Tag: employee classification

PAID Program New York Employers

PAID Program Hits Snag for New York Employers

The U.S. Department of Labor recently launched the nationwide Payroll Audit Independent Determination (PAID) program. The PAID Program encourages employers to conduct self-audits of their minimum wage and overtime payment practices. Employers who discover violations and self-report them may avoid penalties under the Fair Labor Standards Act (FLSA).

But . . . New York Attorney General Eric Schneiderman isn’t a fan of this federal program. In response to the launch of the U.S. DOL’s PAID Program, Schneiderman proclaimed:

“The Trump Labor Department’s ‘PAID Program’ is nothing more than a Get Out of Jail Free card for predatory employers.”

Is the Attorney General right? Let’s take a look at what the PAID Program offers, focusing on what all this means for employers in New York.

How the PAID Program Works

This “pilot” program is available to employers across the country. It has three basic components.

Self-Audit

To begin the process, an employer would conduct a self-audit of its compensation practices. If the employer finds compliance concerns it wants to resolve through the U.S. DOL, it must then (according to the DOL):

  • Specifically identify the potential violations;
  • Identify which employees were affected;
  • Identify the timeframes in which each employee was affected; and
  • Calculate the amount of back wages the employer believes are owed to each employee.

Self-Report

With this information ready, the employer would then contact the U.S. DOL’s Wage and Hour Division (WHD). The WHD will advise the employer what information must be submitted. This apparently will include:

  • The back wage calculations described above, along with supporting evidence and methodology;
  • A concise explanation of the scope of the potential violations for possible inclusion in a release of liability;
  • A certification that the employer reviewed all of the PAID Program’s information, terms and compliance assistance materials; and
  • A certification that the employer meets all eligibility criteria of the PAID Program.

Payment

The WHD will then follow up with the employer to determine resolution. This will likely include payment of back wages due to employees.

Eligibility Restrictions

Most employers subject to the FLSA are eligible to participate in the PAID Program.

However, an employer cannot participate if the:

  • WHD or a court has found within the last 5 years that the employer violated FLSA minimum wage or overtime requirements by engaging in the same compensation practices addressed by the self-audit;
  • Employer is a party to any litigation asserting that the compensation practices in the self-audit violate FLSA minimum wage or overtime requirements.
  • WHD is investigating the compensation practices at issue in the self-audit;
  • Employer is specifically aware of any recent complaints by its employees or their representatives asserting that the compensation practices in the self-audit violate FLSA minimum wage or overtime requirements; or
  • Employer has previously participated in the PAID Program to resolve potential FLSA minimum wage or overtime violations resulting from the compensation practices in the self-audit.

The WHD may otherwise decline to accept any employer into the PAID Program at its discretion.

New York’s Opposition

New York has its own minimum wage and overtime requirements for most private-sector employers. Like the FLSA, these laws include liquidated damages penalties where an employer failed to pay minimum wage or overtime properly. This means that employers found guilty of these wage violations may have to repay twice the amount originally owed. Employees can also recover their attorneys’ fees for these claims. Under New York law, employers may be found liable for unpaid wages going back as far as 6 years from the date of the claim. This is longer than the 2- (sometimes 3-) year statute of limitations under the FLSA.

New York’s Attorney General’s statement against the PAID Program demonstrates that he feels it is not enough that employees will receive the wages they should have been paid in the first place:

Employers have a responsibility under state and federal laws to pay back stolen wages, as well as damages intended to deter them from breaking the law again. The PAID Program allows employers to avoid any consequences for committing wage theft, while blocking lawsuits intended to vindicate employees’ rights.

I want to send a clear message to employers doing business in New York: my office will continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID Program.

The most straightforward counterargument to Schneiderman’s position is that discouraging employers from self-auditing and self-reporting may mean that employees never recover the wages they should have earned. The state/federal DOLs and private claimants are highly unlikely to uncover every instance of failure to compensate employees properly for minimum wage or overtime.

What This Means in New York

First, it was not a given that the PAID Program would be a great deal for all employers anyway. There are various downsides to self-reporting minimum wage and overtime violations. Beyond having to pay back wages, this may negatively affect employee morale, public image, etc. But the program may benefit some employers depending on their specific circumstances.

Now, however, Attorney General Schneiderman’s announcement raises a major red flag for companies with employees in New York. By raising their hand to participate in the federal PAID Program, these employers would put a target on their backs for state enforcement. FLSA violations would most likely correspond to violations of New York minimum wage/overtime laws. And even if paying back wages arguably precluded further litigation for the same payments, New York’s longer statute of limitations may at least leave employers open to up to 4 more years of liability, including liquidated damages and attorneys’ fees.

Any employer contemplating participation in the PAID Program should definitely consult with an attorney with experience dealing with both the U.S. DOL and New York State DOLs before self-reporting any possible violations. Even if the attorney agrees there has been an underpayment, they may offer better options than the PAID Program. Or, if you go forward with the program, they can assist you in navigating the process appropriately.

If nothing else comes from the PAID Program, employers should use these developments as motivation to review their compensation practices. Misclassification of workers for minimum wage and overtime purposes is one of the most common and costly mistakes employers make.

Employee Classification Mistakes

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.