Human Resources departments are in full swing
this time of year, as they wrap up performance reviews,
calculate year-end bonuses, and help management
teams with their staffing plans for the coming year.
However, some items require HR attention year round.
The Exempt vs. Nonexempt Dilemma
Overtime is often a concern. Who should get it?
How is it calculated? When is it due? Rules are established
by federal and state laws and regulated by federal
and state Departments of Labor. Generally, for each
hour worked in excess of 40 hours in a workweek, nonexempt
employees must be paid at a rate not less than
one and one-half times the regular rate of pay. Employers
must first correctly classify employees as exempt
vs. nonexempt. Failure to pay overtime can result in
back pay with penalties being due from the employer,
usually for several years retroactively.
Exemptions are for executives, administrators, professionals,
computer employees, outside salespersons,
and commissioned salespersons. An exemption analysis
goes beyond titles and looks at actual duties performed.
For example, not every computer employee is
automatically exempt, only those performing analytical,
creative, or development functions. Many states
have additional rules that require overtime benefits for
employees not covered under the federal Fair Labor
Standards Act (FLSA). Proactive companies must have
processes to ensure that employees are properly classified
and that the number of hours worked on a weekly
basis is systematically calculated.
Misclassification of Independent Contractors
While there are legitimate ways to bring in nonemployee
resources, it is easy to get it wrong. Again,
state and federal laws regulate whether a person
should be treated as an employee or contractor and
impose penalties on employers if they misclassify.
No single rule or test is used, but a variety of factors
have been considered significant by courts and departments
of labor, including:
• Whether the contractor is truly independent or
being controlled by the company, i.e., told what
to do, when to do it, and how to do it;
• How long the contractor has been providing
services to the company;
• Whether the service is an essential function for
the company; and
• Whether the contractor is using their own equipment
and facilities.
A common situation is when an ex-employee
wants to be a contractor to perform the same job they
were performing when employed. The HR department
must determine if this is appropriate. Some companies
have a rule that bars any one person from serving as
a contractor for more than a year. Unfortunately,
most problems in this area arise at the end of the
relationship when a former contractor tries to collect
unemployment benefits or otherwise raises the issue
of misclassification.
Tracking Disability and Family Medical Leave
Long term leave under the Family Medical Leave
Act (FMLA) requires careful handling and good processes.
An employee might start by using their paid time
off, then use short term disability leave, and then FMLA.
Keeping track of these shifts requires clear communication
with the employee and close monitoring by the
company to remain compliant.
FMLA is a federal law that entitles eligible employees
of covered employers to take unpaid, job-protected
leave for 12 work weeks for specified reasons, primarily
the birth or adoption of a child; to take care of sick child,
parent, or spouse; their own serious health condition;
or for events arising because a close relative is in active
military duty. Private-sector employers, with 50 or more
employees within 75 miles, are subject to FMLA.
Employment disputes and issues can take up an
extraordinary amount of management time and
resources. Being aware of areas that are prone to
mishandling may help companies avoid a costly mistake
in the future.
Business Insights is hosted by the Law Firm of KPPB LAW (www.kppblaw.com).
Sonjui L. Kumar is a founding partner of KPPB LAW, practicing in the area of corporate law and governance.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.