United States: DOL Addresses Worker Classification And Overtime Rules

The U.S. Department of Labor (DOL) recently addressed the hot button topics of worker classification and overtime pay. Here is a brief summary:

DOL Issues Guidance On Independent Contractors

New DOL guidance addresses the standard for determining whether an employee is misclassified as an independent contractor under the Fair Labor Standards Act (FLSA). The guidance incorporates the "economic realities" test and provides broader FLSA coverage than the common law control test, which focuses on the employer's control over the worker.

Under the six-factor test, the ultimate inquiry is whether a worker is economically dependent on the employer or in business for him- or herself. The guidance explicitly states that "most workers are employees under the FLSA." The IRS subsequently released Fact Sheet 2015-21 on determining employee status for purposes of federal employment taxes. The IRS test places more emphasis on the employer's control.

Proposed DOL Overtime Rules Could Hike Employee Costs

The DOL has proposed regulations "defining and delimiting" the exemptions for executive, administrative, professional, outside sales and computer employees ("white-collar" exemptions) from the FLSA's minimum wage and overtime requirements. If approved, the regulations would change the determination of which workers are entitled to overtime pay and make it more difficult for organizations to classify employees as exempt.

Most notably, the rules would increase the salary threshold for exempt workers from $455 per week, or $23,660 annually, to $970 per week, or $50,440 per year. Thus, any employee who earns less than these amounts would automatically be nonexempt. As of this writing, the proposed regulations have yet to be finalized.

With the new calendar year starting soon, now is a good time to review your worker classifications and overtime policies to ensure compliance with DOL rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.