Presentation on theme: "21 st Annual IL Statewide APA Conference August 22, 2014."— Presentation transcript:
21 st Annual IL Statewide APA Conference August 22, 2014
Cooking Up Trouble: Independent Contractor vs. Employee Misclassification and Other Common Wage & Hour Mistakes William R. Pokorny Partner Franczek Radelet, P.C. 21st Annual IL Statewide APA Conference – August 21-22, 2014
Oscar Overpaid Payroll error: $100 / paycheck, approx. $2,600 Asked Oscar – he does not want to repay Oscar’s supervisor wants to deduct the money from his next paycheck – would barely cover
Oscar Overpaid Document overpayment – get acknowledgement from employee Agree on repayment schedule if possible Use disputed deduction process if needed Consider employee relations issues – worth the headache / ill will?
Fired Fred Custodian Terminated: Damaged equipment, suspected theft Final pay: 2 weeks unused vacation 1 week pay through termination date Next pay day – this Friday Supervisor: Can we deduct value of damaged property from final pay? Can we withhold final pay pending theft investigation?
Deductions from Final Pay With consent of employee At time of deduction “Cash Advance” agreements – signed at time of advance Can’t deduct for: Lost/damaged property Business losses Other debts owed by employee, absent cash advance agreement Disputed deduction process
18 Salary Basis Fixed amount For any week in which work is performed No variance for Hours Quantity of work Quality of work Deductions strictly limited
19 Effects of improper deductions Exemption lost for the period deduction made Affects not only employee to whom deduction made but also... All employees in the same job class working for the same manager
20 Executive Primary duty: managing enterprise or customarily recognized department or subdivision Customarily and regularly directs at least 2 FTEs or equivalent Authority to hire / fire, or recommendations as to hiring, firing, advancement, promotion, or change of status carry “particular weight” IL: Max. 20% of time on activities not “directly and closely related” to the above. (40% for retail / service; not applicable to sole-charge of separate branch or owner of at least 20% share.)
21 Assistant Managers Reports to Store Manager Spends significant time on on-exempt activities Makes schedules, some supervisory responsibility No independent hiring / firing authority
22 Administrative Primary duty of office work Directly related to the management or general business operations of the employer or the employer’s customers Regularly exercises discretion and independent judgment e.g. HR Director, Sales Manager
23 Office Manager Primary duties: Generally in charge of office operations Prepares and analyzes payroll, monthly and quarterly reports and financial statements Scheduling Other Duties: Typing Filing Bookkeeping
24 “Learned” Professional Advanced knowledge in a field of science or learning Customarily acquired through prolonged course of specialized intellectual instruction
25 “Creative” Professional Primary duty is original or creative work in recognized field of artistic endeavor Result depends primarily on the invention, imagination, or talent of employee
26 Professionals - IL Consistent exercise of discretion and judgment Predominantly intellectual and varied in character, and such that the output cannot be standardized in relation to a given period of time No more than 20% of time on work not “essential and necessary” to the above.
27 Independent Contractors Control Profit/Loss Investment Special skills Permanence Integral to the business of the principle
28 Practical Considerations Independent Contractor Self-directed; controls details of how the work is performed Works for multiple employers Paid on a project basis Does not receive training from Company Does not receive benefits Uses own equipment Employee Works for one employer Employer provides work direction and tools Paid a guaranteed regular wage Employment related out-of- pocket expenses are paid by employer Training from employer Receives benefits
Illinois Employee Classification Act Applies to “contractors” – basically any employer in the construction industry Extremely stringent definitions of independent contractor Severe penalties for misclassification up to $2,000 per worker per day.
General Overtime Calculation 1.Total all non-excluded compensation 2.Divide by total hours worked to determine the “regular rate” 3.Divide the “regular rate” by 2 to determine the overtime premium rate 4.Calculate overtime hours by subtracting 40 from the total hours worked 5.Multiply the total overtime hours by the overtime premium rate
General Overtime Calculation 1. Total non-excluded compensation: $20 x 46 hours = $920 2. Regular Rate = $20 / hour 3. OT premium = $10 / hour 4. Total OT hours = 46 – 40 = 6 hours 5. 6 hours x $10 / hour = $60 Total pay = $920 + $60 = $980 46 total hours $20/hour
OT for Salaried Employees 1.Regular rate - $1,000 / 37.5 hours = $26.66 2.2.5 hours additional straight-time pay: $26.66 x 2.5 = $66.67 3.6 hours OT pay: 4.$26.66/hr x 1.5 x 6 hours = $239.94 Total pay = $1,306.61 ($1,000 + $66.67 + $239.94) 46 total hours Salary = $1,000 / week Salary covers 37.5 hour week
Multiple Jobs, Different Rates Must pay OT for all hours over 40 Means All Hours – even if in different jobs 36
Multiple Jobs, Different Rates Unless the employee is exempt or the work is occasional or sporadic: Track and total all hours worked in all jobs Pay OT if total hours are over 40 Calculate OT using either: Weighted average Negotiated rate for work being performed during OT hours
Multiple Jobs, Different Rates Bob makes a current hourly rate of $20 per hour and works as a secretary for 37.5 hours per week He also works as assistant coach for the volleyball team One Saturday, he works at a volleyball tournament for 8 hours, for which he is paid a stipend of $100 The total straight time compensation for the week is ($20 x 37.5 + $100), or $850 Bob is entitled to 5.5 hours of OT pay
Weighted Average Method $850 / 45.5 total hours worked = $18.68/hour $18.68/hour is Bob’s weighted average pay For each OT hour, Bob is owed ½ of the weighted average rate Thus, Bob’s additional OT is calculated as follows: $18.68 x ½ x 5.5 OT hours = $51.37
Negotiated Rate Method Depends on what the employee is doing when the OT work is performed If the workweek starts Saturday and ends Friday: $20 x ½ x 5.5 OT hours = $55
Negotiated Rate Method Depends on what the employee is doing when the OT work is performed If the workweek starts Sunday and ends Saturday: $100 stipend / 8 hours = $12.50/hour $12.50/hour x ½ x 5.5 hours = $34.38
Brian Bartender Works total of 40 hours as a bartender at $7/hr., plus tips 10 hours as banquet staff at $10/hr, plus share of service charge ($50) How do you calculate overtime for this week? 42
Brian Bartender Straight Time: $7 hours x 40 = $280 10 hours x $10 = $100 Total: $380 Overtime: ($7.00 ÷ 2) x 10 hours = $35 Total Pay: Straight Time: $380 Service charge: $50 OT: $35 Total: $465 $8.25/hr x 40 ($7/hr rate plus $1.25 tip credit) = $330 $10/hr x 10 = $100 $50 service charge Total of $480 Regular hour rate ($480/50 = $(9.60) OT ($9.60 x 1/2 = $XX) $430 + $43 = $473 Tip credit ($1.25 x 40 hours = $50) Total payment to Brian is $423 ($473 - $50) 43
Brian Bartender Determine total non-overtime compensation $8.25/hr x 40 ($7/hr rate plus $1.25 tip credit) = $330 $10/hr x 10 = $100 $50 service charge Total: $480 Regular rate - $480 ÷ 50 = $9.60 OT ($9.60 ÷ 2 = $4.80) Total pay: $7/hr x 40 hrs = $280 $10/hr x 10 hrs = $100 $4.80/hr x 10 OT hrs = $48 $50 service charge Total: $478 44
Calculating Overtime Use weighted average rate (absent agreement) Include all compensation in regular rate Bonuses Service charges Tips (only amount used to satisfy minimum wage) Incentive pay 45
47 Dedicated Dwight Bookkeeper Hourly Responsible for monthly TPS Reports Solid performer, highly dedicated Has been taking TPS reports home, completing them after- hours Has not recorded this time Not looking for pay
Helga Housekeeper Helga works as a hotel room attendant Lately, she has been working through her breaks Does not tell anyone she is not taking breaks Automatic deduction of 30 minutes each shift for meal break 48
Addressing Off the Clock Work Investigate immediately Determine scope of the problem Ensure practice stops Counseling / discipline for employee Counseling / discipline for management Determine hours Verify through available sources (security logs, email, etc.) Obtain employee’s written estimate Written acknowledgement of payment Ounce of prevention … 49
50 Travel / Commuting Time Hourly employee 6:00 a.m. – logs in, checks & responds to email 7:00 a.m. – ½-hour commute home to work
51 Travel / Commuting Time Ordinary home to work travel – No Travel as part of principal work activities – Yes Special circumstances: Emergency / call back Overnight travel Special one-day trips
52 Travel / Commuting Time Technician Company vehicle Picks up work crew on way to work
53 Training Counts as work time unless all of the following apply: Outside working hours Voluntary Not directly related to employee’s job No productive work performed
54 Training Customer service employees Spanish-language training Outside of work hours Voluntary
55 Pre/Post-Shift Activities Is the activity required by the nature of the job duties? Is it “de minimus”?
56 Pre/Post-Shift Activities Call center operator Boots computer, launches applications, logs in. 3-5 minutes While waiting, uses restroom, gets coffee, etc.
Responding to an Onsite Visit Train reception staff to call management Get key information What agency? Scope of investigation? What information requested? Response deadline? Get business card / credentials Avoid answering substantive questions Be polite! Call the lawyers! 60
Required Records - Exempt Full name and employee number/identification number Home address and zip code Date of birth, if under age 19 Gender and occupation Time and day the workweek begins Total wages paid each pay period Date of payment and pay period covered by payment Describe the basis for the wages paid, for example, the amount of salary, commissions, and fringe benefits which are paid during the period
Required Records – Non-Exempt Regular hourly rate of pay if overtime is due, and the basis for the regular rate, including any exclusions Hours worked each workday, and total hours worked each workweek Total daily or weekly straight time wages Total premium pay for overtime hours Total additions and deductions from wages each pay period, and an explanation for each addition and deduction
Other Key Records Job descriptions “Unofficial” time records Policies and employee communications State requirements vary
Retention Period Federal laws require 2-3 years State law varies Best practice depends on state statute of limitations – in IL at least 10 years
Action Items Don’t wait for a lawsuit or DOL audit Review exemptions Review policies and audit implementation Train supervisors Verify recordkeeping compliance Provide hotline / complaint mechanism (Carefully) correct mistakes Get legal advice
Thank You for Attending! 21st Annual IL Statewide APA Conference – August 21-22, 2014