At about this time every year, HR professionals and Employment attorney’s publish a list of issues that employers should be audited for compliance in 2014. The big two are on the Department of Labor hit list are Misclassification of Non-Exempt and Independent contractor. Conducting an audit of how the organization determines classifications can help employers to control their risk.
- Misclassification of Non-Exempt Employees as Exempt
Many employers continue to assume that their salaried employees are not entitled to overtime pay. However, paying an employee a salary does not necessarily mean the employee is exempt from the minimum wage and overtime requirements of the federal Fair Labor Standards Act (FLSA) and similar state laws. Employers also must consider the duties the employee performs and whether those duties qualify the employee for an exemption. Because misclassification can result in liability for two years of back pay (three years for willful violations), as well as double damages and attorneys’ fees, this issue continues to be subject to scrutiny by the U.S. Department of Labor (USDOL) and plaintiffs’ attorneys. To assess whether an employee is properly classified as exempt, the USDOL web site is a good place to start. But before reclassifying any worker, we recommend consulting with your attorney, particularly because how the message is communicated to employees during the reclassification process may be critical to minimizing risk.
- Misclassification of Employees as Independent Contractors
I continue to receive calls from employers under audit by the Illinois Department of Employment Security (IDES) regarding their classification of workers as independent contractors. Employers should bear in mind that the test utilized by IDES to ferret out worker misclassifications is more stringent than both the Internal Revenue Service’s (IRS) and USDOL’s tests. Whether a worker is free from direction and control is just one factor to consider. To survive IDES scrutiny, an employer also must establish that the services the worker performs are either outside the employer’s usual course of business or outside the employer’s place of business and that the worker is engaged in an independently established trade, occupation, profession, or business. IDES presumes every worker is an employee, and the burden always remains on the employer to prove otherwise. See also our previous article on the classification of independent contractors.But don’t forget about the USDOL and the IRS, both of which have made worker misclassification a priority. As just one example, on November 12, 2013, a bill was introduced in the U.S. Senate entitled the “Payroll Fraud Prevention Act of 2013.” If passed, it will amend the FLSA and impose penalties on employers who intentionally misclassify workers as independent contractors. With these types of initiatives in mind, if you have classified workers as independent contractors, it would be wise to consult with your attorney, particularly if reclassification is in order, as timing may be important to avoid unnecessary exposure.
- FICA Tax on Severance Paid in Connection with a Workforce Reduction
Ordinarily, employees and employers pay Social Security and Medicare taxes on wages received by employees. An employer withholds an employee’s share from his or her paycheck and sends it to the IRS along with the employer’s matching payment. However, the question of whether severance payments made in connection with a workforce reduction are “wages” is an issue that the Supreme Court of the United States (SCOTUS) soon will decide. If severance payments are considered wages, it’s business as usual. But if not, then such payments are exempt from these FICA taxes, and employers may be entitled to refunds from the IRS and also will be required to distribute to affected former employees their share of the refund. Because SCOTUS likely will decide the issue after April 15, 2014, IRS filing deadline, employers that have made severance payments because of a workforce reduction should consider promptly filing protective refund claims. Consult with your accountant or tax attorney for additional guidance.
- Legalization of Medical Marijuana
In August, Illinois Governor Pat Quinn signed the Compassionate Use of Medical Cannabis Pilot Program Act, making Illinois the 20th state to legalize marijuana for medical use. Although that does not mean patients who test positive for marijuana cannot be disciplined or fired from their jobs, we expect there will be employees who choose to challenge such decisions. For further information and guidance, see our article on the legalization of medical marijuana in Illinois.
- The NLRB’s Continued Intrusion Into the Non-Union Workplace
In the last two years, the National Labor Relations Board (NLRB) has, in the form of new rule-making, new case law precedent, and advisory memoranda from its Acting General Counsel made it clear that non-union workplaces are not immune to the requirements of the National Labor Relations Act. The NLRB’s initiatives have impacted, for example, the long-standing practice of most employers to issue a directive to employees requiring confidentiality during workplace investigations and whether and when employers can discipline employees as a result of their social media posts. In 2014, we expect the NLRB to continue to issue decisions that have the effect of intruding more deeply than ever into the non-unionized workplace.
The word “Obamacare,” alone, is daunting to many employers. The coming year will undoubtedly be an important period for employers subject to the Affordable Care Act (ACA). Although the deadline for compliance with many of the ACA’s requirements was delayed until January 1, 2015, employers should become familiar with their obligations and begin steps to comply. See our previous article on the “Pay or Play” rules and our related article on some effects of the ACA on dental and vision coverage.