Retirement Contribution limits announced for 2012:
Maximum contribution limits for those under age 50 and the catch
up amount for those 50 and over are as follows;
401(k)’s are
$17,000 plus an additional $5,500 catch up if 50 or older.
Simple (savings incentive match plan for employees)
plans are $11,500 plus an additional $2,500 catch up
if 50 or older.
IRAs (individual retirement plans) are $5,000 plus an
additional $1,000 catch up if 50 or older. The contribution can be
split between a Roth IRA and a traditional IRA, but must not
exceed $6,000.
Employees /
Independent Contractors (1099s):
Generally, the degree of control you exercise over the worker
determines whether he or she is an employee or independent
contractor. For example, an employer would probably provide a
workers' materials and tools, while independent contractors usually
provide their own. An employer sets an employee's work hours while
an independent contractor usually has the right to set his or her
own schedule. In addition, the more "integrated" or central a job is
to a company's operations, the more likely the worker is to be
considered an employee.
The chart below can help you determine whether a worker is an
employee or an independent contractor. Unfortunately, no single
factor determines a worker's status. The IRS and other government
agencies, as well as courts that hear related cases, examine a
variety of factors.
To protect your
organization, you can request documents from an independent
contractor that will help you prove his or her status in the event
the IRS or other government agencies ask for it. These include
copies of advertising or directory listings, business name
statements, an Employer Identification Number (if he or she has
employees), and business licenses or professional licenses.
|
Employee |
Independent
Contractor |
|
Worker must obey
instructions concerning when or how to perform the job. |
Worker is
responsible for the outcome of the job and can determine how
it is to be done. |
Company provides
training.
|
Worker may be
licensed by a state board and may have invested considerable
sums in training. |
|
Services must be
performed by the worker. The company hires, supervises or pays
a worker's assistants. |
Worker can hire
assistants and is responsible for their pay.
|
The worker has an
ongoing relationship with the company.
|
Worker advertises
or otherwise makes his or her services available to the
general public. |
The company sets
the work hours.
|
The worker can set
his or her own hours.
|
The company
requires full time work at its business.
|
Worker can work
for more than one company at the same time. |
|
The company
controls where the work is performed and determines the order
in which tasks are done |
The worker can
complete tasks at his or her office or home. He or she decides
how to finish the job. |
The worker
receives payment by hour, week or month.
|
Independent
contractors are usually paid on a per job or commission basis. |
The company
provides tools and materials.
|
The worker
provides his or her own tools, materials and facilities and
has often made a significant investment in them. |
The worker
generally does not take on any financial risk and the company
pays travel and business expenses.
|
The worker can
realize a profit or loss from a job and generally pays the
expenses incurred in completing the job.
|
|
The worker can
usually quit without liability for failure to complete a job. |
The worker is liable for completing a job according to
contract. |
Issues Surrounding
Final Paychecks
When an employee
leaves your company, the complicated issue of the final paycheck
arises. And how your company handles the check depends on state and
federal laws, which can make it difficult for businesses operating
in more than one state to come up with a uniform nationwide policy.
State laws
generally determine the timing of final paychecks based on whether
the employee was fired, laid off, or quit. Depending on the state,
deadlines for issuing the last check might be the employee's last
day of work, the following business day, three business days, or the
next scheduled payday. What your company includes in the final
paycheck can depend on whether you pay the employee an hourly wage
or a salary, as well as on your company's written policies regarding:
-
Severance pay;
-
Expenses;
-
Vacation, sick and personal days;
-
Bonuses;
-
Commissions; and
-
Other
pay and benefit arrangements.
It's important to know the laws
because your company could be assessed interest and penalties for
non-compliance. In some cases, companies wind up paying legal fees
if the employee resorts to legal action. One complex area in writing
final paychecks involves employees who owe money to your company for
any number of reasons, including:
You might be tempted to withhold the
amount an employee owes, figuring that's the only way your company
will collect the debt. That could be a mistake.
Withholding money for employee debts also falls under state laws -
unless there is a conflict with federal law, which prohibits
withholding if it reduces the final payment to below minimum wage.
There is an exemption for withholding amounts for debts stemming
from payroll advances. However, there can be a thin line between a
payroll advance and a loan. In some cases, courts ruled that
advances became loans at some point.
State withholding laws range from extremely restrictive to very
liberal. When there is a statute, allowable withholding amounts can
depend on the circumstances surrounding the debt and whether you pay
the employee a salary or an hourly wage. Even if the individual
receives a salary, if the debt stems from loans, prepaid leave, or
unreturned equipment, it can be unclear whether an employee was
actually salaried and exempt from overtime.
One common misconception is that a company can withhold amounts owed
from the final paycheck if an employee signed a blanket
authorization. But withholding authorizations must generally be
voluntary and free from coercion. If your company, like many others,
has all new hires sign blanket authorizations about policies, they
can be interpreted as a requirement of employment and thus not
voluntary.
One consideration is to ask an employee to sign a withholding
authorization for a specific debt at the time the employee incurs
it. That form should include a statement that the employee can
revoke the authorization any time with two weeks prior notice. (See
right-hand box for a New Hampshire case involving blanket
authorizations.)
Caution: When it comes to final paychecks, the laws are
complex. Consult with a professional who is knowledgeable about
payroll laws, and state and federal labor department regulations.
14 Ways Wage-Hour
Laws Can Create Risks:
A good time to
ensure compliance!
Federal investigators with the Labor
Department's Wage and Hour Division (WHD) routinely look for
companies and organizations with illegal pay practices. The WHD
enforces the federal minimum wage, overtime pay, record-keeping,
child labor and other requirements of the Fair Labor Standards
Act. When investigators uncover violations, employers must pay
back wages, as well as penalties.
Now, the Department of Labor (DOL) is
providing a smartphone "app" for employees to independently track
their hours. "This app will help empower workers to understand and
stand up for their rights when employers have denied their
hard-earned pay," said Secretary of Labor Hilda L. Solis. For
workers without smartphones, the WHD now has a printable calendar in
English and Spanish to track pay rates, start and stop times, as
well as arrival and departure times. Currently, the app is only
compatible with the iPhone and iPod Touch, but the DOL wants to make
it available for other platforms and add features to track tips,
bonuses, commissions and more. With the introduction of the app,
it's a good time for employers to ensure they are in compliance with
the complex Fair Labor Standards Act. Here are 14 ways
employers can get tripped up by wage-and-hour violations.
1. Failing to correctly classify non-exempt and exempt
employees. This is the mistake investigators often target
first. Determining
employees who are legally exempt from the wage-and-hour laws can be
complicated.
Here are the basic rules:
-
Covered nonexempt
employees must receive overtime pay for hours worked over 40 per
workweek at a rate not less than one and one-half times the
regular pay rate. (A 40-hour workweek is defined as any fixed and
regularly recurring period of 168 hours over seven consecutive
24-hour periods.)
-
There's no limit on
the hours that employees 16 years or older can work in a week as
long as they are paid overtime.
-
The FLSA does not require extra pay
for working weekends, holidays, or nights, unless overtime is
involved.
2. Failing to
calculate overtime pay correctly. This can occur when an
employer doesn't include all earnings in the base, earned hourly
pay. For example, let's say non-exempt employees earn mandatory
bonuses over a period of time. An employer fails to recalculate the
employees' hourly earnings for the period to include the bonuses.
Mandatory bonuses earned for factors related to hours
worked and length of employment are considered earned wages under
the wage-and-hour laws.
3.
Misclassifying employees as independent contractors.
According to the WHD, the "misclassification of employees as
independent contractors is an alarming trend, particularly in
industries such as construction that often employ low-wage,
vulnerable workers." Often, the WHD adds, "workers are deprived of
overtime and minimum wages, forced to pay taxes that their employers
are legally obligated to pay and left with no recourse if they are
injured or discriminated against in the workplace." When the WHD
finds cases of misclassification, it may refer the cases to state
agencies and the IRS.
4. Failing to pay for work during missed meal
and rest periods.
Wage-and-hour laws require employers to pay non-exempt employees for
all time worked -- whether or not it was authorized by an
employer or supervisor. So if employees continue to work through
meals and breaks of 20 minutes or less, employers are required to
pay for the time. And when the extra time results in an employee
putting in more than 40 hours in a workweek, the employer also owes
overtime pay.
5. Failing to pay for certain on-call
time. If an employer engages
an employee to wait to be put to work, the individual must be paid
for the on-call time.
6. Deducting an exempt employee's pay for poor
performance. This violates one
of the basic rules for determining employee status. An exempt
employee must be paid the agreed-on salary without regard
to the quality or quantity of the individual's performance during
the pay period. When an employer takes money out of an exempt
employee's salary for poor performance, it can result in permanently
changing the employee's status from exempt to non-exempt.
7. Not paying for employees to work
electronically after hours.
Many employees carry and use cell phones, laptops and other devices
throughout their waking hours. Employees often get involved in
work-related tasks on these devices. For example, a manager may tell
a non-exempt employee to check in regularly on her cell phone while
on vacation. Or an employee may uses his laptop at night and on
weekends to keep a project going. The basic rule: When a
non-exempt employee engages in work-related activities that benefit
the employer (even voluntarily), the time is compensable.
8. Failing to pay for time spent at
after-hours meetings. When
attendance at a meeting outside normal work hours is required and
the subject and activity at the meeting is work-related, the
employees' must be paid for the time.
9. Failing to keep required records.
Federal law requires employers to keep time-worked records.
So if there is a dispute with an employee about hours and pay and
the employer is unable to show accurately recorded time records,
courts will favor the employee's claims and records.
10. Treating exempt employees as if they are
non-exempt employees. When an
employer treats an exempt employee as if he or she is an hourly paid
non-exempt employee, the employer risks losing that employee's
exempt status. Even worse, if the employer treats an exempt employee
like an hourly paid non-exempt employee, the employer may also lose
the exempt status of all other employees in the same job
classification working for the same managers responsible for the
wrong treatment.
How do employers treat
otherwise exempt employees like hourly paid non-exempt employees? By
improperly basing their pay on hours worked (or not worked) rather
than on a daily, weekly, or monthly salary.
For example, let's say
an exempt employee paid a salary begins coming to work two or three
hours late on Mondays. The boss deducts amounts from the employee's
paycheck for the hours not worked. By treating the employee like an
hourly paid non-exempt employee, the employer has changed the
individual's status.
11. Substituting comp time for
overtime pay. Under
federal law, compensatory time off or comp time in place of
receiving overtime pay is generally only legal for government
employees. Federal law generally requires that employees get paid
overtime for all hours worked over 40 in a seven-day workweek
established by the employer. (Note: Some states require
overtime pay for hours worked over eight in a day.)
12. Taking unauthorized deductions from
paychecks. An employer can
only legally deduct from an employee's earned pay the amounts
required or authorized by law (such as Social Security, income tax
deductions, and court-ordered garnisheed amounts) as well as
deductions authorized by the employee (such as deductions for
insurance premiums and loan payments).
Examples: An
employer cannot deduct amounts from an employee's pay to cover
damages to the organization's equipment. And an employer cannot
withhold a departing employee's final paycheck as a way of
collecting an amount the individual owes on a loan previously
obtained from the employer -- unless the employee has given
authorization in advance.
13. Not paying minimum wage when required.
The WHD investigates employers who violate requirements to pay
covered employees at least the federal minimum wage.
For example, in
January, Los Angeles clothing manufacturer Joe's Jeans paid $158,950
in back wages to 110 garment workers after an investigation. The WHD
found employees were paid on a piece-rate basis without regard for
the minimum wage and overtime requirements. Investigators also found
weekend work was not recorded on employee time cards.
See the right-hand box
for frequently-asked questions about minimum wage.
14. Failing to abide by state laws.
States may have their own version of federal wage and hour rules. So
employers need to be aware of and comply with the laws in the states
where they have employees.
Example
of One Company's Recent Wage and Hour Violations
Sushi Alive, a Tampa, Florida, restaurant, agreed in May to pay
$54,407 in back wages to 14 employees, following an investigation by
the Labor Department's Wage and Hour Division.
Covered, nonexempt employees must be paid at least the federal
minimum wage, although tipped employees can earn less (see box
below). Employers can create a tip pooling or sharing arrangement,
but a valid tip pool cannot include employees who do not customarily
and regularly receive tips, such as dishwashers, cooks and janitors.
According to the DOL, Sushi Alive required servers to share tips
with dishwashers, cooks and other employees who did not customarily
earn tips, thereby invalidating the pool arrangement. In addition,
the employer violated federal law by:
Deducting the cost of uniforms from servers' paychecks, which
reduced their wages below minimum wage.
Failing to keep accurate records.
Not adequately compensating servers who worked more than 40 hours a
week.
Minimum Wage Q & As
How much is the federal minimum wage?
The federal minimum wage for covered nonexempt employees is
currently $7.25 per hour. Many states also have minimum wage laws.
If an employee is subject to both the state and federal minimum wage
laws, the employee is entitled to the higher minimum wage rate.
Various minimum wage exceptions apply under certain circumstances.
What happens if state law requires a higher minimum wage than
federal law?
If state law requires a higher minimum wage, the higher standard
applies.
What is the minimum wage for workers who receive tips?
An employer can pay a tipped employee not less than $2.13 an hour in
wages if that amount, plus tips, equal at least the federal minimum
wage; the employee retains all tips; and the employee regularly
receives more than $30 a month in tips. If an employee's tips
combined with the employer's $2.13-an-hour wage do not equal the
federal minimum wage, the employer must make up the difference. Some
states have minimum wage laws for tipped employees. An employee is
entitled to the provisions of each law that provide the greater
benefits.
Do teenagers have to be paid the minimum wage?
A
minimum wage of $4.25 per hour applies to young workers under the
age of 20 during their first 90 consecutive calendar days of
employment, as long as their work doesn't displace other workers.
After 90 consecutive days or when the employee turns 20 (whichever
comes first), the employee must receive minimum wage of $7.25 per
hour. Other programs that allow less-than-full federal minimum wage
apply to workers with disabilities, full-time students, and
student-learners employed pursuant to sub-minimum wage certificates.
These programs are not limited to young workers.
Strategic Shift on
Undocumented Workers:
Several years ago, the worst-case scenario for
businesses that hired illegal workers was often a slap on the wrist
and a relatively small fine. These days, however, having illegal
workers on the payroll could result in an employer's arrest and
hundreds of thousands of dollars in seized assets.
This is due to a crackdown by the Immigration
and Customs Enforcement agency (ICE), which assumed authority over
these matters from the U.S. Immigration and Naturalization Service
(INS) in 2003. While INS agents generally issued warnings and
imposed fines, the ICE has taken a much more aggressive stance of
pursuing criminal prosecution of employers.
This change in policy has been largely influenced by the Department
of Homeland Security, which has been under tremendous pressure to
tighten border control. Hundreds of employer arrests have taken
place thus far, a trend that shows no signs of abating. This
groundswell has spread to other branches of the legislative and
judicial system as well, including new strict state statutes and
competitor litigation.
States Are Getting in
on the Act. In addition to ICE
actions, many states have passed legislation recently to penalize
companies with illegal workers on the payroll. The laws cover a wide
range of penalties such as hefty fines and prohibitions against
businesses with undocumented workers being awarded state contracts.
Some businesses have also begun to sue other businesses on the
grounds that they achieve an unfair advantage through the practice
of hiring illegal workers. While these lawsuits are taking place in
California under that state's unfair-competition laws, other states
are considering similar measures that could open up more lawsuits.
Be Safe, Rather
Than Sorry. With more than ten million estimated illegal
immigrants in the United States, employers are in a potentially
vulnerable position when it comes to hiring employees. Here are some
steps that can help protect your organization when it comes to
examining job applicants:
By law, employers must
complete an I-9 Employment Eligibility Verification form
for each new hire and keep the forms on file. Photocopy the
documents provided by each employee. Maintain the copies with the
I-9. Former employees' forms must be kept for three years from the
hiring date or one year after termination, whichever is later. If an
outside firm provides your organization with contractors, however,
these responsibilities may be shifted to them.
The scrutiny with which
you examine I-9 documents can be subject to litigation. The hiring
process should objectively and appropriately judge documents and
there should be transparency when it comes to your hiring practices
and your continuing to monitor any employee's citizenship status.
Know which documents you can ask for. Let employees choose. Don't
ask for particular documents or more documents than are required.
Employees or applicants can choose the proof they want to offer and
companies have faced lawsuits for specifying certain documents over
others. Accept documents that appear genuine although you aren't
responsible for confirming their authenticity. It isn't wise to
conclude that documents are false and routinely investigate
authenticity without proper cause. ICE authorities don't expect
employers to be immigration experts, but you should have sufficient
knowledge to understand if a document is consistent with an
employee's claimed status.
Avoid restrictive
hiring practices. For qualified applicants, don't question the
expiration date of work authorization or ask for documentation to
confirm the date. You are able, however, to require new hires or
employees to periodically show proof of continuing eligibility.
Establish procedures for responding to "no-match" letters received
from the Social Security Administration. These letters inform
employers when a number submitted on an I-9 does not match the name
for that number on the Social Security database.
Don't jump the gun.
While it is wise to conduct the I-9 verification process before a
new hire starts work, don't initiate it before a job offer is made
and accepted. Not hiring someone after seeing documents that reveal
citizenship status, age, and national origin could be grounds for a
discrimination claim.
Time Table for Completing the Process
Employers must complete the I-9 verification
process within three business days of an employee's first day on the
job. The only exception to this rule is when new employees lack a
required piece of documentation, such as a Social Security card for
example, and show a receipt to prove they have applied for one. In
such a case, all documents must be presented and the I-9 form
completed within 90 days of the first day of work. If the
documentation is not produced, the person cannot legally continue to
work and the employer has the right to suspend the employee without
pay until the documents are obtained.
While
these requirements may seem stringent, complying with them can, in
the long run, save you potential financial penalties and legal
trouble. If you need more information, consult with your attorney or
human resources adviser.
1099 Rules are Repealed:
President Obama has signed a law that repeals two sets of rules that
had business owners, company managers and landlords up in arms
because of the paperwork nightmare they created. The rules that
involved businesses issuing a blizzard of 1099 forms were created by
two laws enacted in 2010. Rental property owners had to begin
complying with one of the sets of rules this year. The second set
for other types of businesses was not scheduled to go into effect
until next year.
The new rules ignited an
immediate firestorm of criticism, but repealing them took longer
than some expected.
Thankfully, all the attempted 1099 rule changes have finally been
quashed by the Comprehensive 1099 Taxpayer Protection and
Repayment of Exchange Subsidy Overpayments Act,
which was signed into law on April 14, 2011.
Just so you understand where we stand now, here's the 1099 story
from beginning to end. We will start with the longstanding 1099
rules, which will now continue to apply without any changes.
Longstanding 1099 Rules Remain in Force
For many years,
businesses have been required to report various types of payments
to the IRS and to recipient taxpayers.
For instance, when a business pays $600 or more during a calendar
year to an unincorporated independent contractor for services
rendered, the business must file a Form 1099-MISC with the IRS to
report the total amount paid in that year. The business must also
send a copy of the Form 1099-MISC to the payee (a so-called payee
statement). This reporting procedure helps the contractor remember
to include the payments as income on his or her tax return, and it
helps the IRS to make sure that happens.
Under the longstanding rules, other types of
payments that businesses must report to the IRS on 1099s and to
payees on payee statements include:
Commissions, fees, and other
forms of compensation paid to a single unincorporated payee when
the total amount paid in a calendar year is $600 or more.
Interest, rents, royalties, annuities, and
other income items paid to a single unincorporated payee when
the total amount paid in a calendar year is $600 or more.
When a 1099 is
required, it must show the total amount of payments in the
calendar year, the name and address of the payee, the tax ID
number (TIN) of the payee, contact information for the payer, and
the payer's TIN. (For privacy reasons, it's OK to show a truncated
TIN on a 1099 that reports payments to an individual recipient.)
If your business
doesn't have a recipient's TIN, you may be required to institute
backup federal income tax withholding at a 28 percent rate on
payments to that payee.
In most cases, the
rules summarized above apply equally to payments made by
non-profit organizations, because they are generally considered to
be businesses for 1099 reporting purposes.
For 2011, if a
payer fails to file a proper 1099 with the government, the IRS can
assess a penalty of $100 or more per failure. For 2011, if a payer
fails to send a proper payee statement, the IRS can assess an
additional penalty of $100 or more for each failure. (Internal
Revenue Code Sections 6721, 6722, and 6723)
Important:
Penalties for failing to file 1099s and issue payee statements
were increased by a 2010 law. The increased penalties
remain in effect. To sum up, each time you fail to file a
1099 and issue the related payee statement, the IRS can still
assess a penalty of $200 or more.
Most
Payments to Corporations Need Not Be Reported
Most payments to
corporations are exempt from any 1099 reporting requirements.
There are a few exceptions. For instance, payments of $600 or more
in a calendar year to a corporate law firm must be reported on a
Form 1099-MISC for that year.
|
Example
1: Your business makes monthly payments to rent office
space from a corporate lessor. Under longstanding rules that
will now remain in force, there is no 1099 reporting
requirement for the payments, because they are made to a
corporation. |
Payments for Property Need Not Be
Reported
There is generally
no requirement to issue 1099s to report payments for property
(merchandise, raw materials, equipment, and just about anything
else you can put your hands on).
|
Example 2: Your
business buys a delivery van, display shelving, and computer
equipment. Under the longstanding rules that will now remain
in force, there is no 1099 reporting requirement for these
payments, because they are for property. |
2010 Legislation Tried to Change the
Rules
Last year's
healthcare legislation and a separate small business law attempted
to make big changes to the 1099 reporting rules. The repealed
changes are briefly summarized below.
Payments to
Corporations: Starting in
2012, if your business paid a corporation $600 or more in a
calendar year, you generally would have been required to file a
1099 and issue a statement to the payee.
Also, your business would have been required
to obtain a taxpayer ID number from each corporate payee to
avoid the requirement for backup federal income tax withholding.
On the other side
of the coin, if your business is incorporated, it would have had
to supply customers with your company's TIN to avoid backup
withholding on payments to your business.
Payments
for Property: Starting in
2012, if your business paid $600 or more in a calendar year to
any payee as "amounts in consideration for property," you would
have been required to file a 1099 and issue a payee statement.
Once again, the term "property" means equipment, merchandise,
raw materials, and many other items.
Also, your
business would have been required to obtain a TIN from each
affected payee to avoid the requirement for backup withholding
of federal income tax.
On the other side
of the coin, if your business sells property, you would have had
to supply customers with your TIN to avoid backup withholding on
payments to your business.
Payments of
Gross Proceeds: Starting in
2012, a third new rule would have required filing a 1099 and
payee statement if your business paid $600 or more in "gross
proceeds" to any payee in a calendar year. Apparently, this
provision was intended to force the filing of millions of 1099s
and payee statements to report business expenditures for things
like meals at unincorporated restaurants, repairs of business
vehicles at unincorporated auto shops, and seminars presented by
unincorporated providers (the list could go on and on).
Payments by
Rental Property Owners:
Starting this year, owning rental property would have generally
been considered a "business" for purposes of the 1099 reporting
rules. Therefore, property owners would have generally been
required to file 1099s and issue payee statements for any
unincorporated service providers that were paid $600 or more
during 2011 (for jobs including yard care, maintenance, and
accounting). Starting in 2012, rental property owners would have
been required to comply with the other burdensome 1099 changes
explained earlier.
All of these
now-repealed mandates would have undoubtedly required many
millions of additional 1099s and payee statements each year.
Where
We Stand Now
Thanks to the
just-passed Comprehensive 1099 Taxpayer Protection and
Repayment of Exchange Subsidy Overpayments Act, none of the
attempted 1099 changes will take effect. So if your business is
currently handling 1099s and payee statements without any
problems, you can continue with the status quo. On the other hand,
if you know you have compliance deficiencies, the harsher
penalties that are now in effect dictate in favor of cleaning up
your act (the harsher penalties will remain in force).
Finally, you might
wonder how Congress compensated for the estimated $22 billion of
revenue that was allegedly lost by repealing the attempted 1099
changes. The Feds will try to recoup the revenue by collecting
more "excess advance payments" of health insurance premium
assistance credits collected by individuals. This change will take
effect in 2014.
Consult with your
tax adviser with any questions you may have about issuing 1099
forms in your situation.
Employer Victory after Lawsuit over Reduced Hours:
Court: Less Overtime Pay
Did Not Amount to Discrimination
Many companies routinely change the work
schedules of their employees due to seasonal fluctuations. In
addition, some businesses are forced to reduce the number of hours
employees work because of changes in economic conditions.
When scheduled hours are scaled back, of course, the employees'
paychecks are also cut. In one case, a convenience store assistant
manager charged that his employer discriminated against him on the
basis of his age after the company reduced his overtime hours. He
sued his employer for discrimination, retaliation, and a hostile
work environment under the Americans with Disabilities Act,
the Age Discrimination in Employment Act, and state law.
Charges of discrimination are not unusual these days, but as this
case illustrates, it takes more than mere accusations to prevail
in court. Essentially, the employer must have initiated some sort
of adverse action against the employee - such as a wrongful
termination, demotion or a change in job conditions - for a
lawsuit to have merit.
Facts of the case: John
Baucom was a 68-year-old assistant manager at a Minnesota
convenience store who suffered from chronic back pain and a heart
problem. In the lawsuit, it was alleged that the company's
district manager told the store manager that Baucom's age and
health conditions were a "hindrance" and his hours should be
reduced. He also alleged that the store manager called him slow
and old and ridiculed him.
Baucom generally worked 43 to 45 hours weekly. When his hours were
cut to less than 40 hours a week - in effect, reducing the
overtime pay he normally received - the assistant manager sued the
employer under in U.S. District Court in Minnesota.
In addition to the change in hours, Baucom's schedule was changed
from working during the day with Sundays off to working nights and
weekends. He also received four "corrective action notices" from
the company for not requesting identification from a young person
purchasing tobacco, not providing adequate documentation for
medically related work absences, and other events.
After the lawsuit was filed, the employer reviewed Baucom's
performance and rated him "below standard." However, he received
additional training and the store manager noted improvement and
granted him a raise. He continued to be employed by the company as
the case went to court.
The District Court ruled against the
employee and eventually, the Eight Circuit Court of Appeals
agreed. Reason: The courts said Baucom failed to meet the
requisite burden of proof. Some of the findings:
1. Baucom was
unable to show that the scheduling change was caused by motives
other than the store managing its employees in the normal course
of business. His fluctuating hours, the court stated, reflected
"a normal retail employee's schedule, with many peaks and
valleys and rarely the same hours worked in consecutive weeks."
2. Some of Baucom's
reduced hours during the period in question were the result of
his voluntarily taking vacation and sick leave.
3. The company
"instituted a company wide policy to decrease labor costs
affecting all employees, including Baucom."
4. The court
concluded that the resulting overtime pay loss due to a
difference of a few hours work time doesn't constitute
discrimination. In other words, the impact on the employee was
minimal and in order to prove an adverse action, Baucom had to
prove a "material employment disadvantage."
Similarly, the court ruled that the
reduction in hours did not result from any retaliation towards
Baucom or create a hostile work environment. (Baucom, Jr. v.
Holiday Companies, Inc., No. 05-1393, 11/10/05)
Fuel
prices continue to affect delivery costs:
Rising fuel prices are continuing to have an impact on delivery
costs. UPS raised their fees substantially January 1st and
continue to impose fuel surcharges to each delivery. Courier
fees have risen as well along with fuel surcharges. U.S.
Mail prices also increased again effective 4/17/2011. We can all
understand why delivery companies must raise prices and there
appears to be no end in sight. It was predicted today
(4/22/2011) that gas prices could rise another 35% by this summer.
Not a good sign for a 'recovering' economy! Should the
predictions come true, you can expect delivery costs to continue
to rise.
How can we combat delivery costs?
Payrite offers a
'paperless' solution.
Your employee checks can be direct deposited and the employee
would have their own online access to their payroll records to
view or print copies of pay stubs. Employer reports are
viewable / printable online by a designated payroll administrator.
You may also elect to opt in to our DVD subscription service on a
monthly, quarterly or annual basis. This service provides
you a DVD with a copy of all reports and checks produced for the
year. Contact us for more information if you don't already
utilize these services.
Health
Savings Account limits announced for 2012:
With Health Savings
Accounts (HSAs), individuals and businesses buy less expensive
health insurance policies with high deductibles. Contributions to
the accounts are made on a pre-tax basis. The money can accumulate
year after year tax free, and be withdrawn tax free to pay for a
variety of medical expenses such as doctor visits, prescriptions,
chiropractic care and premiums for long-term-care insurance.
Participating employers can also contribute to accounts, on behalf
of their employees.
Here are the 2012
limits for individual and family coverage, announced by the IRS in
Revenue Procedure 2011-32. They are determined after the
IRS applies cost-of-living adjustment rules, and the changes in
the Consumer Price Index for the relevant period.
|
Health Savings Accounts |
2012 |
2011 |
|
Self-only coverage annual
minimum deductible |
$1,200 |
$1,200 |
|
Self-only coverage maximum out
of pocket |
$6,050 |
$5,950 |
|
Self-only coverage maximum HSA
contribution |
$3,100 |
$3,050 |
|
Family coverage annual minimum
deductible (Family coverage can include a spouse and any
dependents) |
$2,400 |
$2,400 |
|
Family coverage maximum out of
pocket |
$12,100 |
$11,900 |
|
Family coverage maximum HSA
contribution |
$6,250 |
$6,150 |
Questions and
Answers about overtime:
The federal rules governing overtime seem to
grow more complicated every year. To know who is entitled to
overtime pay and who is exempt from it under federal wage and hour
laws requires close examination.
Here are answers to questions you might have about how the current
rules apply to your business.
|
Note: These answers
discuss applications of the federal overtime rules.
Some states have rules that differ from federal rules.
Federal rules that are less favorable than state
rules do not apply in the state. Find out how your state law
treats employee overtime. |
|
|
Can You "Round Up" - or Down?
There's no
doubt about it. Overtime pay is a tricky issue. One recent case
illustrates how employers can get into trouble calculating
hours.
The FLSA allows an employer to round off hours worked, usually
to the nearest 15 minutes, but such practices must be equally
fair to both employer and employee. They cannot always result in
less pay for employees.
In 2004, a Michigan hospital paid nearly $910,000 in back wages
resulting from FLSA violations involving rounding and other
issues.
Employees of Mt. Clemens General Hospital who started work early
or worked late were only paid if they stayed a full 15 minutes.
Otherwise, the time was rounded to the nearest quarter hour.
After being notified by the Labor Department of possible
violations, the hospital performed a voluntary two-year audit.
It was also cited for other technical overtime violations when
employees received on-call and incentive payments for working
extra shifts. |
Salaried Employees
All of our office employees are paid salaries.
They usually work 40 hours a week. However, sometimes they put in
about 35 hours weekly and occasionally, they work up to 46 hours in
a week. Do we have to pay them overtime when they go over 40 hours?
Just because they're paid a salary instead of
an hourly rate doesn't make salaried employees exempt from overtime
pay. Salaried employees, who earn $455 weekly or more ($23,660
annually), and perform executive, administrative, or professional
duties (as defined in the federal rules) are exempt from overtime
pay. Salaried office employees who earn less than $455 weekly (or
less than $23,660 annually) and those who do not primarily perform
executive, administrative or professional duties are not
exempt from overtime pay.
Defining Exempt Duties
We understand that employees who are
executives, administrators and certain professionals are exempt from
overtime. However, in our business, these exempt employees sometimes
do tasks that really aren't typical of an executive, administrator
or professional. How can we make sure that we're treating these
employees correctly?
First, click
here for an overview from the Labor
Department about overtime. If you're still uncertain about applying
these rules, contact the Wage and Hour Division office of the U.S.
Department of Labor in your state or consult with your payroll or
human resources professional.
Regarding exempt employees who sometimes do work that really isn't
typical of a manager, executive, administrator, or professional, the
federal rules state that, to be exempt, employees' primary
duties must be executive, managing, administrative, or professional
in nature. According to the federal rules, "Determination of an
employee's primary duty must be based on all the facts in a
particular case, with the major emphasis on the character of the
employee's job as a whole."
Computer-Related Jobs
Our company has computer employees on salary.
Is this still appropriate under the current rules?
Yes, if the type of computer work they do qualifies for exempt
status and if you pay them enough. Here's a summary of
computer-related duties that qualify an employee for exempt status:
1.
The application
of systems analysis techniques and procedures to determine
hardware, software or system functional specifications. This
includes consulting with users.
2.
The design,
development, documentation, analysis, creation, testing or
modification of computer systems or programs, based on and related
to design specifications.
3.
The design,
documentation, testing, creation or modification of computer
programs related to machine operating systems.
4.
A combination of
the above duties, which require the same level of skills to
perform.
If you pay an employee doing these types of
computer tasks at least $455 per week, or you pay at least $27.63
hourly, the employee is exempt from overtime pay.
Sales Personnel
Our sales people spend most of their time calling on customer
accounts outside of our office. They've always been paid a base
salary, plus commission. Can we keep on paying them this way under
the current rules?
Outside sales people are exempt from overtime and can be paid on a
salary-plus-commission basis, if:
-
Their primary duties are making sales, or
obtaining orders or contracts.
-
They customarily and regularly do this work
away from your place of business.
Note: The minimum salary requirement for an exempt employee
does not apply to outside sales reps.
Salaried and Nonexempt
Many of our company's employees who have always been exempt from
overtime are now nonexempt because they are paid less than the
stipulated amount - even though they perform exempt-type duties.
Some of them feel they've been demoted. They seem to equate being
exempt with management. Any suggestions on how to handle this?
For some people, being salaried is prestigious and more
important than earning a little more occasionally in overtime. For
these employees, the answer is simple: Continue to pay them a
minimum guaranteed salary just as you have been. But also pay them
overtime pay for any overtime hours worked (based on their hourly
rate, their salary divided by 40 hours). Of course, you can only use
this strategy if you are willing to guarantee a weekly salary, even
when the employees work less than 40 hours in a week.
If their annual salaries were close to $23,660 a year ($455 a week)
in the past, you could raise their salaries above this amount. Then,
as long as their duties continue to be those of an exempt employee,
they will continue to be salaried and exempt.
Deductions from Exempt Salaries
In the past, if our business made deductions from an exempt
employee's salary for almost any reason (except paid vacation and
paid time off), we ran the risk of the employee losing exempt
status. If, for example, we wanted to discipline salaried employees
by making deductions from their paychecks, we could get into serious
trouble. Now that the rules have changed, can we make disciplinary
deductions from an exempt person's salary without getting penalized?
The general rule hasn't changed. If an
employer makes deductions from an exempt person's salary, similar to
the kind made in nonexempt employees' pay, the employee is being
treated as a nonexempt employee and the exempt status is lost. In
other words, an exempt employee is entitled to his or her full
salary for any week that work is performed, regardless of the number
of hours.
Since the rules changed, an employer can suspend an exempt employee
without pay for serious conduct violations (such as sexual
harassment or workplace violence). Your company can discipline with
partial-week suspensions, without pay, for misconduct. These type of
suspensions and discipline actions do not put the exempt status in
danger.
Remember: By making unauthorized deductions from an exempt
employee's salary, an employer risks losing not just the
individual's status but also the status of the entire class of
exempt employees at the company.
For protection from liability for possible improper deductions from
exempt salaries, employers must:
1.
Clearly communicate a policy prohibiting improper salary
deductions.
2.
Include in the policy a complaint mechanism.
3.
Reimburse employees for improper deductions.
4.
Make a good-faith commitment to comply in the future.
[NOTE: Information and guidance in these
articles are intended to provide interesting and helpful information
on the subjects covered. It is not intended to provide a legal
service for readers' individual needs. For legal guidance in your
specific situations, always consult with an attorney who is familiar
with employment law and labor issues.]
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