Category: Human Resources

The Supreme Court recently agreed to hear a case that could have a big impact on the Fair Labor Standards Act (FLSA) and the classification of employees as exempt versus non-exempt. The case of Hewitt v. Helix Energy Sols. Grp., Inc. involves a highly compensated oil rig worker who was paid a weekly “salary” and upon his termination sued Helix for unpaid overtime on the basis that he was not paid an annual salary and therefore was not an exempt employee. The outcome of this case could impact employers who pay a daily or weekly “salary” as well as those who pay salaried employees on an hourly basis.

In the past couple of years, we’ve seen a large number of FLSA cases arise, costing employers millions. Below are just a few recent headlines: 

Amazon.com Services and its Contractor Fined $6.4 Million (March 2021)

Court Approves $8.5 Million Settlement for Juicers in Misclassification Case Against Lime (July 2021)

Holland Acquisition Inc Pays $42.3 Million in Misclassification Case (October 2021)

DoorDash Agrees to a $100 Million Settlement (November 2021) 

Last month I talked about misclassifying employees as Independent Contractors. This month I want to talk about misclassifying employees as exempt. 

I’ve recently been working with a couple of clients on classification projects and in each of those projects I’ve come across employees who were misclassified. In some cases, it was an easy find for me. But in others, classifying employees is not an easy determination to make. So how can employers ensure that they are classifying employees correctly? 

The FLSA has very detailed guidelines on what qualifies an employee to be classified as exempt for the purposes of overtime pay. The first, and easiest, determination is pay – if any employee makes less than $684 per week ($35,568 annually) they MUST be paid as a non-exempt employee eligible for overtime wages. 

If they meet the salary requirement, the next step is to determine which FLSA exemption test, or tests, apply to that position. A position can potentially qualify under more than one exemption test. The exemption tests are:

• Executive
• Administrative
• Professional/Creative
• Computer Professional
• Outside Sales

Once you determine which test, or tests, apply to the position, you will need to do an in-depth analysis of that position using the exemption test to determine if a position meets the requirements to be exempt. 

As I mentioned above, some positions are relatively easy to assess, but others are much harder. A great example of this is Healthcare Case Managers. By evaluating the position of Case Manager against the FLSA exemption tests that apply, many evaluate the position to be exempt. However, the Department of Labor issued an Opinion Letter in 2005 in which it determined that Case Managers did not meet the qualifications to be exempt employees under the FLSA. The DOL has a searchable database on all Administrative and Non-Administrative Opinion Letters regarding FLSA which is a great tool to use if you’re unsure whether a position qualifies as exempt. 

A great way to ensure that your employees are classified correctly is to ensure that you have updated and accurate job descriptions for each position within your organization and to review the job descriptions at least every 2-3 years. 

Organizations have been extra creative lately with new benefit offerings and retention strategies. Is it working? Are employees utilizing those new perks and sticking around? Yes and no. SHRM explored the issue nationally, and our team has some local insight from the 2021 and 2022 North Central Alabama Wage & Benefit Survey. 

Aon reported in April that enrollment in voluntary benefits increased 41% from the previous year. Most of the increases were tied to medical benefits, as to be expected, but some may be surprising: 

The fastest-growing voluntary benefits employees enrolled in amid the COVID-19 pandemic include supplemental health insurance policies such as critical illness, accident, and hospital indemnity…Other popular voluntary benefits in 2021 were life insurance, student loan assistance programs, identity theft protection, legal benefits, pet care, and auto/home protection.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Graphic source: https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/employees-want-voluntary-benefits-but-dont-always-understand-them.aspx

SHRM referenced another survey from Voya that found that people are more likely to work for employers offering voluntary benefits, but people also reported that they don’t quite understand all of the benefits available to them. 

Employers may be missing a critical piece of the puzzle – literacy. Information literacy, financial literacy, digital literacy… Do employees have equal access to education and training on what benefits are available, how they work, where to learn more (in various learning styles), etc.? If everything is available online, do all employees have home or work access to the internet? Is information available in different languages? 

SHRM also highlighted this from Buck’s 2022 Wellbeing and Voluntary Benefits Survey report:

“We found that key drivers of employee retention include employees’ perceptions of their organization’s commitment to their overall well-being, diverse benefit options, and effective communications that raise awareness of their employer’s offerings,” said Ruth Hunt, a principal in Buck’s engagement practice and co-author of the report. “To continue to attract and retain top talent, it’s critical for employers to implement and promote programs that address whole-person well-being and substantively close the gap between management perceptions and employee realities.”

The bottom line seems to be that employers will only see strong engagement with benefit offerings when they carefully and strategically implement and evaluate the effectiveness of such offerings. SHRM shares six tips from Krystie Dascoli, executive board president at the Voluntary Benefits Association.

1. Understand workforce demographics.
   
2. Find the gaps. 
3. Benchmark, benchmark, benchmark. 
4. Communicate information. 
5. Ensure integration.
6. Conduct a compliance review. 

Benchmark, benchmark, benchmark is where third-party survey administrators like Horizon Point come in. We partner with the local economic development agencies in our area to administer an annual North Central Alabama Wage and Benefit Survey representing employers across all sizes and industries. We ask general and specific questions about pay practices, compensation data by position, aggregate wages by occupational group, benefits for full-time versus part-time, and more.

Results for the 2022 local survey will be published in the coming weeks. Do you think we’ll continue to see an increase in voluntary benefit offerings? Stay tuned! 

In the last few weeks, I have come across multiple cases of employers hiring individuals as independent contractors in violation of the IRS guidelines. Some have done so because they aren’t aware of or don’t understand the IRS guidelines and/or state regulations and some have done so knowingly. Either way, none are aware of the potential risk of misclassifying workers as independent contractors and just how costly such a mistake can be to their organization. 

The IRS has a 20-Factor Test to help organizations determine if a worker meets the requirements to be an independent contractor. You can read more about what those requirements include in my blog post Taking the Guess Work Out of 1099s. In 2019 California adopted a more rigorous test, the ABC Test, and since then a handful of other states have adopted the ABC Test for some or all workers in their states. 

The DOL recently announced that they would be hiring 100 additional investigators and focusing on warehouse and logistics companies in a “vigorous” campaign to enforce wage and hour laws. In 2021, 80% of DOL investigations resulted in organizations being found guilty of wage and hour violations. Many of these investigations began with a small payroll issue reported to the DOL by an employee. The top ten private employer wage and hour class actions in 2019 cost employers almost $450 million, close to double the total in 2018 ($253.5 million) (SHRM). As the DOL increases its resources and efforts to crack down on wage and hour violations, more companies may find themselves subject to review. And once a claim is filed by an employee, it opens the company up to have all payroll records investigated. So, while an employee may file a claim for an overtime violation, the DOL may find additional violations by the company, thus increasing the company’s penalties. 

So what should you do if your organization misclassified employees as 1009s? First, contact an employment attorney to assist you with resolving the issue. There are options to minimize your penalties and an employment attorney can help you determine the best option for your organization. These options include submitting an Advance Determination of Worker Status Form to the IRS, the Classification Settlement Program, and the Voluntary Classification Settlement Program. You can find out more about each of these options at IRS.gov.