Worker Classifications Workshop Michael McPherson, presenter
Employee Classification Determining Exempt versus Non-Exempt status under FLSA and Michigan law.
The Fair Labor Standards Act of 1938 This was a part of the New Deal legislation passed during the 1930 s. Major Provisions: Coverage who is covered under this law? Minimum Wage. Overtime Pay. Youth Employment. Record Keeping. Exempt versus Non-Exempt status is identified under the Overtime Pay provision.
Why should I care? The US Department of Labor estimates that 70 % of all U.S. businesses are out of compliance with FLSA law in some way. In 2008 more than 23,000 complaints were registered, resulting in more than 185 million dollars in back wages paid to employees. Potential Costs for FLSA violations: Employees can file a suit for alleged violations up to 12 months after the violation occurs and can sue for up to 3 years of unpaid minimum wages or overtime. If the violations are found to be willful then the employee may be entitled to an award of liquidated damages equal to the amount of unpaid wages. Willful violations can result in fines of up to $10,000 (a second violation may result in up to 1 year of imprisonment). Child labor violations - up to $10,000 per employee subject to the violation. Minimum wage/overtime violations - up to $1,000 per instance.
Coverage More than 130 million workers in more than 7 million workplaces are covered under the Fair Labor Standards Act. Federal FLSA standards are enforced by the Wage & Hour Division of the US Dept of Labor. Michigan minimum wage and overtime standards are enforced by the Wage & Hour Division of the Michigan Dept of Licensing and Regulatory Affairs.
Federal FLSA Statutes Exempt and Non-exempt are identified by FLSA as: Exempt - Exempt from the protections of Federal wage and hour laws under the Fair Labor Standards Act (FLSA) and/or the wage and hour regulations of their state of employment. Exempt employees must always be paid on a salary basis, not subject to reduction based on the quality or quantity of work performed. Non-exempt - Generally protected by the FLSA (Federal) and/or State wage and hour laws in the state of employment. Typically, employers are required to pay at least a certain minimum hourly rate and a premium rate for overtime work. They are also a guide for determining which on-thejob hours constitute work, and thus must be compensated.
Properly Classifying Employees There are two steps involved in determining if an employee is exempt from FLSA Overtime requirements. Step 1 Salary/Salary Basis Test Is the employee paid at least $455.00/week? Does the employee receive a pre-determined amount of pay during the pay period? This pre-determined amount of pay cannot be reduced due to quality or quantity of work. An employee must be paid their full salary for any week in which they perform work regardless of the number of hours worked.
Properly Classifying Employees There are two steps involved in determining if an employee is exempt from FLSA Overtime requirements. Step 2 The Duties Test - There are some categories of employees who are exempted from minimum wage and overtime requirements if their job duties meet the parameters of an exemption category. The following slides describe the major exemption categories.
Exemption Categories Executive Exemption: To qualify for this type of exemption, employees must manage the operations of a business, department, or subdivision within the company. They must direct and supervise the work of at least two employees and have the authority to hire, fire, and promote. Typically, employees meeting these conditions include your VPs, Directors, and Chief level staff members. Administrative Exemption: To qualify for this exemption, employees must exercise independent judgment and discretion performing nonmanual work that is directly related to business operations. Typically, employees falling under the administrative exemption category include office managers, insurance agents, human resource professionals, and marketing personnel.
Exemption Categories Professional Exemption: Employees in this exemption must have advanced knowledge in a field of science or learning through prolonged course of instruction (i.e. university, college, law or medical school). Occupations that require prolonged study include doctors, lawyers, dentists, professors, accountants, and the like. Outside Sales Exemption: There is no salary requirement for this exemption, mainly because these employees typically work solely on a commission basis. Employees qualify for this exemption if their primary duties involve making sales away from their employer s physical place of business.
Exemption Categories Computer Employee Exemption: Must be employed as a computer systems analyst/programmer, software engineer or other similarly skilled worker in the computer field with primary duties as listed below: The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications. The design, documentation, testing, creation or modification of computer programs related to machine operating systems
Exemption Categories Other Exemptions (both Minimum Wage and Overtime): Employees of certain seasonal amusement or recreational establishments Employees of certain small newspapers and switchboard operators of small telephone companies Seamen employed on foreign vessels Employees engaged in fishing operations Employees engaged in newspaper delivery Farm workers employed on small farms (i.e., those that used less than 500 "man-days" of farm labor in any calendar quarter of the preceding calendar year) Casual babysitters and persons employed as companions to the elderly or infirm
Exemption Categories Other Exemptions (Overtime only): Certain commissioned employees of retail or service establishments Auto, truck, trailer, farm implement, boat, or aircraft salespersons employed by non-manufacturing establishments primarily engaged in selling these items to ultimate purchasers Auto, truck, or farm implement parts-clerks and mechanics employed by non-manufacturing establishments primarily engaged in selling these items to ultimate purchasers Railroad and air carrier employees, taxi drivers, certain employees of motor carriers, seamen on American vessels, and local delivery employees paid on approved trip rate plans Announcers, news editors, and chief engineers of certain non-metropolitan broadcasting stations Domestic service workers who reside in their employers' residences Employees of motion picture theaters Farm-workers
Michigan Wage & Hour Law Michigan law mirrors FLSA in all areas except: Compensatory Time Michigan allows employers the ability to provide workers with comp time instead of paying overtime. An employer may use a compensatory time system so long as the employee agrees in writing. Under this scheme, employees are not entitled to overtime pay. Instead, for every hour an employee works over 40 in a workweek, the employee gets one and a half hours of paid time off. For an employer to be allowed to implement a compensatory time system the employee must be given at least 10 days of paid time off per year. Additionally, an employee can accrue a maximum of 240 hours in compensatory time month of paid leave. An employee may be barred from using his compensatory time only if it would be unduly disruptive at that time. When an employee leaves employment (either voluntarily or involuntarily) they are entitled to all wages accrued from their compensated time off.
Michigan Wage & Hour Law Michigan law mirrors FLSA in all areas except: The most common exemptions to the overtime pay requirements in Michigan are: All workers exempt from the Federal wage laws, including Professional, Administrative, and Executive, and Commissioned Sales employees Elected officials and political appointees Agricultural employees Employees under the age of 18 (although they must be paid at leas the Federal minimum wage of $7.25 per hour) Employees employed by the United States Volunteer employees Employees of amusement and recreational establishments open less than 7 months per year One Federal exemption, for non-live-in employees of in-home care or companionship services, does not apply in Michigan and such employees are entitled to minimum wage and eligible for overtime.
Common FLSA Mistakes Common Mistakes made by employers: Failing to treat mandatory work-related meetings and training sessions as hours worked. Not providing "duty free" lunches for non-exempt staff if you're requiring an employee to answer phones or perform any task during lunch you have not provided a true lunch break. Not requiring non-exempt employees to clock in and out for lunch some employers automatically deduct time from an hourly employee's workday, regardless of whether the employee actually takes a lunch break. Not paying work preparation time or travel time that is legitimately part of the job. Not providing all wages due at termination. Most states have "final paycheck" laws that require prompt payment of a departing employee's final check that may include payments for accrued vacation time. Docking the pay of an exempt employee who has exhausted accrued paid time off when they work less than a full day or week. Disciplining exempt employees by docking pay in periods of less than a full day.
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