2013 Payroll Fact Sheet

Transcription

1 2013 Payroll Fact Sheet Overtime Pay Obligation Generally The FLSA establishes minimum wage, overtime pay, equal pay and recordkeeping requirements for employees who are not exempt from the Act. Generally, non-exempt employees who work for a single employer are entitled to overtime pay of one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. Where a non-exempt employee works for two or more separate employers during the course of a workweek, and thereby works more than 40 hours on a combined basis, the employee is not entitled to overtime pay under the FLSA if the employee works less than 40 hours for any single employer. On the other hand, work performed for multiple corporate entities can be combined for purposes of determining overtime pay obligations under two scenarios. In one situation, if an employee is employed by two or more joint employers during a workweek, all the employment during the week is considered one employment period and all joint employers involved are jointly and severally responsible for compliance with the FLSA's wage and hour provisions for that work week. In fulfilling their joint obligations, each employer may take credit for all payments made to the employee by the other joint employer. In the second situation, multiple business entities that are deemed to comprise a single enterprise also may be liable for overtime pay based on the combined hours worked by employees who are shared among the business entities comprising the enterprise. Joint Employment Relationship Employers who are joint employers will be liable for overtime pay if the employee works more than a total of 40 hours in a workweek on a combined basis for those employers. The question of whether a joint employment relationship exists is a factual one; the Wage and Hour Division of the Department of Labor (the DOL ), as well as the courts, look at a number of factors in making that determination. Factors which will be examined to determine the existence of a joint employment relationship include the following: Whether there is an arrangement between the employers to share the employee's services, such as by interchanging employees; Whether one employer is acting directly or indirectly in the interest of the other employer in relation to the employee; Whether the employers share control of the employee; Whether there is common ownership of the employers; and Whether there is common management of the employers. No single factor is controlling, and the DOL and the courts generally look at the economic realities of the work relationship rather than follow technical legal rules to determine whether a joint employment relationship exists.

2 Page 2 of 5 Overtime Pay As a general rule, where each employer is in an entirely separate and distinct business and acts independently of the other with respect to employment of the particular individual, a joint employment relationship is not likely to be found. For example, in Walling v. Friend (Eighth Circuit, 1946), the court held that a joint employment relationship had not been created where an employee worked for two partnerships in two different capacities, even though the two partnerships shared a common owner. The court noted that the employee worked more than 40 hours per week in the aggregate for both partnerships, but not more than 40 hours per week for either partnership. Similarly, in Burnsison v. Memorial Hospital, Inc., et al. (Kansas District Court, 1992), the court held that a joint employer relationship was not created between the City of McPherson, Kansas and privately-owned Memorial Hospital, which operated an emergency medical service pursuant to an agreement with the city. The agreement expressly stated that the drivers and attendants (emergency medical technicians and paramedics) were the employees, agents and servants of the hospital. The hospital had the sole authority to hire and fire the employees, trained them, set their work schedules, fixed their salaries, maintained their employment records, provided health and disability insurance, approved vacation time, and promulgated and enforced disciplinary rules. Likewise, in Patel v. Wargo (Eleventh Circuit, 1986), the court held that a joint employment relationship did not exist between Pine Wood, a healthcare institution, and Investment, Inc., its accounting corporation, where the plaintiff had a contract with Pine Wood, worked primarily with Pine Wood, and performed tasks for Investment only occasionally. The court found that, although the plaintiff had signed checks drawn on Investment's account, made deposits on its behalf, and performed some necessary bookkeeping, the plaintiff did not contemplate compensation for his acts and, as a matter of economic reality, was not dependent upon Investment. Instead, the plaintiff was found to have acted as a volunteer as an accommodation to his own employer and not truly as an employee. On the other hand, in Karr v. Strong Detective Agency (Seventh Circuit, 1986), the court held that an undercover agent for a detective agency who worked simultaneously at a warehouse was a joint employee of both the agency and the warehouse owner. That conclusion was supported by the fact that the employers had an arrangement to share the individual's services as both a warehouse worker and an undercover detective, the agent was working in the interest of both employers and both employers shared control of his activities. Single Enterprise Liability The minimum wage and overtime provisions of the FLSA apply to employees of an enterprise engaged in commerce or in the production of goods for commerce. The Act defines enterprise as the related activities performed (either through unified operations or common control) by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments by one or more corporate or other organizational units. Factors used to determine the existence of a single enterprise are somewhat similar to those used to determine a joint employment relationship.

3 Page 3 of 5 Overtime Pay Generally, three factors are applied to determine whether two or more entities are sufficiently integrated to be treated as a single enterprise: Whether the entities are involved in related activities; Whether a common source of control exists; and Whether a shared business purpose exists. As with cases involving the existence of a joint employment relationship, the DOL and the courts look to the economic realities of employment to determine if several corporations constitute a single enterprise under the Act. Generally, however, entities will not be considered a single enterprise where they are individually and separately controlled, irrespective of corporate ownership. The determination as to whether two businesses constitute a single enterprise for purposes of the FLSA is made on a case-by-case basis, and no rigid test is applicable. For example, in Donovan v. Star Bakery, Inc. (Puerto Rico District Court, 1986), the court held that two bakeries whose owners and officers were members of a single family were not a single enterprise under the FLSA because there was no common control or common business purpose. In reaching its conclusion, the court noted that each corporation maintained separate accounts, and the entities did not interchange equipment or materials, kept separate insurance policies and filed independent income tax, social security and unemployment filings. Similarly, in Wirtz v. Hardin Co. (Alabama District Court, 1964 affirmed in Fifth Circuit, 1966), the court held that six corporations, all of which had a father and daughter who were stockholders, officers and directors, did not constitute a single enterprise. The businesses were operated separately and independently, and the common stock ownership and officer status did not control or unify the operations or activities of the businesses. Conversely, in Donovan v. Grim Hotel Company (Fifth Circuit, 1984), the court held that five hotels owned, operated and controlled by one individual constituted a single enterprise for purposes of the Act. Its conclusion was based on the fact that the president of all the hotels controlled their accounts, managed their day-to-day operations, possessed and exercised the power to hire and fire hotel managers, and shifted employees and furniture from one hotel to another. Likewise, in Dole v. Odd Fellows Home Endowment Board (Fourth Circuit, 1990), the court held that a board of directors of a nursing home for sick or aged members of the Odd Fellows and the Endowment Board were a single enterprise, where they provided mutually supportive services to the advantage of both entities, they were operationally interdependent in their operation and maintenance of the home, and their activities and personnel overlapped substantially.

4 Page 4 of 5 Overtime Pay Legal Risk Factors It is also important to consider the following issues when a joint/single employer situation is involved: Question: How likely is it that any potential violation of the FLSA will be identified by the DOL? Also, how is the DOL alerted to potential FLSA violations? Answer: The DOL has stated publicly that it has targeted certain industries for wage audits because of the relatively high number of violations in those industries, and that it will randomly audit employers to determine their level of FLSA compliance. Additionally, disgruntled employees and former employees may file a wage claim with the DOL that could result in a DOL audit/investigation of the employer's pay practices with respect to any and all similarly situated employees. Question: Which entity would be liable for a violation of the FLSA's overtime provisions? Answer: The FLSA provides for joint and several liability for joint employers. Each employer involved is legally responsible for the entire liability. Question: Is there any significance in the fact that the employee initiates the employment with the second entity? Answer: No. The tests for determining whether two or more entities are joint employers or a single enterprise do not take into account the employee's willingness to perform work for more than one entity, and an employee cannot waive his or her FLSA rights. However, as a practical matter, such employees may be less likely to be dissatisfied with the pay structure, and therefore less inclined to file a wage claim for unpaid overtime. Question: Does it matter whether the entities are taxable or tax-exempt, or whether they are geographically close to each other? Answer: No. These are factors that might have a practical affect on the relationship of the two organizations (e.g., a tax-exempt organization may be less inclined to provide services to a taxable affiliate so as to prevent attribution of nonexempt activities or ascension of liabilities to the exempt organization). However, the FLSA makes no distinction based on tax status. Question: Does the FLSA provide a grace period that would apply where two organizations become related because of a corporate transaction (such as a purchase or affiliation)? Answer: The FLSA does not include an explicit grace period related to corporate transitions. The DOL frequently takes a realistic approach, however, and recognizes that transitions of this sort take time. Additionally, there is no bright-line test for determining single enterprise or joint employer status and, the DOL has not announced any single event which it believes is determinative of when the aggregation of work hours is required.

5 Page 5 of 5 Overtime Pay Question: Does the maintenance of separate EINs and separate payroll systems by two related organizations support the position that no aggregation of hours worked is required for overtime pay calculation purposes? Answer: The fact that two organizations have maintained separate payrolls and EINs can support an argument of separate employer status, but it is the economic realities that will govern. Question: What remedies are available to the DOL under the FLSA? Answer: The DOL recognizes the difference between intentional and unintentional violations. In cases of unintentional violations, liability for back pay is limited to two years prior to the claim, whereas in cases of intentional (i.e., knowing) violations, liability can be assessed for the three-year period prior to the claim. Employers who willfully or repeatedly violate the overtime pay requirements of the FLSA also may be subject to civil penalties of up to $1,000 per violation. Willful violations also may be prosecuted criminally and the violator fined up to $10,000. A second conviction may result in imprisonment. Conclusion In light of the above, employers may wish to conduct an audit of their FLSA compliance in situations in which employees work for different internal and external entities. The factors described in this memorandum can be distilled into the following big picture questions: Are the organizations truly autonomous (i.e., independent and self-sufficient) in human resources matters? Does one organization (through its human resources function or otherwise) support or provide the other organization with management, payroll coordination or other employment services? Do the organizations use the same employment Do the organizations coordinate the sharing of employees? Does either organization do anything to facilitate the sharing of employees? Or is working for both organizations caused and arranged solely by the employees themselves?? A strong case for individual, separate employment for overtime pay purposes can be made if the above questions can be answered as follows: Each organization is self-sufficient and independent in human resources matters, and applies its own unique policies and procedures that differ significantly from those of the other organizations. The organizations do not use the common human resources functions for employment matters. The organizations do not coordinate their joint use of employees. If sufficient independence cannot be clearly demonstrated, the organizations should either (a) discontinue the practice of allowing multiple employment or (b) monitor joint hours and arrange for the appropriate payment of overtime pay.