AUGUST 1, 2016, THE DOL INCREASED PENALTIES FOR WORKER MISCLASSIFICATION
As the December 1st “Overtime Rule” deadline looms, the Department of Labor has increased penalties for employers who “intentionally” or “unintentionally” misclassify workers. Along with other federal agencies, the DOL has implemented the Federal Civil Penalties Inflation Adjustment Act.
Effective August 1, 2016, penalties will increase by as much as 150% and will apply to violations occurring after November 2, 2015. It has been over a decade since federal penalties were adjusted for inflation, but future penalties are set to adjust annually. That’s right, it just got a lot more expensive to misclassify employees as “Exempt” or “Independent Contractors”.
If you haven’t already heard, December 1, 2016, is the deadline for all employers to comply with the new FLSA overtime exemption rule. Here’s the rule, exempt employees (salaried workers who are exempt from overtime), must:
- Earn a minimum salary ($913 per week or $47,476 per year) and
- Perform all of the major duties for the exemption claimed by the employer
Misclassification of employees who meet the income requirement, but do not meet the duties test is very common and potentially very costly.
Who in Your Workplace is Exempt?
An employee properly classified under the “executive/manager” exemption must meet the minimum salary threshold. In addition to salary requirements, they must:
- Manage an organization, department, or division
- Have the power to hire and fire, or make equally significant decisions
- Regularly direct the work of at least two full-time employees, or the equivalent
- Frequently exercise discretionary powers in the performance of his/her duties
- Employee must be “primarily engaged” in duties that meet tests 1 through 4 above. Meaning more than 50% of the employee’s work time must be spent engaged in exempt work
That’s a tall order! Do you have exempt employees classified as “executive or managers” who don’t pass this test? If you’re not sure we recommend an HR Consultation to determine any compliance gaps. Each “White Collar Exemption” like the “Executive/Managerial”, “Administrative”, “Professional”, and “Computer” exemptions are legal classifications that have stringent requirements and separate essential duties test.
The Impact
Industries that may be particularly affected by the new rules and misclassifications are:
- Manufacturing
- Restaurant
- Retail
- Nonprofit
- And many others
Many restaurant, retail, office managers, and supervisors do not pass the FLSA essential duties test or meet the minimum salary.
It is important to recognize that the “White Collar Exemption” was intended to exempt highly compensated office workers and professionals like Doctors, Lawyers, District Managers, Accountants, and Directors from overtime pay laws. These highly skilled workers are typically highly compensated, and do not need the minimum salary and overtime protections afforded by the FLSA, and are therefore exempt.
However, the “White Collar Exemption” was not intended to exempt workers earning lower wages from receiving overtime pay. Often these workers have little or no independent decision-making authority and do not pass the essential duties test or meet the minimum salary threshold.
Exceptions for Small Employers?
Countless nonprofits and small businesses have asked, “Are there are exceptions for the little guy, nonprofits, or churches?”
The answer is no – there are no automatic exceptions. If your organization is currently subject to minimum wage and overtime laws, it will be subject to the new rules. Very few organizations or employees are exempt from the Fair Labor Standards Act (FLSA).
December 1 is just three months away. Is your organization in compliance? An HR Compliance Audit can help you identify your compliance gaps, save you time, and reduce the risk of employee claims, lawsuits, and agency audits. Contact Visionova for a Free HR Consultation today.
Author: Bernadette Jones, SPHR, SHRM-SCP
