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.