Avoiding Employment-Related Pitfalls

Avoiding Employment-Related Pitfalls: Hiring, Firing and

Everything in Between

General Counsel, P.C.Presented to Washington Executives AssociationJuly 15, 2015

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Corporate/Business Law Government Contracts Labor and Employment Dispute Resolution/Litigation

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General Counsel, P.C. Practice Areas

Presumption of At-Will Employment

Importance of Protecting and Maintaining the At-Will Employment Relationship

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Employment at Will

Modification through Contract◦ For some employees, may want to have a contract for definite term

Modification through Public Policy and/or Statutory Grounds

Modification through Employee Handbook◦ Handbook as Contract

◦ IMPORTANCE OF CLEAR DISCLAIMERS Employment Applications Offer Letter Handbook Handbook Acknowledgement Forms

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Modification of the “At-Will” Employment Relationship

Independent Contractor (1099) or W-2 Employee – this is important classification that affects federal income tax, social security and Medicare taxes.

It also impacts eligibility for employer and social security and Medicare benefits.

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Employee Status

Employee or Independent Contractor

◦Right to Control the Means and Manner of Work

◦Label Not Determinative

◦Look at totality of relationship

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Employee Status

1. Behavior Control: is there a right to direct or control how the worker does the work?

-- Instructions: if extensive instructions on how work is to be done, more likely an employee.

-- Instructions include:- how, when and where to do the work- what tools or equipment to use- what assistants to hire to help with the work- where to purchase supplies and services

-- Training: if extensive training, more likely employee.

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Employee Status New IRS Test looks at 3 Primary

Factors

2. Financial Control◦Significant Investment: if you have a significant

investment in your work, more likely an independent contractor.

◦Expenses: if you are not reimbursed for some or all business expenses, more likely an independent contractor.

◦Opportunity for Profit or Loss: if you can realize a profit or incur a loss, more likely an independent contractor.

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Employee Status New IRS Test looks at 3 Primary Factors

3. Relationship of the Parties◦Employee benefits: if person receives benefits

such as insurance, pension, or paid leave, more likely an employee.

◦Written Contract: the existence of a written contract may be evidence of independent contractor relationship.

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Employee StatusNew IRS Test looks at 3 Primary Factors

Employer must withhold income tax and employee’s portion of social security and Medicare. Also, employer responsible for paying social security, Medicare, and unemployment taxes on wages. An employer must provide a Form W-2 to an employee.

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For W-2 Employees

The business may be required to provide a Form 1099-MISC

The independent contractor is required to pay his/her own income tax and self-employment tax. The business does not withhold any taxes from pay.

Independent contactor may deduct business expenses on Schedule C of tax return.

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For 1099 Contractors

If an “employee” is misclassified as an independent contractor, the employer could be liable for the employment taxes, interest and penalties.

Also, the “employee” could be entitled to past benefits.

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Penalties for Misclassification

April 18, 2023Copyright 2015 - General Counsel, P.C.

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Fair Labor Standards Act Federal Minimum Wage: $7.25 per hour

Overtime: 1 ½ times the regular rate of pay for all hours over 40 hours in a work week

New Overtime Regulations redefine the “white collar” exemptions from minimum wage and overtime pay


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FLSA Overtime Regulations Section 13(a)(1) provides an exemption

from both the minimum wage and overtime pay for employees who are employed in a bona fide:◦Executive;◦Administrative;◦Professional; or◦Outside Sales capacity.

In addition, certain computer employees may be exempt professionals under Section 13(a)(1) or exempt under Section 13(a)(17) of the FLSA.


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Three Tests for Exemption

1. Salary Level

2. Salary Basis

3. Job Duties


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Test 1 – Salary Level Test Total annual compensation of at least

$100,000 At least $455 per week paid on a salary or

fee basis Perform office or non-manual work Customarily and regularly perform any one

or more of the exempt duties identified in the standard tests for the executive, administrative or professional exemptions


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Test #2 – Salary Basis Test Regularly receives a predetermined amount

of compensation each pay period (on a weekly or less frequent basis)

The compensation cannot be reduced because of variations in the quality or quantity of the work performed

Must be paid the full salary for any week in which the employee performs any work

Need not be paid for any workweek when no work is performed


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Deductions from Salary An employee is not paid on a salary basis if

deductions from the predetermined salary are made for absences occasioned by the employer or by the operating requirements of the businesses

If the employee is ready, willing and able to work, deductions may not be made for time when work in not available


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Permitted Salary DeductionsSeven exceptions from the “no pay-docking”

rule:1. Absence from work for one or more full days for

personal reasons, other than sickness or disability

2. Absence from work for one or more full days due to sickness or disability if deductions made under a bona fide plan, policy or practice of providing wage replacement benefits for these types of absences

3. To offset any amounts received as payment for jury fees, witness fees, or military pay


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Permitted Salary Deductions

4. Penalties imposed in good faith for violating safety rules of “major significance”

5. Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules

6. Proportionate part of an employee’s full salary may be paid for time actually worked in the first and last weeks of employment

7. Unpaid leave taken pursuant to the Family and Medical Leave Act


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Payroll Practices That Do NotViolate the Salary Basis Test

Taking deductions from exempt employees’ accrued leave accounts

Requiring exempt employees to keep track of and record their hours worked

Requiring exempt employees to work a specified schedule

Implementing bona fide, across-the-board schedule changes


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Improper Deductions - Examples

Deduction for a partial-day absence to attend a parent-teacher conference

Deduction of a day of pay because the employer was closed due to inclement weather

Deduction of three days of pay because the employee was absent from work for jury duty, rather than merely offsetting any amount received as payment for the jury duty

Deduction for a two day absence due to a minor illness when the employer does not provide wage replacement benefits for such absences


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Test # 3 – Job Duties

Executive Administrative Professional Computer; and Outside Sales Employees


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Executive Primary duty is management of the

enterprise or of a customarily recognized department or subdivision;

Customarily and regularly directs the work of two or more other employees; and

Authority to hire or fire other employees or whose suggestions and recommendations as to hiring, firing, advancement, promotion or other change of status of other employees are given particular weight.


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Administrative Whose primary duty is the performance of

office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.


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Human Resource Managers Human resource managers who formulate,

interpret or implement employment policies generally meet the administrative duties requirements

Personnel clerks who “screen” applicants to obtain data regarding minimum qualifications and fitness for employment generally are not exempt administrative employees


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Learned Professional The employee’s primary duty must be the

performance of work requiring advanced knowledge

In a field of science or learning Customarily acquired by a prolonged

course of specialized intellectual instruction


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Learned Professional Occupations with recognized professional

status, as distinguished from the mechanical arts or skilled trades

Law Accounting Actuarial ComputationTheology Teaching Physical SciencesMedicine Architecture Chemical

SciencesPharmacy Engineering Biological

Sciences


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Computer Employee ExceptionTo qualify, the following tests must be met:a. The employee must be compensated either on a salary or fee

basis at a rate of not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;

b. The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field; and

c. The employee’s primary duties must consist of:


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Computer Employee Exception

1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;2. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;


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Computer Employee Exception3. The design, documentation, testing,

creation or modification of computer programs related to machine operating systems; or4. A combination of the aforementioned duties, the performance of which requires the same level of skills.


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Outside Sales Employee To qualify for the outside sales employee

exemption, all of the following tests must be met:◦The employee’s primary duty must be the making

of 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 employers’ place or places of business.

General Counsel, P.C.6849 Old Dominion DriveSuite 220McLean, VA 22101Telephone: [email protected]

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For More Information

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