What Keeps Your HR Folks Up at Night
Human Resources departments are in full swing this time of year, as they wrap up performance reviews, calculate year-end bonuses, and help management teams with their staffing plans for the coming year. However, some items require HR attention year round.
The Exempt vs. Nonexempt Dilemma
Overtime is often a concern. Who should get it? How is it calculated? When is it due? Rules are established by federal and state laws and regulated by federal and state Departments of Labor. Generally, for each hour worked in excess of 40 hours in a workweek, nonexempt employees must be paid at a rate not less than one and one-half times the regular rate of pay. Employers must first correctly classify employees as exempt vs. nonexempt. Failure to pay overtime can result in back pay with penalties being due from the employer, usually for several years retroactively.
Exemptions are for executives, administrators, professionals, computer employees, outside salespersons, and commissioned salespersons. An exemption analysis goes beyond titles and looks at actual duties performed. For example, not every computer employee is automatically exempt, only those performing analytical, creative, or development functions. Many states have additional rules that require overtime benefits for employees not covered under the federal Fair Labor Standards Act (FLSA). Proactive companies must have processes to ensure that employees are properly classified and that the number of hours worked on a weekly basis is systematically calculated.
Misclassification of Independent Contractors
While there are legitimate ways to bring in nonemployee resources, it is easy to get it wrong. Again, state and federal laws regulate whether a person should be treated as an employee or contractor and impose penalties on employers if they misclassify. No single rule or test is used, but a variety of factors have been considered significant by courts and departments of labor, including:
• Whether the contractor is truly independent or being controlled by the company, i.e., told what to do, when to do it, and how to do it;
• How long the contractor has been providing services to the company;
• Whether the service is an essential function for the company; and
• Whether the contractor is using their own equipment and facilities.
A common situation is when an ex-employee wants to be a contractor to perform the same job they were performing when employed. The HR department must determine if this is appropriate. Some companies have a rule that bars any one person from serving as a contractor for more than a year. Unfortunately, most problems in this area arise at the end of the relationship when a former contractor tries to collect unemployment benefits or otherwise raises the issue of misclassification.
Tracking Disability and Family Medical Leave
Long term leave under the Family Medical Leave Act (FMLA) requires careful handling and good processes. An employee might start by using their paid time off, then use short term disability leave, and then FMLA. Keeping track of these shifts requires clear communication with the employee and close monitoring by the company to remain compliant.
FMLA is a federal law that entitles eligible employees of covered employers to take unpaid, job-protected leave for 12 work weeks for specified reasons, primarily the birth or adoption of a child; to take care of sick child, parent, or spouse; their own serious health condition; or for events arising because a close relative is in active military duty. Private-sector employers, with 50 or more employees within 75 miles, are subject to FMLA.
Employment disputes and issues can take up an extraordinary amount of management time and resources. Being aware of areas that are prone to mishandling may help companies avoid a costly mistake in the future.
Business Insights is hosted by the Law Firm of KPPB LAW (www.kppblaw.com).
Sonjui L. Kumar is a founding partner of KPPB LAW, practicing in the area of corporate law and governance.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.
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