Rules Change on Overtime and Contract Work: Could They Affect Your Business?

Labor RegulationAre a large number of American workers not being compensated as they should be? That certainly seems to be the viewpoint of the U.S. Department of Labor, which recently announced that it was seeking to redefine the Fair Labor Standards Act (FLSA).

Proposals released by the DOL would increase the number of salaried employees guaranteed overtime pay by an estimated 4.6 million, and would reclassify many independent contractors as employees. This is big news for American businesses, as the changes would apply to everything from mom-and-pop shops to large corporations. The question for employers becomes: would they affect your business?

Employee time sheets

If your company has even one salaried employee making less than $47,892 a year, it’s time to start paying attention. That is the new proposed threshold salary at which employers could exempt employees from overtime benefits. It’s more than double the current threshold of $23,600, first instituted in 2004.

Due to exemptions for executive-level employees, this change would have the greatest effect on middle management. In effect, it would make middle managers hourly employees, constricted to a 40-hour work week, unless the employer was willing to pay the federally-mandated minimum of time-and-a-half overtime pay. It would also likely limit schedule flexibility for employees: managers would have to punch their time on the clock like every other employee rather than have flexibility for splitting personal and professional time throughout the work day.

The DOL is currently accepting comments on the proposed changes, particularly regarding existing exemptions, but many expect that the rule could be finalized by the end of the calendar year.

Employment ContractAdditionally, less than two weeks after announcing the proposals, the DOL also released an “Administrative Interpretation” meant to put more pressure on businesses to declare independent contractors as employees. Currently, the primary determination for contract work is who “controls” the manner of work. That is, if the worker is able to determine parameters such as the hours and location of work, he or she would likely be classified an independent contractor. If the company makes such determinations, the worker is more likely to be considered an employee.

The DOL’s new interpretation has shifted the classification requirements to an “economic realities” test that considers the following:

• The extent to which the work performed is integral to the employer’s business.

• Whether the worker manages other projects or depends on the employer.

• Which party pays more for facilities and equipment.

• The individual’s business acumen.

• The permanency of the worker’s relationship with the employer.

• The nature and degree of control exercised by the employer.

While the interpretation does not have the force of the law, it could very well be deferred to in a judicial setting in a dispute between employee and employer.

In addition to taking on overtime and benefits costs, these changes will place additional financial burden on employers in the form of administrative costs. Tracking all of those extra hours and seeking legal advice for employee/independent contractor determinations are significant added expenses.

Fortunately, the tools that Creative Benefits already utilizes to track employee hours for healthcare determinations can also be used to determine exempt and non-exempt status of employees, and our legal team is available to consult with clients on all human resource-related questions. If your company is concerned with changes to the FLSA, we encourage you to get in touch.