EE vs. IC

2. Employees vs. Independent Contractors • Independent contractors • Individuals who are in an independent business • Offer their services to the general public • Have control over what and how the work is done to arrive at the end product for a company • Employees • Individuals who perform services for an employer • Employer has control over what will be done and how it will be done • Employer has the right to control the details of how the work is performed EE vs. IC

3. What is the attraction? • No required “wages” • No expectations of benefits or employee perks • Short-term relationship • Typically less cost to the company • No employment taxes such as FICA, FUTA and workers’ compensation Independent Contractors

4. CAUTION: no single rule or test controls • DOL’s “Test” • The extent to which the services rendered are an integral part of the principal's business • The permanency of the relationship • The amount of the contractor's investment in facilities and equipment • The nature and degree of control by the principal • The contractor's opportunities for profit and loss • The amount of initiative, judgment, or foresight in open market competition with others required for the success of the independent contractor. • The degree of independent business organization and operation EE vs IC: Dept. of Labor’s “Test”

5. Immaterial factors • Where work is performed • Absence of a formal employment agreement • Licensing by State/local government • Time or mode of pay EE vs IC: Dept. of Labor’s “Test”

6. CAUTION: no single rule or test controls • IRS “Twenty Factor Test” has been retired • IRS “11 Main Test” • Assesses the level of control over the worker • Behavioral Control • Degree of instruction • Amount of training EE vs IC: IRS “Test”

7. IRS “11 Main Test” continued… • Financial Control • Unreimbursed business expenses; worker’s financial investment • services available to the market • pay (salary/hourly vs flat fee) • worker’s realization of profit or loss • Type of Relationship • Written contract; benefits and “perks” • permanency of the relationship • extent to which worker provides key aspect of the company’s business EE vs IC: IRS “Test”

8. EMPLOYEE Congratulations, it’s an ….

9. The Fair Labor Standards Act The Colorado Wage Act Colorado Wage Order No. ____ 29 Employees and their money…

10. Applies to employees • 40 hour work week • Minimum Wage (currently $7.78/hour) for all hours worked • Overtime • Record keeping • Youth employment The Fair Labor Standards Act

11. Pay or even time for vacation, holiday, or illness • A five day work week • Pay raises or benefits • Written discharge documents • Premium pay for holidays or weekends • Any limit on the hours an employee can work in one day or one week • Except for young employees The FLSA does not require…

12. Numerous exemptions and exceptions from the FLSA’s requirements • Exempt Employees • Exempt from minimum wage and overtime pay • Non-Exempt Employees • Must be paid for all hours worked; must be paid overtime • Pay Issues • Hours worked • Deductions FLSA: Today’s Topics

13. No overtime for hours worked over 40 • Do not have to work 40 hours per week to earn their salary • Do not get to work just 40 hours per week to earn their salary • Three tests for exempt employees • Salary level • Salary basis • Job duties FLSA: Exempt Employees

14. To Be Exempt: • Receipt of a pre-determined amount each pay period • At least $455 per week ($910 biweekly; $1971.66 monthly) • No reduction in pay because of the quality or quantity of work performed • Paid a full salary for any week in which the employee performed any work • Be very cautious of deductions Exempt: Salary Level and Basis

15. If the exempt employee is ready, willing, and able to work, deductions cannot be made for time when work was not available. Absences occasioned by the employer, such as holidays, weather closures FLSA: Deductions for Absences

16. Permitted Deductions under the FLSA • Absences from work for personal reasons • Can use PTO/vacation time for compensation • Absences from work for sickness or illness • Only if the employer has a bona fide sick time plan • Unpaid disciplinary suspension (good faith) • Partial pay for the first or last week of employment • Unpaid medical leave pursuant to the FMLA • Partial-day deductions are not allowed • Can deduct partial day from PTO/vacation bank FLSA: Deductions for Absences

17. Executive • Administrative • Professional • Outside Sales • Computer Employees Exemptions

18. Primary Duty • Managing dept. or subdivision • Supervises 2+ employees • Has hiring and firing authority • recommendation on hiring and firing is given significant weight • Working supervisors and leads • Do not meet exemption • “Sole charge” exception • Person in sole charge of a geographically separate facility FLSA: Executive Exemption

19. Primary duty is • Performance of office or non-manual work • Work is directly related to management or general business operations of the employer or the employer’s customers • Discretion and independent judgment on matters of significance • Significant authority • Substantial consequences • All three factors must exist FLSA: Administrative Exemption

20. Research • Safety and Health • Human Resources • Employee Benefits • Labor Relations • Public and Govt Relations • Legal and Regulatory Compliance • Computer Network, Internet, and Database Administration • Tax • Finance • Accounting • Budgeting • Auditing • Insurance • Quality Control • Purchasing • Procurement • Advertising • Marketing Mgmt or General Business Ops?

21. The more … • Guidelines • Assistance • Procedures • Standards • Precedents • Supervision … the less likely the job is exempt. Independent Judgment

22. Learned Professional • Performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized instruction • Law, accounting, teaching, engineering, theology, medicine FLSA: Professional Exemption

23. Creative Professional • Performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor FLSA: Professional Exemption

24. Doctors • Registered Nurses (not LPNs) • Lawyers (not paralegals) • Teachers • Accountants (not bookkeepers) • Pharmacists • Engineers (not techs) • Actuaries • Chefs (not cooks) • Certified athletic trainers • License funeral directors • Musicians • Composers • Conductors • Soloists • Essayists • Short-story writers • Screen writers • Who choose their own subjects • Actors • Painters • Photographers • Cartoonists FLSA: Professional Exemption

25. Primary Duty is • Making sales or obtaining orders or contracts from customers • Away from the employer’s place of business • Does not need to meet the salary basis or level test FLSA: Outside Sales Exemption

26. Systems • Analysis • Design • Creation/modification • Does not include • Computer operation and maintenance • Pay can be either salary (at least $455/week) or hourly ($27.63/hour) FLSA: Computer Exemption

27. No overtime due if: • Employed by a motor carrier subject to the power of the Secretary of Transportation • Engaged in activities that directly affect the operational safety of commercial motor vehicles • Drivers, driver’s helpers, loaders, or mechanics • The vehicles the employee works on must transport property or passengers on public highways in interstate or foreign commerce BUT still due minimum wage for all hours worked FLSA: Motor Carrier Exemption

28. “Suffered or Permitted to Work” • If an employee works for you, the employee must be paid for that time • Volunteers • Employee works when he shouldn’t? • Pay the employee for the time work, including any overtime • Discipline the employee for the violation FLSA: Pay for all hours worked

29. Waiting time • Time is controlled by employer • On-Call time • Employee has little of no control over time • Meal periods/Rest Periods • Not relieved of all duties; less than 30 minutes • Training • Mandatory training; • benefiting employer • Travel • Control and direction of employer; not a commute FLSA: Pay for all hours worked

30. Requirements on when to pay employees • final pay, pay periods and paydays, and pay statements • Deductions from wages • Loans, advances, goods – pursuant to a written agreement • Money or value of property employee did not return • Defines “wages” to include vacation, commissions, bonuses Colorado Wage Act (8-4-101)

31. 7-CCR Sec. 1103-1 • Covers • Retail and Service • Food and Beverage • Commercial Support Service • Health and Medical • Overtime due for hours over 12 in one workday (as well as for hours over 40 in one workweek) • Similar exemptions to the FLSA • 30 min. meal period for shifts over 5 hours • Compensated 10 minutes rest period in the middle of each four hour work period Colorado Wage Order No. 29

32. No matter how you pay, if an employee is non-exempt, overtime must be paid • Hourly rate, piece-rate, salary, commission, day rate, mileage rate • Overtime pay is computed on the basis of the regular rate. • Includes all payments made by the employer to the employee • Does not include: expenses, premium pay, discretionary bonuses, gifts, vacation/ holidays/sick pay Calculating Overtime

33. Change the classification immediately and adjust the pay as needed • Financial consequences • Failure to classify as an employee • Failure to classify non-exempt • Any overtime due? • Risk / benefits of paying monies due • Communicate with the employee • Explain any policy changes (no more overtime) • Explain and change in pay (hourly vs salary) Misclassification: How to Fix It