Fair Labor Standards Act (FSLA), FLSA Requirements, Independent Contractors, US DOL

Crisis = Opportunity with FLSA Changes

time is moneyFrom the outrage and dread being spewed on the blogos-fear, one would think that the latest moves by the U.S. Department of Labor (DOL) on overtime pay and the misclassification of independent contractors are nothing but bad news for employers.

But the Update is here to report a silver lining.

As you may have seen reported in July, President Obama announced proposed federal regulations for the Fair Labor Standards Act that would substantially revise the law on “white collar” exemptions to overtime pay, including more than doubling the minimum salary required for such exempt positions.  As a refresher, “white collar” employees who perform certain executive, professional and administrative duties can be exempt from overtime pay, if they are paid a base salary that exceeds the minimum threshold (currently $455 per week).  The proposed DOL regulations are far from final, but they give employers a great opportunity to review – and change  – any problematic treatment of employees who, arguably, should have been overtime eligible all along.

The same applies to the recent “interpretation” published by the DOL on July 15, 2015, in relation to the misclassification of employees as “independent contractors.”  According to the DOL, “most workers” now should be considered employees rather than independent contractors, and the DOL intends to “crack down” on employers that misclassify portions of their workforce as independent contractors in order to avoid overtime pay obligations, wage taxes, benefit costs and other expenses.  If a worker performs tasks that are “integral to the employer’s business,” then that worker is most likely an employee, according to the DOL.  Likewise, if the worker is “economically dependent” on the employer, then he must be an employee, the DOL contends.

Instead of merely complaining about this double-barreled DOL attack, employers should seize the opportunity to review and revise any longstanding and improper treatment of employees, thus emerging stronger than ever — before any new rules kick in.  If employers find that some employees are currently not being paid overtime – or treated as employees – but they should be, the new DOL efforts provide a good rationale for making a change now, without highlighting to employees that any pre-existing practices could support a claim for back pay.

For example, an employer that has not been paying overtime wages to “assistant managers” who might be seen by the DOL as non-exempt senior retail sales clerks, could use the proposed DOL regulations as a reason to shift the employees from salaried to hourly, with overtime.  A typical announcement in such a situation could state, “In light of newly proposed federal regulations that will change the rules with regard to ‘exempt’ salaried employees, ABC Company has reviewed and updated its pay policies.”  The employer can then bring the employees’ pay into compliance with less chance of raising a red flag — or class action lawsuits – by an employee asking, “Hey, should I have gotten overtime pay in the past?”

Likewise, employers can change independent contractors to employees – where existing law supports the reclassification – and can explain that the DOL has just come out with “new” guidance that, in the company’s view, makes it more appropriate to pay the worker as an employee going forward.

Using the DOL initiatives as the driving force behind such changes in pay is a proven strategy that can reduce the employer’s risk of wage and hour claims, and bring the workforce into greater compliance with federal law.

Action item:  The first step in this process is to conduct a “wage and hour audit,” either internally or with outside employment counsel, to determine whether the employer has any compliance vulnerabilities (most employers do), either under existing law or the proposed changes in the law.  Once that is done, the employer can then work with counsel to determine the best path forward to make any changes needed, including the important “messaging” noted above that can limit the risk of individual or class action suits.

Michael Homans is a Labor & Employment attorney and founding partner of HomansPeck LLCFor more employment law updates, including news and links to important information pertaining to legal developments that may affect your business, subscribe to Michael’s blog, or follow him on Twitter @EmployLawUpdate.