cooperate with and help out co-workers, i.e., be a team player.  However, as anyone who has never turned down a request for help can testify, doing so can quickly lead to work overload and a failure to meet expectations for all the things you have agreed to do.  When that failure involves a request from a customer, the downside to saying yes to every request becomes clear.

The article has helpful suggestions on how to break the bad habits it identifies and sets forth a four step process for breaking any bad habit:  Step 1: Write down the bad habit; Step 2: Write down what triggers the performance of the bad habit and how to avoid those triggers; Step 3:  Write a substitute action for every trigger and teach your brain by repeatedly performing the substitute action when the trigger occurs; and Step 4: Enlist an army of family and friends to help you by telling them what your bad habit is, how you’re going to change it, and giving them permission to point out when you engage in the bad habit.

As everyone who has ever tried to break a habit of any kind knows, it is a very difficult thing to do.  So start small and work on only one or two bad work habits at a time.  If you keep at it, you should begin to enjoy more free time as you become more efficient at work.


Where You Reside – Three Important Words for Homeowners

The importance of the phrase “where you reside” is probably well-known by those of my readers who solicit and sell personal lines policies.  It should also be something that is known by every person who has a homeowner’s insurance policy, as those three little words can mean the difference between coverage and no coverage for a loss to a home.  Why that is so is due to the definition of what structure is covered by a homeowner’s policy.  Although not universal, most homeowner’s policies, including the ISO HO-3 form, define what is covered by them as being the dwelling on the residence premises, which in turn are defined as the place “where you reside”, with “you” being the named insured or their spouse, if any.

In several states, including Georgia, the appellate courts have held that if the named insured or their spouse did not actually live in the structure on the residence premises specified in the policy at the time of the loss, there is no coverage for the loss.  This means that if you are renovating a home and not living there during the renovations or have just purchased a home but not yet moved in, a homeowner’s policy that contains the above definitions will not provide coverage for a loss that occurs during those time periods.  There are many other factual scenarios that could result in the same outcome (in the first Georgia case, there was a divorce and the named insured spouse had moved out of the home leaving her now ex-spouse there), all of which are explored in a white paper created by IIABA’s Virtual University staff in 2009.  This is perhaps the ultimate trap for the unwary, as far as homeowner’s policies are concerned.  It became such a focus of concern that IIABA created a webpage devoted to the problems raised by the words “where you reside” in such policies and how those problems could be addressed.

After 10 years of IIABA’s working on ISO to remedy the above problems, ISO has finally agreed to issue two new endorsements for its homeowner policy forms, which will be effective in most states on October 1, 2015.  One of those endorsements is mandatory and one is optional.  The mandatory endorsement, for which no extra premium should be charged, changes the definition of the structure covered by the policy to one where the named insured and any spouse live “on the inception date of the policy period shown in the Declarations” for the policy.  As long as the named insured or any spouse are living in the structure on that date, any loss for which the policy provides coverage will not be denied if the named insured or any spouse are not living in the structure for any reason when the loss occurs.

While this change takes care of many of the coverage problems noted in the IIABA white paper, Including the situation addressed by the first Georgia case, it does not address what happens if the buyer of a home does not move into it by the inception date of the policy.  In that situation, the policy may not provide coverage even after the buyer moves in, since they were not living in the home on the inception date of their policy.  The optional endorsement that has been issued by ISO is meant to take care of this and similar situations.  For what will most likely be an extra premium, the “where you reside” language is removed from the definition of the covered structure for a stated period of time, which can be the entire policy period. (For an in-depth article on the new ISO endorsements and their background, click here.)

The IIABA will be holding a free webinar on July 8, 2015 from 3-4 p.m. EDT to explain the new ISO endorsements.  Unfortunately, its 1,000 capacity limit has been reached already.  However, the webinar will be recorded and a link to it will be available on the IIABA’s recorded webinars page shortly after July 8.

The Customer Experience Approach to Selling Insurance

In my post last week, I talked about the two presentations on selling insurance that were made at the IIAG’s Annual Convention.  Both presentations focused on how to create the right emotions in a customer or potential customer and both were examples of what can be called the customer experience approach to selling insurance.  This seems to be the hot topic of the moment, as earlier today, the Agents Council for Technology hosted a webinar titled, “The Customer Experience Journey.”  It focused on how agents can use technology to make the customer’s experience in dealing with your agency a positive one, by using it in a way that creates positive emotions in customers and potential customers.  Any interested readers who may have missed that webinar will probably be able to find a recording of it in the near future on the ACT website.

An article on how to use technology to enhance a customer’s experience with agencies appeared in a recent edition of ACT’s newsletter.  The author refers to a JD Power survey of insurance customers that revealed those customers who interacted with agents using “emerging technology” had the highest satisfaction rating of all the customers surveyed and were more likely to stay with, and refer others to, their agent even if they did not offer the cheapest premiums.  However, he made the point that the days of the “broadcast e-mail” were over.  Agents need to use technology to craft specific messages for specific segments of their customer or potential customer base, with the goal to make it look like each message was written with the customer to whom it is sent in mind.  Birthdays, anniversaries, renewal dates, claims, and other events can the subject of such messages, which should aim to create a positive emotion in the recipient by acknowledging their milestones or providing value in the form of relevant information or support at a time when it is needed.

The author also makes the point that it is crucial to integrate the technology used to contact the customer or potential customer with a live person at the agency, so that person will know when to contact, or expect to be contacted by the customer, and what the subject of that contact should be.  It’s all about relationships and while those can be prompted by the proper use of technology, they can only be firmly created by having a person at the agency who is prepared to interact with customers in a way that is relevant to them and their needs.

In a recent newsletter, Steve Anderson, explained how a program known as SlideShare can be used to provide relevant information to an agency’s customers or potential customers through LinkedIn or directly.  If an agency is looking for relevant content for its marketing activities that is visually interesting, SlideShare is a great source, especially since it is free.

IIAG Annual Convention – What You Missed

The weather was great and the programs just as good.  I didn’t arrive at the convention in time to hear the presentation on the insurance issues involved in ride sharing, but was told that it covered many of the same issues as I have discussed in my previous blog posts about that subject.  The Friday morning presentation by JoAnna Brandi was about how to turn current customers into loyal customers and thereby, increase an agency’s customer retention rate.  In it she touched on another subject that I have addressed in a previous blog posts; the need for an agency to have engaged employees to create engaged customers who will stay with the agency.  The Saturday morning presentation by Jeb Blount provided a good counterpoint to Ms. Brandi’s presentation, as it was about how to turn a prospect into a customer.

What struck me the most about both the Friday and Saturday morning presentations was their focus on the importance of emotion.  For both speakers, creating the right emotional response in customers and potential customers was the most important factor in achieving the goal of obtaining a customer and then making that customer a loyal one, who will not choose another agency over yours, or having chosen your agency leave it, for a better price somewhere else.   In her presentation, Ms. Brandi made the point that every interaction with a customer will create a emotional response, either positive or negative.  In dealing with its customers, an agency should strive to create as many positive emotions as possible by doing the little things (remembering birthdays, anniversaries, and other events important to the customer), as well as the big things (handling a claim, getting needed coverage) in a way that at least meets, if not exceeds, the customer’s expectations.  When this is done consistently, a positive emotional bank account is created that enables the customer to overlook any negative emotions that may occur as a result of their interaction with the agency.  Proactively looking for ways to help the agency’s customers, providing solutions to their problems, and constantly asking for feedback on what can be done better are things that agencies can do to create positive emotions in their customers.

Mr. Blount’s presentation focused on what he called “Customer Experience Selling,” which he said was all about managing the emotions of the customer, as well as your own.  He made the point that most people act on emotion and then use logic to justify their action.  Thus, a producer should focus on the potential customer’s emotional needs first to establish a connection with the customer, which will make the customer more receptive to doing business with you.  The most important thing a producer can do to create this connection is to listen to what the customer has to say and respond appropriately to those things that the customer identifies as being most important to them.

In “Customer Experience Selling”, the customer does most of the talking, at least initially, which is contrary to how many producers approach a potential customer.  By really listening and responding appropriately to what the potential customer has to say, the producer will allow the customer to positively answer the five most important questions they have about any one trying to do business with them:  Do I like you?, Do you listen to me?, Do you make me feel important?, Do you understand me and my problem?, and Do I trust and believe you?  Once the potential customer is able to positively answer those five questions about you, they will be willing to buy insurance coverage from you, even if the price is more than what someone else may be able to offer.


Employee Smoking & Ride Share Updates

In last week’s post, I discussed the ability of an employer to fire an employee who began smoking cigarettes after they were hired.  A couple of weeks before that, I talked about ISO’s new motor vehicle insurance policy forms that addressed the use of a personal passenger vehicle for ride sharing through Uber and similar services.  Since then, I have watched a webinar that focused on what an employer could do about the former, as well as many other things their employees may be doing, which raised a question about the use of e-cigarettes by employees.  I have also discovered another reason your agency’s customers should think long and hard about whether they want to use their motor vehicle for ride sharing services.

The webinar was titled “Can My Company Ban That?” and discussed what employers could and could not do with respect to employees who had tattoos, body piercings, personal hygiene issues, engaged in conduct while not at work that was against the employer’s values, brought weapons to work, dated co-employees, or spoke a foreign language.  It also addressed what could be done to control the use of social media and cell phones by employees.  While the webinar was not specific to Georgia law, it provided a good overview of the general rules applicable to all the above subjects and is worth watching if you have any questions about them.

I thought it an interesting coincidence that one of the examples used to explain how the general rules worked involved the use of e-cigarettes by an employee of a small insurance agency.  The employee insisted they had a right to use them at work because it was not illegal.  As the readers of my blog post last week know, under Georgia law, that does not matter, as the employer has the right to ban any conduct at work and to fire an employee for engaging in conduct outside of work, as long as such conduct is not protected by law .  For those employers with less than 15 employees of any kind, that means they can pretty much do whatever they want about employee conduct both at and outside of work, as long as it does not interfere with an employee’s right to discuss the terms and conditions of their employment with other employees.  However, as noted in the webinar, there may well be practical reasons for an employer not to exercise this right to its full extent and for employers with 15 or more employees, there are legal reasons, as well.

As some of my readers may know, Georgia law specifies the reasons why a personal motor vehicle insurance policy can be cancelled.  (Click here for an article I wrote on that subject for the Dec Page magazine.)  One of those reasons is the use of the covered vehicle for “carrying passengers for hire or compensation.”  The same reason can be lawfully used to non-renew such a policy.  Any agent whose customer is using or thinking about using their personal vehicle to give rides through Uber or a similar service should make sure the customer is aware that their insurance policy on that vehicle can be cancelled if the insurance company finds out.  In areas where these services are offered, an agent may want to consider including a notice about that fact with each such policy issued.

Smoking by Employees – What Are the Rules?

A couple of months ago, I had a call on the Free Legal Service Program that I run for the Independent Insurance Agents of Georgia from an agency owner who had recently hired an employee who decided after being hired to start smoking cigarettes.  The agency was a small one and none of its other employees smoked.  The other employees objected to the smell of tobacco on the newly hired employee, who would smoke before coming to work and on her lunch break.  The owner wanted to know what he could do.

In 2005, Georgia adopted the Georgia Smoke Free Air Act, which with a few exceptions banned the smoking of any tobacco product in any enclosed space, whether publicly or privately owned other than a personal residence.  Employers are required by the Act to tell every potential new employee of this ban when they submit an application for employment.  The Act does allow employers to create designated smoking areas for their employees that meet certain specified requirements, the most costly of which is the maintenance of an air handling system for the smoking area that is independent from the main air handling system that serves all other areas of the building and that expels all air within the smoking area directly to the outside.  No air from the smoking area can be recirculated through or infiltrate other parts of the building and a sign must be posted at every entrance to the smoking area warning others that smoking is permitted in that area.

The Georgia Smoke Free Air Act of 2005 does not require an employer to create designated smoking areas and in fact, permits the prohibition on smoking to be extended to areas outside of buildings that are under the control of the owner of the building.   There is also nothing in the Act that prohibits an employer from firing an employee for smoking outside of the workplace.  In the absence of any such prohibition, given Georgia’s strong “at will” employment policy, it appears that the agency owner who contacted me would be within his rights to fire the newly hired employee for smoking outside of the workplace.

However, if a Georgia employer has 15 or more employees, they are subject to the federal employment discrimination laws that impose some limitations on the reasons for which an employee can be fired.  Those limitations do not include the smoking of tobacco, but they do include other characteristics that could be used by an employee who was fired for smoking to create problems for the employer.  In any event, employers who do not want to hire persons who smoke tobacco should make that fact clear to all potential new employees and let all current employees know that such conduct will result in termination of employment.  If there is no such clear policy, an employee who is terminated for that reason will most likely be eligible to collect unemployment compensation.  In addition, any such policy should be consistently enforced.  If it is not and the employer is subject to the federal employment discrimination laws, the risk of liability exposure under those laws will increase as inconsistent enforcement of workplace policies is one of the main causes of claims under those laws and makes defending such claims much more difficult.

Each agency owner must decide what type of workplace they want to have, as far as the smoking of tobacco products by their employees is concerned.  Once that decision is made, the owner should clearly communicate the policy to all their current employees and any potential new employees.  If the policy adversely affects any current employees, they should be given a reasonable amount of time to comply with the new policy and maybe even offered help to quit smoking, if the policy calls for the termination of employment of any employee who smokes tobacco products outside of the workplace.


Items of Interest From the IIAG Commercial Lines Committee

I hope all my readers had a safe and enjoyable Memorial Day weekend.  The weather in the Atlanta area was perfect, until late Monday afternoon when it started to rain.  By that time, I was ready to relax in front of the TV, so it was no problem for me.

Prior to the weekend, I attended the quarterly meeting of IIAG’s Commercial Lines committee.  One of the agenda items concerned whether the committee should create a forms and data bank to which IIAG members could look for general information about subjects that every agency has to deal with; privacy rules, electronic delivery of policies and notices, prevention of E&O claims, etc.

During the discussion of this agenda item, it was pointed out that IIABA has a website devoted to issues involving E&O claims.  That website has links to sample disclaimers for voice mail, telefax, e-mail, websites, social media sites, and proposals, sample checklists for commercial and personal lines customers, among others, and over 20 sample letters to customers about audits, claims, carrier downgrades and insolvency, and other subjects.  It also has information on best practices for the retention of records and the documentation of communications with customers and sample procedures for dealing with cancellations, claims, audits, and renewals, among others.

Unfortunately, while anyone can visit the above website, the information and sample documents described above are only available to IIABA members.  A similar restriction exists for the forms I have developed for use by IIAG members.  Those forms include obtaining consent for the electronic delivery of policies and a suggested letter for use when a person has requested the issuance of an insurance certificate in violation of Georgia law.

On another subject, one of the committee members brought up a situation they were dealing with that could lead to problems for customers with both a general liability and umbrella policy, as well as the agent who is handling a claim under them.  The same insurance company issued both policies, but the language in them regarding when notice of a claim to the company must be given to avoid a denial of coverage was different.  The notice given to the company met the requirements of the general liability policy, but the company contended it did not meet the requirements of the umbrella policy, as under that policy the notice should have been given earlier.   This type of problem could apply to any two insurance policies that may provide coverage for the same risk and is yet another reason that the customer and the agent should carefully read both policies and make a note of any differences in them on this or any other subject.  The failure to do so could result in an uninsured loss by the customer and potentially, an E&O claim against the agent.