Joseph Doherty is associate general counsel at Independent Insurance Agents and Brokers of America in Alexandria, Virginia.
Federal labor law sets out criteria for whether a person who works for you is an employee or contractor and whether employees are exempt or nonexempt from coverage under the Fair Labor Standards Act. Here are some tips to help ensure you’re in compliance.
Whether your association has one staffer or 100 or somewhere in between, you need to understand the federal laws that affect how you classify and pay them.
The Fair Labor Standards Act is the primary federal law governing minimum wage, overtime pay, and related record-keeping matters for private-sector employers. To determine whether you’ve properly classified someone who works for you under the FLSA, you need to answer two key questions.
1. Is the employee an independent contractor? The answer affects your obligation to pay overtime, withhold and pay taxes, and provide employee benefits. Even if a worker may be eligible for independent contractor status, you may always choose to classify the worker as an employee. But reclassifying a worker from employee to independent contractor may invite scrutiny, especially if the worker’s duties and work conditions have not changed.
Under the FLSA, an employee is defined as “any individual employed by an employer,” and to “employ” means to “suffer or permit to work.” In light of these open-ended definitions, the courts have looked at several factors when determining whether an individual qualifies as an employee or should be classified as an independent contractor. For example:
• whether the business has the right to control how the work is performed (as opposed to the completed work product)
• the extent to which the worker’s services are an integral part of the business
• whether the worker has his or her own business and, if so, the worker’s investment in it
The courts consider all relevant factors and do not view any single factor as determinative.
2. If the worker is classified as an employee, is he or she exempt or nonexempt from FLSA coverage? The typical differences are that exempt employees are paid a salary and are not entitled to overtime pay. The most common exemptions are for executive, administrative, professional, and highly compensated employees. Each exemption applies only if the employee’s salary and duties meet the criteria set forth in the regulations.
Be aware that federal law may not be the only one that applies. Some states have their own FLSA equivalents, which may have more stringent requirements. And more municipalities are passing ordinances that affect the use of independent contractors, scheduling, minimum wage, and other workplace matters.
Worker classification is fact-specific and fraught with traps for the unwary. Always consult with an experienced HR or legal professional when classifying a new employee or reclassifying an existing one.