Employee Classification Update

The Fair Labor Standards Act (“FLSA”) establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in federal, state and local governments.[1] The FLSA requires employers to pay overtime to employees who work more than 40 hours per week at a rate of one-and-one-a-half times those workers’ hourly rates.[2] Some employees are exempt from the overtime provisions of the FLSA, thus not requiring the employer to pay those employees overtime pay.[3]

To determine if an employee falls under an exemption, workers must be properly classified as an “independent contractor” or an “employee”. Misclassification of a worker can result in problems for both the worker and employer. Misclassifying employees as independent contractors can result in employees not receiving workplace protections like minimum wage, overtime compensation, unemployment insurance, and workers’ compensation.[4] Some employers intentionally misclassify workers to cut costs and evade compliance with labor laws.[5]

Courts use the multi-factorial “economic realities” test to determine if a worker is an employee or independent contractor.[6] The economic realities test focuses on whether the worker is economically dependent on the employer or in business for him or herself; the factors include: (1) the extent to which the work performed is an integral part of the employer’s business, (2) the worker’s opportunity for profit or loss, depending on his or her managerial skill, (3) the extent of the relative investments of the employer and the worker, (4) whether the work performed requires special skills and initiative , (5) the permanency of the relationship, and (6) the degree of control exercised or retained by the employer.[7] These factors are to be considered in totality.[8] If the worker is economically dependent on the employer, then the worker is an employee; if the worker is in business for him or herself, i.e., economically independent from the employer, then the worker is an independent contractor.[9]

Companions, i.e., caregivers (those who provide domestic companionship services to seniors and individuals with disabilities), are a specific category of employees that are exempt from the minimum wage and overtime pay protections of the FLSA. [10] In October of 2013, the Department of Labor (hereinafter “the Department”) issued a new regulation that removes these employees from the exemptions and brings them within the protections of the FLSA. [11] Three associations of home care agencies filed suit against the Department alleging the Department’s extension of the protections was an arbitrary and capricious exercise of authority.[12] The U.S. Appeals Court of the District of Columbia disagreed with district court and the associations and ruled the FLSA vests the Department with discretion to apply (or not to apply) the companionship-services and live-in exemptions to employees of 3rd party agencies.[13] The effect of the Court of Appeals ruling is that more domestic service workers will be protected by the FLSA’s minimum wage overtime provisions and the Department has clarified and narrowed the duties and definition of “companionship services,” thus aiding an employer in employee classifications.

Georgia has also amended legislation dealing with companionship services.[14] Under the Home Care Patient Protection Act, companion sitters and personal care assistants must be employees rather than independent contractors.[15] This brings these employees under the FLSA’s minimum wage and overtime pay protections also.

In July of 2015, a proposed law on overtime was submitted that would require employees to receive overtime pay if they earn a salary less than $50,440 each year or $970 each week.[16] The current regulations are for employees that earn less than $23,660 each year or $455 each week.[17] The following are ways in which this proposed regulation could affect employers if signed into law: employers could spend, on average, $847 million to update payroll systems to convert salaried employees to hourly employees, and track hours; employers would also have to ensure their employees are holding their work schedules to 40 hours per week; lastly, employers could raise employees’ base pay to above minimum threshold or hire more part-time employees.

Employers’ best practices to comply with the FLSA include performing internal audits of policies and procedures and employee classifications; implementing training programs for supervisors/leads and in-depth training owners; and consulting an employment attorney on any and all employment and labor issues.

[1] 29 U.S.C. §§ 201 et seq.

[2] Id.

[3] Id., see also 29 C.F.R. § 541 (2015).

[4] Administrator’s Interpretation No. 2015-1, US Department of Labor, Wage and Hour Division.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id

[10] Home Care Ass’n of Am. v. Weil, Case No. 15-5018 (D.C. Cir., 2015)

[11] Administrator’s Interpretation No. 2015-1

[12] Id.

[13] Id.

[14] HB 183.

[15] Administrator’s Interpretation No. 2015-1

[16] Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 80 Fed. Reg. 128 (proposed Jul. 6, 1991) (to be codified at 29 C.F.R. pg. 541).

[17] 29 U.S.C. §§ 201 et seq.