The Department of Labor’s Agenda for 2010 and Beyond

Overview

On April 26, 2010, the U.S. Department of Labor (DOL) issued its Semiannual Regulatory Agenda. This is a compilation of regulations selected for review or development over the next 12 months.

A couple of issues targeted in this Agenda could have time and attendance implications. First, the DOL wants to update the recordkeeping requirements for employers who hire independent contractors. Second, the agency is considering an update to the rules related to the “home companion” minimum wage and overtime exemption.

Let’s take a closer look at these proposed changes.

The Contractor versus Employee Conundrum

We’ve written before about the issues involved in determining whether a worker is an independent contractor or an employee. Specific criteria must be met in order for a worker to be classified as a contractor.

Confusingly, the various states, the U.S. DOL and the IRS often have different criteria. For example, it’s possible for a worker to be considered an employee for the purpose of paying state unemployment insurance, but to be considered a contractor for the purpose of withholding federal income tax.

Putting increasing pressure on employers, the DOL and the IRS are not the only ones stepping up enforcement efforts. Cash-strapped states seeking increased tax revenues are also taking a much harder look at worker classification.

For instance, Colorado, Illinois, Maryland, Massachusetts, New Jersey and New Mexico have passed laws targeting misclassification in designated industries. Iowa, Michigan, New York, Washington and Wisconsin have announced enforcement initiatives or created task forces charged with uncovering employee misclassification. Connecticut, Illinois, Maryland, Minnesota, Nebraska and New Jersey have enacted statutes increasing both civil and criminal penalties on employers for misclassifying employees as contractors.

Got Paperwork?

Now, the DOL wants to amend the regulations related to independent contractors under the Fair Labor Standards Act (FLSA). The agency believes these proposed changes will:

  • Increase awareness among workers regarding their status as employees or contractors and their rights to minimum wage and overtime pay.
  • Encourage greater compliance by employers.
  • Facilitate DOL enforcement.

To that end, the proposed rules will require covered employers to:

  • Perform a formal analysis to justify any worker’s classification as a contractor.
  • Furnish the analysis to the worker.
  • Maintain the analysis on file in case Wage and Hour Division (WHD) enforcement personnel want to see it.

In general, it appears the DOL, the IRS and many of the states are making it harder for employers to classify workers as independent contractors, making it easier for employees and regulators to challenge that classification, and increasing the penalties on employers for making an error.

Now is the time to review the classification of any workers you have designated as independent contractors to ensure they truly meet the relevant criteria. Make sure you also have accurate time and attendance records for these workers. Such records will help you avoid paying unnecessary overtime wages or penalties in case they are ever re-classified as employees.

For more information, the DOL has published a fact sheet, available here:
www.dol.gov/regulations/factsheets/whd-fs-flsa-recordkeeping.htm

Home Companion Workers and Overtime

In 1974, the FLSA was amended to exempt home companions for the aged and infirm from minimum wage and overtime provisions. Under the law, the Secretary of Labor has the authority to define the specific terms of this exemption. These regulations were last updated in 1975.

Given significant changes in the home health care industry over the past 35 years, the DOL now proposes to review and potentially update the regulations. The stated aim is to clarify when domestic service employees are exempt and when they must be paid minimum wage and overtime.

Specifically, the DOL will be looking at “companions” who are employed by third parties, such as agencies, rather than directly by the family they serve. The DOL wants to determine if the services provided by these agency employees are consistent with the status of a “home companion” as originally envisioned by the 1974 amendment.

The DOL also wants to clarify how much training is required to render a worker “trained” — thus excluded from the companionship exemption — and the amount of general household work home companions can perform without losing the exemption.

If you’re an agency supplying home companions to families, or if your family employs such a companion through an agency, this initiative may have an impact on you.

For more information, reference the DOL fact sheet here:
www.dol.gov/regulations/factsheets/whd-fs-flsa-companionship.htm

The Bottom Line

It’s important to note these are simply proposed changes. They have not yet been formally enacted. You still have time to submit comments to the DOL regarding these and other regulatory updates.

You can view these and other proposed regulations, and submit your comments at www.Regulations.gov.

If you’d like more detail, a PDF of the complete Regulatory Agenda can be found here:
www.dol.gov/asp/regs/unifiedagenda/spring-2010-regulatory-plan.pdf

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