A nonexempt employee working a second job as an independent contractor for your organization is a red flag for the IRS, the DOL, and state agencies. So, make sure that your employee’s second job really meets the independent contractor criteria or be prepared to pay overtime.
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Question: We have a nonexempt employee who has offered to do landscaping work outside of his normal 40-hour week for our organization. Can we treat him as an independent contractor when he is doing this work? We would normally hire an outside company for landscaping.
Answer: If the employee’s landscaping job meets the criteria for an independent contractor job, then you may classify him as such. If he does not meet the criteria, however, any additional work that he performs for your organization must be counted towards his 40-hour workweek and he must be paid overtime if he works more than 40 hours in both jobs in a single workweek. In addition, you then must withhold taxes for the position’s wages.
The independent contractor, or freelancer, classification is used for nonemployee workers who typically perform specialized work that your employees do not do and are retained for a specific period of time. Since they are not considered employees of the organization, these workers are not covered by the laws for minimum wage and overtime, payroll taxes, workers’ compensation, unemployment compensation, or employment discrimination and are not eligible for any benefits. But meeting criteria for independent contractor status is tricky because the Internal Revenue Service (IRS), the Department of Labor (DOL), states, and the courts all impose different standards for employers to satisfy.
You also should be aware that when current nonexempt employees perform two or more jobs for your organization, classification of the second position as an independent contractor often raises a red flag for the various government agencies above. These agencies are interested in ensuring that taxes are properly paid and that employees are fully protected by wage and hour laws guaranteeing overtime.
Independent contractor status usually is determined using one of three different tests: (1) the IRS 20-factor analysis, for coverage under federal withholding requirements; (2) the “economic reality” test, used to determine compliance with requirements of the Fair Labor Standards Act (FLSA); and (3) the common law “right to control” test, used by many courts to administer certain other statutes. Under all three tests, whether a person who performs work for the organization is an “employee” or an “independent contractor” primarily depends on how much control the employer has over the work relationship.
So, for example, if the employee provides the equipment to do the landscaping, is paid when he completes the job (as opposed to payment on an hourly basis), and sets his own work hours, then he is more likely to be an independent contractor. But, if you provide him with the equipment, require him to perform the job at a particular time, and pay him by the hour, he may appear to be an employee and should be paid as such.
Because of the complicated nature of the independent contractor criteria, you should consult with a tax expert or attorney who is familiar with them. In addition, you can request a determination from the IRS by filing Form SS-8, “Determination of Worker Status,” available online at www.irs.gov/pub/irs-pdf/fss8.pdf. You also can find helpful information on correctly classifying and correcting misclassification of workers from IRS Publication 15-A, “Employer’s Supplemental Tax Guide,” available online at www.irs.gov/publications/p15a/index.html .
If you determine that the nonexempt employee’s second job does not meet the independent contractor criteria, then you must count all hours he works in both jobs towards overtime. So, for example, if the employee works more than 40 hours in a single workweek while doing both jobs, you should pay him overtime. Calculating overtime can be a little tricky when an employee works two or more jobs for which the employee is paid different hourly rates since overtime must be based on the employee’s “regular rate of pay.” Typically, the employee’s regular rate of pay is the weighted average of the different rates.
If you use QuickBooks and are manually having to calculate weighted average overtime; Crew/Overtime Entry Solution will help you automate this time consuming and eror prone task.
One final warning: As of last year, the IRS and the DOL began targeting worker misclassifications more aggressively than they have in the past. Beginning in February 2010, the IRS launched its first Employment Tax National Research Project in 25 years, targeting 2,000 taxpayers each year for the next three years for “comprehensive” audits, according to an IRS press release. The purpose of the audits is to determine what the “employment tax gap” is, i.e., the difference between taxes that are owed and taxes that are not paid because of underreporting, underpayment, or unfiled taxes, and how to collect these payments. In 2005, the IRS estimated the overall tax gap to be a whopping $345 billion, and so clearly the agency is interested in increasing its collections. In addition, the DOL has added 350 field investigators in the last two years to enforce wage and hour laws and focus on job misclassifications.
So, if you want to classify an nonexempt employees’ second job as an independent contractor, you should make sure your classification is proper and not a shortcut to an expensive nightmare of agency audits, back taxes, back wages, and penalties.
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Redistributed with permission of: Personnel Policy Service, Inc. 159 St. Matthews Ave., Suite 5, Louisville, KY 40207
Common everyday business practices result in unpaid “work” hours that 70% of employers have no idea are unlawful, but do in fact, violate the Fair Labor Standards Act (FLSA).
Below are 5 example of what is considered to be a violation of the Fair Labor Standards Act:
Punching in early (or punching out late) – for example an employee punches in 15 minutes before starting time.
If you are audited, you would have to prove that employee who punched in early was not working. The Department of Labor assumes that an employee who has punched in is working.
Downtime – for example an employee’s normal workday starts at 9, but they have a long drive and have to drop children off in two different places, so they end up getting into work at 7:30, has breakfast at their desk and reads the newspaper.
If the phone rings and the employee answers the phone; or if they suddenly remember “something” that they must attend to and pull a file so they don’t forget; the Department of Labor considers them to be working and must be paid for the hour or portion of an hour when they were on the phone or pulling the file.
Chatting during breaks – an employee gets in a half an hour early to have a cup of coffee and chat with coworkers.
If, while chatting with co-workers, any business matter that happens to creep into the conversation is considered paid work time and all of the employees involved in that conversation must be paid for that time.
Checking emails from home – before leaving for work, an employee who lives over an hour away, checks a Blackberry or other electronic device for business email.
The Department of Labor considers this unpaid work time.
Supervisors “pitching in” to help – perhaps a Customer Service Supervisor (an exempt employee) puts on the headphones and takes orders for a few hours OR a Maintenance Supervisor sometimes does cleanup himself to make sure the work gets done.
If your company is audited, the Department of Labor may decide that answering the phone is hourly work and can reclassify the Customer Service Supervisor an a nonexempt hourly employee. Once they do this, if they find that the Customer Service Supervisor worked more that 40 hours in a week (and many do); you could be hit with overtime backpay, penalties, and interest —- possibly for several years.
The same goes for the Maintenance Supervisor, because they are a “manager” and, therefore exempt, should be supervising the work done by others rather than doing the work themselves.
Employees who are exempt because they do managerial work (regardless if their title is “manager” or “supervisor” should be supervising and not doing the work for the people under them.
Wondering why this is such a big deal?
There is a major Department of Labor push on wage-hour enforcement, and according to Secretary of Labor Hilda Solis, “The U. S. Department of Labor is back in the enforcement business.” There will be a huge jump in wage-hour audits, and 350 investigators are being added – an increase of more than one-third.
For additional information about the Fair Labor Standards Act, visit their website.
Yet another massive winter storm is threatening snow and freezing rain from Colorado to the East Coast this week. Do you know what your obligations are to employees who cannot get to work on these bad weather days?
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Q: We are expecting more snow and ice this week and anticipate that employees may have a difficult time getting to work. Several of our employees have already used up their paid days because of bad weather this winter. How should we deal with these absences?
A: If you have operations in areas that experience severe weather, such as winter storms, flooding, or hurricanes, you should include provisions in your policies for weather-related absences. Most employers discuss weather-related absences in their attendance policies. Any policy dealing with attendance during periods of inclement weather should give employees an incentive to get to work and should distinguish between nonexempt and exempt employees.
Nonexempt employees (those employees who are covered by, and not exempt from, the minimum wage and overtime provisions of the federal Fair Labor Standards Act (FLSA)) generally only have to be paid for time actually worked. Accordingly, many employers do not pay nonexempt employees for weather-related absences, although the absence usually is excused. Some allow nonexempt employees to use accrued paid vacation or personal days so that they do not lose compensation. In exceptional situations, some employers pay all nonexempt employees for the day but recognize the efforts of those who worked by providing them with an extra floating personal day.
Some employers allow nonexempt employees to make up the missed time. However, if the employees make up the time in a week in which they also work 40 hours, you will owe them overtime for the additional hours worked over 40. For this reason, most of these employers do not allow the make-up time unless it is scheduled within the same workweek as the time missed. But, even this approach is likely to cause scheduling headaches.
Exempt employees should be handled differently. They are exempt from the FLSA’s minimum wage and overtime requirements because of the nature of their job duties and the fact that they are paid on a salary basis. The most common exempt classifications include executive, administrative, and professional employees.
Under the “salary basis” definition, exempt employees generally must receive their full salary for any week in which they perform work, without regard to the number of days or hours worked. Deductions may be made for less than a full week only in limited circumstances, such as for full-day absences for personal reasons or under a bona fide sick policy. However, deductions for less than full days are not allowed under any circumstances.
Deductions for absences of a day or more because of bad weather are not specifically allowed for exempt employees by the FLSA regulations. However, two Department of Labor (DOL) opinion letters indicate that you can require exempt employees to use paid leave when they are absent because of weather related conditions. In addition, the DOL opinions indicate that it may even be okay to make deductions from exempt employee pay for full-day weather-related absences in certain circumstances.
In the letters addressing snow day absences, the DOL indicated that if an employer is open for business and an exempt employee does not come to work that day, the employer may require the employee to use a paid vacation day or dock the employee for a full-day absence. According to the agency administrator, when a vacation day is used, the employee still receives the same guaranteed salary for the week, so the salary basis is maintained.
To make the case for docking an exempt employee’s pay, the agency reasoned that any absence caused by inclement weather is considered an absence for personal reasons if the employer’s business is open. The employee in effect chooses to stay home instead of reporting to work when the business is open.
If your organization is closed for the day, the opinion letters indicate that you cannot make deductions for full day absences from exempt employee pay because the FLSA regulations specifically do not allow deductions for absences occasioned by the employer or the operating requirements of the business. Under the regulations, no deductions are allowed when work is not available. However you can require that exempt employees use their paid time off (PTO) since they then would receive their entire salary. But, if you do not have any accrued PTO time, you still cannot make a deduction from their pay.
Distributed by Sunburst Software Solutions, Inc. with permission from:
HR Matters E-Tips, copyright Personnel Policy Service, Inc., Louisville, KY, all rights reserved, the HR Policy and Employment Law Compliance Experts for over 30 years, 1-800-437-3735. Personnel Policy Service markets group legal service benefits and publishes HR information products, including the free weekly electronic newsletter, HR Matters E-Tips (www.ppspublishers.com/hrmetips.htm). This article is not intended as legal advice. Readers are encouraged to seek appropriate legal or other professional advice.
I found this article online, written by Roberto Rossi – I have no idea who he is, but the article is interesting and factual.
Prevailing wage laws have been the focus of public policy debate at the federal and state levels for decades. They are intended to protect workers and communities by ensuring that contractors compete on the ability to perform work competently and efficiently while maintaining community compensation standards.
Prevailing wage laws require that construction workers on public projects be paid the wages and benefits that are found to be “prevailing” for similar work in or near the locality in which the construction project is to be performed. The federal Davis-Bacon Act is enforced by the federal Department of Labor. It requires that private contractors pay construction workers the prevailing wage/benefit package on all contracts of more than $2,000 for construction, alteration, or repair of federal public buildings or public works. The federal law surveys contractors but contractors are not required to respond to the survey.
Oregon enacted its prevailing wage law in 1959 and then-governor Mark Hatfield signed it into law. It requires that prevailing wages be paid on projects that exceed $25,000 ($50,000 as of 1/1/006). Under state law, the commissioner of the Bureau of Labor and Industries enforces the state law and sets prevailing wage rates twice a year based upon a survey contractors in Oregon are required to complete.
The state law has been challenged several times, but in the last attempt, in 1994, 62 percent of Oregon voters favored retaining the law including a majority in each of Oregon’s 32 counties. The state Legislature has made changes to Oregon’s law several times. In 1989, the Legislature clarified the law’s definition of public works revising the threshold test by adding the phrase “contracted for by”. The first prong of the test now is whether the construction work is .“carried on or contracted for by any public agency to serve the public interest.” In addition, the 1995 Oregon Legislature reaffirmed the goals of the prevailing wage law and instituted the state survey in lieu of relying upon the federal survey. In the just completed 2005 session, legislators passed SB 477, which among other changes, raised the threshold for projects qualifying under the law from $25,000 to $50,000.
Many still argue that the economic hardships of the depression era ushered in the federal Davis-Bacon Act, but others argue it was the desire of states and local government to protect itself against fly-by-night, low-wage construction firms winning bids on public contracts and adversely impacting local construction workers. In the early 1930s, federal and state governments were preparing to construct even more large public projects and they sought to protect themselves from falling contractors who performed “shoddy” work with “exploited,” “low-skilled” and an “imported” workforce.
Interestingly enough, those were not the words of labor advocates, but of the bill’s primary sponsors, Congressman Robert Bacon (R-NY) and Senator James Davis (R-PA), who viewed their bill not so much as a means to protect workers, but more as a way of providing some market stability in what was, and still is, an inherently unstable construction industry.
Bacon, a former banker, explained the need for the law when he detailed for his legislative colleagues how an out-of-state construction firm paying extremely low wages transported thousands of unskilled workers hundreds of miles to toil on a public project in New York:
“They were herded onto this job, they were housed in shacks, they were paid a very low wage, and … it seems to me that the federal government should not engage in construction work in any state and undermine the labor conditions and the labor wages paid in that state.”
Davis, the former Secretary of Labor under Presidents Harding, Coolidge and Hoover, went on to argue that “the least the Federal Government can do is comply with the local standards of wages and labor prevailing in the locality where the building construction is to take place.”
Some critics of prevailing wage laws have tried to place a “racist” label upon the original passage of the Davis-Bacon Act in 1931. While some may have had some intent to keep poor black construction workers from moving north to work, others saw it for what it still represents today – a way to assure that public money is not spent by hiring employers who pay low wages and disrupt the wage scale in other communities.
However, some critics still charge that the prevailing wage rate law continues to discriminate against minority and female contractors. In response to a May 22, 1992 Wall Street Journal making such accusations, Rep. Edolphus Towns rose on U.S. House floor on June 24, 1992 in rebuttal:
“The truth is, minority and female workers have entered the construction industry in increasing numbers over the past fifteen years. Because they are often the newest members of the industry, they are particularly vulnerable to wage-cutting practices the Davis-Bacon Act is designed to prohibit. Norman Hill, president of the A. Philip Randolph Institute, has characterized women and minority workers as `particularly vulnerable to exploitation such as the Davis-Bacon Act of 1931 is designed to prohibit.’”
Before passage of the Davis-Bacon Act in 1931, nine states and several cities had already passed a prevailing wage law. Within four years of Davis-Bacon’s passage, sixteen more states added a state-level prevailing wage law (little Davis-Bacon acts). At one time or another, forty-two states and the District of Columbia have had a prevailing wage law. Thirty-two states currently have state prevailing wage laws on their books.
Since the U.S. Constitution prohibits the federal government from dictating contract terms for the states in construction, the Davis-Bacon Act does not cover construction work funded entirely by state and local governments. State prevailing wage laws set a minimum pay for construction workers on state and local projects, and the terms of the respective prevailing wage statutes among the states differ substantially. The prevailing wage laws of some states are non-binding, while other states set wages for virtually all contracts at the collectively bargained wage rate. In addition, different states treat jointly financed projects (e.g. state/federal, local/federal, private/public) differently. Some states defer to the federal statute while other states set the prevailing wage at the higher of the state or federal prevailing wage. Certain states also specifically include or exclude specific types of projects (e.g. road construction) and/or workers, and/or projects above or below a given threshold.
Kansas passed the first prevailing wage law in 1891. New York was the second state to pass a prevailing wage law in 1894. Similar laws in other states were passed in the first part of the twentieth century. These laws provided the legal basis for the creation of the federal Davis-Bacon prevailing wage law at the federal level. By 1969, 41 states had prevailing wage statutes.
During the 1970s, many states began to suffer fiscal crisis. On the belief that they might save tax dollars, many state and local governments began to consider repeal of prevailing wage laws. Florida, which had enacted a prevailing wage law in 1933, was the first to repeal its law, in 1979. Eight states (Alabama, Arizona, Colorado, Idaho, Kansas, Louisiana, New Hampshire, and Utah) repealed their prevailing wage statutes in the 1980s. The prevailing wage statute in Oklahoma was invalidated by a court decision in 1995. At the present time, 32 states and the District of Columbia still have prevailing wage statutes, 10 states have repealed their prevailing wage statutes, and 8 states have never enacted a prevailing wage statute.
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Author’s Note:
As of the date of this article:
- 24 States follow the prevailing wage reporting requirements established by the U. S. Department of Labor and are required to file the Federal WH-347 Certified Payroll Report & WH-348 Statement of Compliance.
- 14 States have their own prevailing wage laws and certified payroll reporting requirements and forms, which must be used when the construction project is fully funded with state dollars.
- 12 States have multiple state agencies, each with their own prevailing wage reporting requirements and forms.
- More states are adding electronic filing requirements, either of their own design or through the use of compliance systems by TRS Consultants, Elation Systems, or LCPtracker.
