The Fair Labor Standards Act (FLSA) is a particularly important compliance piece for most employers. The reason for this is simple – most insurance policies simply don’t cover settlements or judgments rendered in a FLSA case. Front line Risk Management therefore becomes mandatory to prevent losses and limit your exposure to fines, penalties and defense costs.
We’ll provide some questions and important context here to get you started on evaluating your compliance with the FLSA.
Getting Started on Fair Labor Standards Act Compliance
- Have you posted, in all work locations, the Minimum Wage poster and all wage/hour/leave posters and notices required by law?
- Have you designated an employee to ensure that all employees are properly classified as either exempt or non-exempt?
- Are all exempt employees paid on a salaried basis and paid at least $23,660 annually as required by law?
- Are employees properly classified as either exempt or non-exempt based on their actual job duties and not just their job titles?
These few sample questions are a good place to get started. If you’re in a good place with these questions, I’d recommend taking a deeper dive. However, if you’re kind of shaking your head about some of these questions, there are relatively simple fixes to getting in the baseline level of compliance – please reach out to us today and we can help you get started.
Going Deeper into FLSA Compliance – Qualifying Employees vs. Independent Contractors
This is a particularly important topic. The Department of Labor has been stressing this for years – developing new rulings and opinions on who qualifies as employees and independent contractors. Violation of these provisions can be costly, including but not limited to: payment of back taxes plus interest, civil fines, and criminal penalties.
Are you aware of the exemption for business owners? Are you familiar with the FLSAs “Economic Reality Test” that establishes a true Independent Contractor?
The following are considered under the Economic Reality Test:
- The degree of control exerted by the alleged employer over the worker
- The worker’s opportunity for profit or loss
- The worker’s investment in the business
- The permanence of the working relationship
- The degree of skill required to perform the work.
Do you perform the IRS 20 Factor Test on employees to determine employee vs. contractor status?
This test helps eliminate confusion around whether a worker can actually be classified as an independent contractor. At Stillwell Risk Partners, we have an admin kit designed to help you conduct this test.
Penalties for Misclassification of Workers
Going into a little more detail about the potential penalties for misclassifying workers, here are a few examples:
- Unemployment and Workers’ Compensation Insurance: Agencies may ask for back contributions, premiums and penalties in these areas, not only for the person who complained, but any other similar contractors.
- Benefits: You may be liable for any benefits such as vacation, sick leave, pension, health insurance, severance pay, etc. to misclassified employees.
- Litigation: Misclassified contractors that turn into employees may sue for any number of charges such as race, sex and age discrimination and wrongful termination.
- Wage Claims: Misclassified employees may make significant claims for overtime in some cases.
- Taxes: You could incur substantial tax liability and penalties for Social Security and other Federal and State taxes.
Assessment: A First Step to Determining Your Company’s Risk
In the practice of Risk Management, we rely on assessment tools to help identify risk. When it comes to compliance with the Fair Labor Standards Act, there is a lot of regulatory red tape to navigate. The current economic environment is characterized by a historically low unemployment rate, a highly educated work force knowledgeable about their rights, and a Department of Labor active in ensuring compliance.
Our FLSA Compliance Assessment tools will help you identify potential exposures to regulatory risk. Leveraging the tools available, our clients benefit from a streamlined approach to compliance that reduces their costs, avoids fines and penalties, and keeps their management teams informed and proactive to handling problems.
For employers subject to the FLSA, we provide this package as a standard part of our risk management offerings at absolutely no cost to our insurance clients. If you’re interested in taking part in an FLSA Compliance Assessment – we are happy to provide this at no cost. Please reach out to us at contact@stillwellriskpartners.com or schedule an appointment here.