Would things be less complicated if a company just paid all of its employees a salary?
Only if the employer wants to be sued for overtime violations. While seemingly less complicated, paying all employees a salary fails to recognize that the Fair Labor Standards Act (FLSA) entitles some employees to minimum wage and overtime payment. In order to determine which employees are eligible to receive a salary and which are not, the employer needs to carefully determine the primary duties of all employees and determine which job duties are such that they are “exempt” from the provisions of the FLSA based on certain specified and limited exemptions from the FLSA. Persons working in other “non-exempt” positions are entitled to overtime for all hours worked over 40 in a work week.
Are all employees required to keep records of time worked by employees? All employees?
The Department of Labor regulations require employers to retain accurate records of hours worked and hours paid in a seven-day work week. An employer who invests in a time keeping system will never lose on the investment, so long as the employer uses the system for the intended purpose. As such, employers should not circumvent their own system by telling employees to “work off the clock”, allow employees to take work home without clocking in, “volunteer” for special projects or use “comp” time for private employers. If the employer is ever sued for a wage and hour violation, the strongest and best defense will be uncompromised time records. The FLSA does not prohibit employers from keeping records of hours worked for exempt employees. Interestingly, keeping records of exempt employee time may not be a bad idea if the employer mistakenly misclassifies a non-exempt employee as an exempt employee.
Differentiating between an exempt and a non-exempt employee is confusing. Is there a simple checklist that can be used?
The DOL and the courts construe the exemptions from overtime very narrowly. However, in 2004, the DOL issued revised regulations that defined the exemptions. Employers should be extremely careful and consult with their employment counsel or other appropriate professional before classifying employees as exempt. The wrong decision could cost employers millions. Job titles do not count, the employer must look at the job duties.
Can deductions be made from an exempt employee's salary for personal time taken?
Maybe. An exempt employee that receives a salary is supposed to receive the same compensation regardless of the quality and quantity of work performed. The FSLA does provide limited circumstances for full day deductions from exempt employee pay, however employers should consult employment counsel or a competent professional before making deductions from exempt employee pay for personal reasons.
Many companies are engaging more independent contractors as a strategy to control costs. Are there any downsides to this practice?
If the employer merely designates a person as an independent contactor and fails to adhere to the IRS provision regarding the definition of independent contractor, the short term benefits will return to haunt the employer. The IRS lays out a 20-factor right of control test for what constitutes an independent contactor. While the worker need not meet all twenty factors, the IRS construes the factors in the light most favorable to the employee, so be careful.
What kind of things can an employer deduct from paychecks? Are there specific guidelines that should be followed?
An employer cannot make any deductions from pay without authorization from the employee. Even with authorization from the employee, the employer cannot make deductions form pay that causes an employee’s hourly wage to fall below minimum wage. Perhaps the only exception may be if the employer makes salary advances in the form of allowing employees to take paid leave before the leave is accrued. If this is what the employer intends, the policy should so state and the employee should sign and fully acknowledge the requirement to pay back the salary advance. The FLSA has specific guidelines for making deductions from employee pay. (See question 4)