- Feb 22, 2016
by Julie Lerman, Franklin Law Group
With changes on the horizon, this year is a great time for business owners to familiarize themselves with two hot topics in order to protect their business from potential liability:
Are your workers properly classified?
Misclassification of employees as independent contractors is a common error made by small businesses. While employees are entitled to receive workplace protections such as minimum wage, overtime compensation, unemployment insurance and worker’s compensation, independent contractors are not. A business’ liability for wrongly classifying an employee as an independent contractor can result in expensive consequences, including back pay, reinstatement (or front pay), damages, civil penalties, attorneys’ fees, payment of back taxes and overtime wages.
While many government agencies have their own criteria for defining workers as either employees or independent contractors, the U.S. Dept. of Labor recently issued its interpretation, classifying workers based on an “economic realities” test. If the worker is economically dependent on the employer, the person is an employee. If the worker is truly in business for him or herself, then the individual is an independent contractor. The IRS developed a “right to control” test examining the extent to which the employer controls the manner and means by which the work is to be accomplished. Of little consequence is the employer’s designation of a worker as independent contractor.
Changes in Federal Overtime Exemption Rules
Last summer the Dept. of Labor released proposed changes that will significantly change the law governing certain “white collar” workers (executive, administrative and professional employees) who are exempt from overtime pay. The final rules are expected later this year. All employers need to be aware of these changes which may greatly impact wages and overtime pay to workers.
Currently, white collar workers who make more than $23,660 a year are exempt from overtime pay. Under the new guidelines, the salary threshold will be raised to $50,440. As a result, fewer employees will be exempt from overtime and will now be entitled to overtime pay, or be paid higher salaries in order to remain exempt. In addition, a change in the law in Illinois requires employers to maintain accurate records of the hours worked and vacation earned for exempt employees.
To minimize the impact of these changes, employers have options. First, the salary of a currently exempt employee can be reduced so that the overall earnings remain the same when the person is eligible to receive overtime pay. Second, a salaried worker can be converted to an hourly worker, or an employer can limit formerly exempt workers to a 40 hour work week.
For further information and helpful guidelines, visit the Dept. of Labor website www.dol.gov as well as www.irs.gov.