Category: Minimum Wage

January 19, 2018

Outside Sales Exemption – A Quick Guide for New York Employers

Most New York employers are subject to both federal and state minimum wage and overtime requirements. Usually, this means the employer must pay its employees at least the minimum wage for all hours worked and time-and-a-half for hours over 40 in a week. There are, however, many exceptions to these requirements. This post addresses the outside sales exemption under both the Fair Labor Standards Act (FLSA) and New York law.

Employers sometimes rely on the “outside sales” exemption to cover all categories of sales employees. But the “outside” component is critical for exemption. Sales employees who do not qualify under the outside sales exemption may still qualify for another exemption, such as the executive or administrative exemptions.

Learn more through this free webinar: Overtime Exemptions for New York Employers: What You Don’t Know CAN Hurt You!

FLSA Outside Sales Exemption

To qualify for the outside sales exemption under the FLSA (the federal minimum wage/overtime law):

The employee’s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
The employee must be customarily and regularly engaged away from the employer’s place or places of business.

Unlike the administrative, executive, and professional exemptions, the FLSA salary requirements do not apply to the outside sales exemption.

An outside salesperson must travel to customers, usually at their places of business or homes. Selling solely by phone, mail, or the Internet does not qualify as outside sales.

“Sales” includes any sale, exchange, contract to sell, consignment for sales, shipment for sale, or other disposition. Promotional work that is related to the employee’s own outside sales or solicitation efforts qualifies as exempt work.

New York Outside Sales Exemption

The FLSA and New York outside sales exemptions are very similar.

Under New York State law, employees can be exempt from minimum wage and overtime requirements if they are customarily and predominantly engaged away from the premises of the employer and not at any fixed site and location for the purpose of:

Making sales;
Selling and delivering articles or goods; or
Obtaining orders or contracts for service or for the use of facilities.

Like the FLSA, New York has no salary requirement for outside sales employees. However, New York does require that commissioned salesperson have a written agreement establishing the terms of their compensation. For outside sales employees whose primary compensation comes through a salary or hourly wage, employers still must satisfy the State’s wage notice requirements.

Summary

In the past, this exemption covered more employees who actually went “door-to-door” or at least made home sales calls. Now, since most consumer purchases occur through the Internet, the exemption it is more prevalent among business-to-business sales employees.

But remember, the outside sales exemption only applies to certain employees whose actual job situations meet the requirements! Job titles do not automatically determine exemption, nor does the fact that the employee is involved in making sales.

Employers should periodically review employees’ job duties to determine whether they qualify for exemption.

To learn more, check out my related webinar: Overtime Exemptions for New York Employers: What You Don’t Know CAN Hurt You!

January 16, 2018

5 Employee Classification Mistakes

Let’s face it, most organizations are in business to do something other than worry about how they classify their employees. They have products or services to offer, and they want to do so efficiently and effectively. Unfortunately, because it’s not their area of expertise, many businesses make employee classification mistakes despite their good intentions. But, here’s an opportunity to correct those mistakes!

These are 5 of the most common employee classification mistakes I see from good companies who really are trying to do the right thing.

(If this looks like too many words on a page, you might prefer my webinar: Overtime Exemptions for New York Employers: What You Don’t Know CAN Hurt You!)

1. Contract Designation vs. Legal Reality

Perhaps the first lesson in employment law should be “just because it’s on paper, doesn’t make it so!” One area this applies is the threshold question of whether a worker is an employee or an independent contractor. Often, businesses and workers prefer the “independent contractor” designation for various reasons. So, they execute a contract that says that the person is not an employee of the company. Unfortunately, it’s not that easy.

It turns out that a lot of government entities care about the “independent contractor” vs. “employee” classification. This includes the IRS and state taxing authorities, state unemployment and workers’ compensation authorities, departments of labor and other agencies enforcing labor and employment laws, and the courts. And, usually, the government’s “preference” is to find a worker to be an “employee.”

Frankly, having a piece of paper that says a person is not an employee tends to be one of the least relevant factors in this determination. It’s nice to have, and you really do want to have a written contract if you’re trying to prove an independent contractor relationship. But the government looks at many aspects of the relationship to evaluate whether the worker qualifies as an employee under whatever law is in question (e.g., minimum wage, employment tax withholding, etc.).

Some factors that matter more than words on the page include:

Who provides the tools and equipment the worker uses?
Does the worker operate a business and have other customers?
Does the worker control the timing and means of getting the work done?
Is the worker directly involved in the company’s core business or just enabling the company to get its business done?

Cautious companies will consider these and other questions carefully before entering into an agreement with a potential independent contractor. The agreement should confirm the factors that will support the classification. But, again, the contract itself won’t be the deciding factor.

2. “Salary” vs. “Hourly”

Sure, it’s fine to classify some employees as “salary” and others as “hourly.” But these categories only go so far. One of the most common employee classification mistakes is equating salaried with exempt and hourly with non-exempt for overtime purposes.

Paying an employee a salary does not automatically exempt them from receiving overtime under the FLSA and state laws. And, it goes the other way too. Some hourly employees can still be exempt from overtime (though this is relatively rare).

The most prevalent overtime exemptions are the so-called “white collar” exemptions. These include administrative, executive, professional, computer employee, and outside sales exemptions. Some exemptions require that employees be paid on a salary basis. But that is never the only requirement! The nature of the employee’s work must also satisfy certain tests. Moreover, the FLSA has no salary requirement for the outside sales exemption and certain professional categories (doctor, lawyer, and teacher). And qualifying computer employees can be exempt even if they receive an hourly wage.

To better understand the overtime exemptions, check out my free webinar: Overtime Exemptions for New York Employers: What You Don’t Know CAN Hurt You!

3. “Full-time” vs. “Part-time”

Again, this is a useful designation. But it’s not a one-size fits all classification. Even within the same workplace, two “full-time” employees may work different schedules and total numbers of hours in a week. The same may be true for two “part-time” employees.

Like with “salary” vs. “hourly,” “full-time” vs. “part-time” doesn’t necessarily signify whether an employee is eligible to receive overtime pay.

When labor and employment laws use these or similar terms, they mean different things depending on the law. The Affordable Care Act defines full-time to mean the employee works an average of 30 hours per week. By contrast, New York’s new Paid Family Leave law draws a line at 20 hours per week. So does the federal WARN Act, which requires employers to give written notice before certain mass layoffs and plant closings.

So, it’s important for employers to understand the context in which a particular employee is part-time or full-time. Day-to-day, the distinction probably depends not on external laws, but how the employer itself defines the categories, such as for employee benefits eligibility like vacation and holiday pay. But understand that failing to draw the correct line for specific legal analyses is another of the most problematic employee classification mistakes.

4. Job Description vs. Actual Duties

For employment law purposes, there are many reasons why it may matter what a particular employee’s job entails. Most of the time that inquiry should not end with reviewing a written job description. Like the written designation of a worker as an independent contractor instead of an employee, words on a page describing what the employee’s position entails is seldom determinative. Rather, you must know what this specific person actually does for the organization.

For starters, this is critical in classifying employees as exempt vs. non-exempt. It also comes into play in determining essential functions of an employee’s position for disability accommodation purposes.

Yes, it is nice when the written job description accurately reflects what the employee actually does. And this is a good reason to regularly review and update your job descriptions. But organizations often prepare a job description when they create a position and then use it for years without reevaluating it. The employees in the role probably have changed, as have the exact tasks of the job.

5. Union vs. Non-Union

The last of these employee classification mistakes is only relevant if a union represents (or perhaps is seeking to represent) some of your employees. That’s a diminishing percentage of U.S. workplaces, but still a significant number of them.

Obviously, it is important to know which employees are in the union bargaining unit and which are not. In Right-to-Work states that won’t necessarily be same as which employees are actually members of the union. But, regardless, if they are in the bargaining unit, then the employer must deal with the union directly rather than the employee regarding certain matters.

But, like some of other employee classification mistakes above, “union” vs. “non-union” does not legally equate to whether an employee is exempt or non-exempt from overtime. Or whether they are protected by federal or state leave laws or other benefits matters.

Typically, having unionized employees just adds another layer to an already complex web of labor and employment law compliance issues. It is often critical to break out the pieces of the web to analyze and address them properly.

Avoiding Employee Classification Mistakes

The best way for most organizations to avoid costly employee classification mistakes is to consult with an experienced labor and employment lawyer. But, admittedly, it’s hard to know when you are wandering into a trap for the unwary such that legal advice is necessary.

I try to help New York employers know when to ask for guidance through this blog and my email newsletter. I also present free webinars, such as Auditing Your New York Worker Classifications.

January 8, 2018

When Are Unpaid Interns Employees Under the FLSA?

In 2010 the United States Department of Labor (DOL) issued guidance severely limiting for-profit companies’ ability to have unpaid interns. However, courts routinely rejected that rigid 6-part test.

On January 5, 2018, the DOL modified its approach, adopting the “primary beneficiary” standard favored by the courts.

Which test applies and the resulting analysis determines whether a company violates the Fair Labor Standards Act (FLSA) by not paying interns minimum wage and overtime.

Unpaid Interns – 2010 DOL Test

Since 2010, the DOL had taken the position that a for-profit business must pay its interns unless all of the following 6 criteria apply:

The internship is similar to training received in an educational environment.
The experience is for the benefit of the intern.
The intern is not a substitute for regular employees and works under close supervision of existing staff.
The employer derives no immediate advantage from the intern’s activities.
The intern isn’t guaranteed a job at the conclusion of the internship.
Both the employer and the intern understand that the intern is not entitled to pay for the time spent in the internship.

“Primary Beneficiary” Test

In 2015, the United States Court of Appeals for the Second Circuit rejected the DOL’s 2010 test. Instead, it analyzed the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship.

Now, the DOL formally adopts the Second Circuit’s 7-factor analysis in a new Wage and Hour Division Fact Sheet. The seven factors are

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.

2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.

3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.

4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.

7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The DOL emphasizes that “Courts have described the “primary beneficiary test” as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”

Unpaid Interns Under Other Laws

The U.S. DOL’s position relates to whether an intern qualifies as an “employee” under the FLSA. It does not necessarily decide the question under other laws, including state minimum wage and overtime laws.

For example, the New York Department of Labor has adopted the 6 factors previously used by the U.S. DOL and adds these 5 additional factors of its own:

Any clinical training is performed under the supervision and direction of people who are knowledgeable and experienced in the activity.
The trainees or students do not receive employee benefits.
The training is general, and qualifies trainees or students to work in any similar business. It is not designed specifically for a job with the employer that offers the program.
The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose. The screening only uses criteria relevant for admission to an independent educational program.
Advertisements, postings, or solicitations for the program clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.

What Should Your Company Do About Unpaid Interns?

First, remember that the above pertains to for-profit companies. Non-profits and governmental organization have more leeway. But if you are a for-profit company, you still shouldn’t rely solely on this information in deciding whether you can use unpaid interns.

Since the DOL’s new position follows several appellate courts, it seems to be reasonably safe guidance regarding minimum wage and overtime under the FLSA. But even at the federal level, other laws could still apply to unpaid employees. For example, anti-discrimination laws may still apply, including those requiring reasonable accommodations based on disability or religion. And, in some cases, a union that represents your employees might claim to represent individuals you classify as employees.

Plus, at the state level, there is not only the minimum wage/overtime issue. You must also consider the impact of employee benefit programs, including unemployment, workers’ compensation and other state-mandated coverages.

Overall, for-profit employees should start by assuming that anyone working for them is an employee. They should only treat workers differently if there is a clear exclusion, e.g., valid intern or independent contractor. An experienced labor and employment attorney can assist in making that determination.