flsa compliance

7/31/2019 FLSA Compliance

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Gerard P. Panaro, Esq.Of Counsel

Howe Hutton, Ltd.

Avoiding Pitfalls with FLSA Compliance

and Employee Timekeeping

Anna M. Hofmeister, CPA

Partner Outsourced Services

Tate & Tryon CPAs and Consultants

May 9, 2012


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Agenda

9:0010:15 am: Gerard P. Panaro, Esq., Of Counsel, Howe & Hutton

Overview of FLSA Requirements

Understanding Exempt vs Non-exempt employee classifications

The difference between employees and independent contractors

Common FLSA compliance issues for nonprofits

10:1510:25 am: Break

10:2511:20 am: Anna Hofmeister, CPA, Partner, Tate & Tryon

Best Practices in time and record keeping

Best practices in producing meaningful and accurate personnel costinformation

11:20 pm11:30 am: Questions?


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Fair Labor Standards Act:Classes of exempt employees:

There are eight categories:

1. Executives (those who manage the business,supervise 2 or more people)

2. Administrators (those who exercise independent

judgment and discretion on matters of importanceand who work in a line of the business (e.g., finance,facilities management, food service, etc.))

3. Professionals (e.g., in-house counsel, CPA, doctor

(but not bookkeepers; not nurses (generally)))4. Computer programmers (two exemptions: 1) paid at

least $455/wk or 2) paid at least $27.63/hr (theequivalent of about $57,500 a year))

Gerard P. Panaro Howe Hutton 1901 Pa Av NW DC 20006 301-518-9267 (cell) 202-466-7252 x 102 (o) [email protected]


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Fair Labor Standards Act:Classes of exempt employees:

There are eight categories (contd):

5. Creative or artistic people (but not necessarilygraphics people or copyeditors or proofreaders)

6. Highly compensated employees (those who dowork such as the foregoing, but make at least$100,000 a year)

7. Teachers or instructional employees

8.

Athletic coaches



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Criteria for exemption as an executiveemployee:

1. Compensated on a salary basis at a rate of not lessthan $455 per week

2. Whose primary duty is management of the enterprise inwhich the employee is employed or of a customarily

recognized department or subdivision thereof;3. Who customarily and regularly directs the work of two

or more other employees; and

4. Who has the authority to hire or fire other employees or

whose suggestions and recommendations as to thehiring, firing, advancement, promotion or any otherchange of status of other employees are givenparticular weight.



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Criteria for exemption as an administrativeemployee

1. Compensated on a salary or fee basis at a rate of notless than $455 per week

2. Whose primary duty is the performance of office ornon-manual work directly related to the management or

general business operations of the employer or theemployer's customers; and

3. Whose primary duty includes the exercise of discretionand independent judgment with respect to matters ofsignificance to the business. This means acting withminimal supervision and being able to commit theorganization.



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Exercise of discretion and independentjudgment:

In general, the exercise of discretion and independentjudgment involves:

1. The comparison and the evaluation of possible courses ofconduct, and

2. Acting or making a decision after the various possibilitieshave been considered

3. The exercise of discretion and independent judgmentimplies that the employee has authority to make anindependent choice, free from immediate direction orsupervision.

Matters of significance refers to the level of importance orconsequence of the work performed.



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In evaluating whether the requisite discretion and independentjudgment exists, the following job duties should beconsidered:

[01.] Whether the employee has authority to formulate,affect, interpret, or implement management policiesor operating practices;

[02.] Whether the employee carries out majorassignments in conducting the operations of the

business;[03.] Whether the employee performs work that affectsbusiness operations to a substantial degree, even ifthe employees assignments are related to operationof a particular segment of the business;

[04.] Whether the employee has authority to commit the

employer in matters that have significant financialimpact;

[05.] Whether the employee has authority to waive ordeviate from established policies and procedureswithout prior approval;



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In evaluating whether the requisite discretion and independentjudgment exists, the following job duties should beconsidered:

[06.] Whether the employee has authority to negotiate andbind the company on significant matters;

[07.] Whether the employee provides consultation orexpert advice to management;

[08.] Whether the employee is involved in planning long

or short-term business objectives;[09.] Whether the employee investigates and resolves

matters of significance on behalf of management;and

[10.] Whether the employee represents the company inhandling complaints, arbitrating disputes orresolving grievances.



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What discretion and independent judgmentdoes notmean:

Must be more than the use of skill in applying well-established techniques, procedures or specificstandards described in manuals or other sources.

Does not include clerical or secretarial work,recording or tabulating data, or performing othermechanical, repetitive, recurrent or routine work.

An employee who simply tabulates data is notexempt, even if labeled as a statistician.



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What discretion and independentjudgment does notmean:

Matters of significance do not mean merely thatthe employer will experience financial losses if theemployee fails to perform the job properly.

Employee who operates very expensive equipmentdoes not exercise discretion and independentjudgment with respect to matters of significancemerely because improper performance of theemployee's duties may cause serious financial loss

to the employer.



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Examples of exempt/nonexempt administrativejobs

Clerical duties are nonexempt:

Data entry for accounts payable and accounts receivable;

Modifying account names/attributes in accounting

software; Word processing;

Sending notices;

Receptionist duties; Ordering routine office supplies

(DOL Field Operations Handbook).



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Meeting planner/Events coordinator is exemptadministrative position

There is no question that a meetings planner orevents coordinator meets the criteria for exemptadministrative status. According to the DOL FieldOperations Handbook (Rev. 661, revised 11/29/2010),

managers of convention and visitors service salesare exempt



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Criteria for exemption as a professionalemployee:

1. Compensated on a salary or fee basis at a rate of notless than $455 per week

2. Whose primary duty is the performance of work:

a. Requiring knowledge of an advanced type in a field

of science or learning customarily acquired by aprolonged course of specialized intellectualinstruction; or

b. Requiring invention, imagination, originality ortalent in a recognized field of artistic or creative

endeavor.



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Criteria for exemption as a computer employee

1. Computer systems analysts, computerprogrammers, software engineers or other similarlyskilled workers in the computer field

2. Compensated on a salary or fee basis at a rate of

not less than $455 per week or3. Compensated on an hourly basis at a rate not less

than $27.63 an hour



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Criteria for exemption as a computer employee

4. Primary duty consists of:a. The application of systems analysis techniques and

procedures, including consulting with users, to determinehardware, software or system functional specifications;

b. The design, development, documentation, analysis,creation, testing or modification of computer systems orprograms, including prototypes, based on and related touser or system design specifications;

c. The design, documentation, testing, creation or

modification of computer programs related to machineoperating systems; or

d. A combination of the aforementioned duties, theperformance of which requires the same level of skills.



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Computer network, internet and databaseadministration is an example of work directlyrelated to management or general businessoperations and will therefore qualify as an exempt

administrative position



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On the other hand, information technology (IT)support specialists is not an exempt position, as faras the DOL is concerned.

According to the DOL Field Operations Handbook:

An IT Support Specialist (renamed from Help Desk Support Specialist)who is responsible for the diagnosis of computer-related problems,conducts problem analysis and research, troubleshoots, resolvescomplex problems either in person or by using remote controlsoftware, and ensures timely closeout of trouble tickets is not exempt

as an administrative or professional employee.



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Case Study

Heffelfinger v. Electronic Data Systems Corp., 580 F.Supp.2d 933(C.D.Cal., 2008)

Held: Information technology workers were exempt employees

Nature of work:

The information technology workers worked at different customer locationsand were charged with writing code, programming, and administeringdatabases or networks

Workers did more than only installing and troubleshooting computersystems. One employee was responsible for the design and integrity ofdatabase structures for a customer

Employee suggested various architectures and presented representationsof network design which the customer accepted upon the employee'srecommendations approximately 50 percent of the time

Second employee served as a technical team lead for a project which washighly visible, important, and critical to the customer's business operations.



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Criteria for exemption as highly compensatedemployee

An employee with total annual compensation of atleast $100,000 is deemed exempt if the employeecustomarily and regularly performs any one or moreof the exempt duties or responsibilities of an

executive, administrative or professional employee



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Employee vs. Independent contractor

FLSA uses an economic reality test.



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Factors to be considered:

1. The degree of control exercised by the employerover the workers

2. The workers' opportunity for profit or loss and theirinvestment in the business

3. The degree of skill and independent initiativerequired to perform the work

4. e permanence or duration of the workingrelationship

5. The extent to which the work is an integral part ofthe employer's business



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Factors to be considered (contd):

6. No one factor standing alone is dispositive andcourts are directed to look at the totality of thecircumstances and consider any relevantevidence.

7. [T]he final and determinative question must bewhether the total[ity] of the [circumstancesconsidered] establishes the personnel are sodependent upon the business with which they areconnected that they come within the protection ofthe FLSA or are sufficiently independent to lieoutside its ambit.



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Opportunity for profit/loss. The appropriate inquiry has to dowith relative investments, with control over larger aspects ofthe business, and with like forms of initiative.

Degree of skill/initiative. Does work require extensive skill,training, and expertise?

Permanence /duration of relationship. The more permanentthe relationship, the more likely it is that a court will find aworker to be an employee.

Work integral part of business. Focus is on the work, not theindividual persons role. Courts consider this factor because

independent contractor relationships often involve work that isnot integral to the businessfor example, if a pipe bursts anda plumber is hired to fix it, the plumber would typically be anindependent contractor



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Interns and the FLSA

The Test For Unpaid Interns:1. The internship, even though it includes actual operation of the

facilities of the employer, is similar to training which would begiven in an educational environment;

2. The internship experience is for the benefit of the intern;3. The intern does not displace regular employees, but works

under close supervision of existing staff;

4. The employer that provides the training derives no immediateadvantage from the activities of the intern; and on occasion

its operations may actually be impeded;5. The intern is not necessarily entitled to a job at the conclusion

of the internship; and

6. The employer and the intern understand that the intern is notentitled to wages for the time spent in the internship.


Addi i l l i f f i


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Additional explanation: factors for/againstintern status (1)

1. In general, the more an internship program isstructured around a classroom or academicexperience as opposed to the employers actualoperations, the more likely the internship will be

viewed as an extension of the individualseducational experience (this often occurs where acollege or university exercises oversight over theinternship program and provides educationalcredit).


Addi i l l i f f / i


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2. The more the internship provides the individualwith skills that can be used in multiple employmentsettings, as opposed to skills particular to oneemployers operation, the more likely the intern

would be viewed as receiving training.3. Under these circumstances the intern does not

perform the routine work of the business on aregular and recurring basis, and the business is not

dependent upon the work of the intern.


Additi l l ti f t f / i t


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4. On the other hand, if the interns are engaged in theoperations of the employer or are performing productivework (for example, filing, performing other clerical work,or assisting customers), then the fact that they may bereceiving some benefits in the form of a new skill or

improved work habits will not exclude them from theFLSAs minimum wage and overtime requirementsbecause the employer benefits from the interns work.

5. If an employer uses interns as substitutes for regular

workers or to augment its existing workforce duringspecific time periods, these interns should be paid atleast the minimum wage and overtime compensation forhours worked over forty in a workweek.




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6. If the employer would have hired additionalemployees or required existing staff to workadditional hours had the interns not performed thework, then the interns will be viewed as employees

and entitled compensation under the FLSA.7. Conversely, if the employer is providing job

shadowing opportunities that allow an intern tolearn certain functions under the close and

constant supervision of regular employees, but theintern performs no or minimal work, the activity ismore likely to be viewed as a bona fide educationexperience.




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8. On the other hand, if the intern receives the samelevel of supervision as the employers regularworkforce, this would suggest an employmentrelationship, rather than training.



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WHD Advisory Opinion Letter on Volunteers

9. The internship should be of a fixed duration,established prior to the outset of the internship.

10. Further, unpaid internships generally should not beused by the employer as a trial period forindividuals seeking employment at the conclusion

of the internship period.11. If an intern is placed with the employer for a trial

period with the expectation that he or she will thenbe hired on a permanent basis, that individualgenerally would be considered an employee underthe FLSA.

U.S. Department of Labor/Wage and Hour Division (April 2012)

Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act



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WHD Advisory Opinion Letter On Volunteers

1. Person is volunteer provided the services are not thesame type of service the employee is employed toperform and take place outside of the employeesnormal working hours.

2. The FLSA recognizes the generosity and public benefitsof volunteering and allows individuals to freelyvolunteer time to religious, charitable, civic,humanitarian, or similar non-profit organizations as apublic service.

3. Such a person will ordinarily not be considered anemployee for FLSA purposes if the individual volunteersfor such organizations without contemplation or receiptof compensation.



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WHD Advisory Opinion Letter On Volunteers

4. Paid employees may not volunteer to perform the sametype of services for their employer that they arenormally employed to perform.

5. The employee must also be a bona fide volunteer who

performs the services for civic, charitable, orhumanitarian reasons without coercion or unduepressure.

Source: FLSA2006-18 (June 2, 2006)



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Stipends for volunteers:

1. A volunteer may receive no compensation, but may be paidexpenses, reasonable benefits, or a nominal fee.

2. A fee would not be considered nominal if it is, in fact, a substitute forcompensation or tied to productivity.

3. Generally, a key factor in determining if a payment is a substitutefor compensation or tied to productivity is whether the amountof the fee varies as the particular individual spends more or less timeengaged in the volunteer activities.

4. If the amount varies, it may be indicative of a substitute forcompensation or tied to productivity and therefore not nominal.

5. Generally an amount not to exceed 20 percent of the totalcompensation that the employer would pay someone for performingcomparable services would be deemed nominal.

Source:http://www.dol.gov/whd/opinion/FLSA/2008/2008_12_18_16_FLSA.pdf



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Common FLSA compliance issues for nonprofits

Misclassification of employees as exempt

Misclassification of workers as independentcontractors

Misclassification of workers as interns orvolunteers

Use of comp time

Improper timekeeping; accounting for overtime


Recordkeeping requirements for nonexempt


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Recordkeeping requirements for nonexemptemployees (1):

1. Name

2. Home address, including zip code

3. Date of birth, if under 19

4. Sex and occupation in which employed

5. Time of day and day of week on which the employee's

workweek begins

6. Regular hourly rate of pay for any workweek in which

overtime compensation is due7. Explain basis of pay by indicating the monetary amount paid

on a per hour, per day, per week, per piece, commission on

sales, or other basis




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8. The amount and nature of each payment which is excludedfrom the regular rate

9. Hours worked each workday and total hours worked eachworkweek

10. Total daily or weekly straight-time earnings or wages due forhours worked during the workday or workweek, exclusive ofpremium overtime compensation

11. Total premium pay for overtime hours

12. Total additions to or deductions from wages paid each payperiod including employee purchase orders or wageassignments

13. The dates, amounts, and nature of the items which make upthe total additions and deductions




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14. Total wages paid each pay period

15. Date of payment and the pay period covered by payment

16. Record and preserve, as an entry on the pay records, theamount of retroactive payment of wages/compensation paid

under supervision of WHD to each employee, the periodcovered by such payment, and the date of payment

17. Prepare a report of each such payment

18. Preserve a copy as part of the records

19. Deliver a copy to the employee20. File the original with the WHD within 10 days





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21. With respect to employees working on fixed schedules, anemployer may maintain records showing instead of the hoursworked each day and each workweek, the schedule of dailyand weekly hours the employee normally works

22. In weeks in which an employee adheres to this schedule,

indicates by check mark, statement or other method that suchhours were in fact actually worked by him

23. In weeks in which more or less than the scheduled hours areworked, shows that exact number of hours worked each dayand each week

Source: 29 CFR 516.2


Recordkeeping req irements for e empt


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Recordkeeping requirements for exemptemployees (1):

1. Name2. Home address, including zip code

3. Date of birth, if under 19

4. Sex and occupation in which employed

5. Time of day and day of week on which the employee's workweekbegins

6. Total wages paid each pay period

7. Date of payment and the pay period covered by payment

8. The basis on which wages are paid in sufficient detail to permitcalculation for each pay period of the employee's totalremuneration for employment including fringe benefits andprerequisites




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Records to be kept for three years:

Payroll records.

Certificates, agreements, plans, notices, etc.(collective bargaining agreements, plans, trusts,employment contracts, individual contracts, written

agreements or memoranda summarizing the termsof oral agreements or understandings,

Sales and purchase records.




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Records to be kept for two years:

Basic employment and earnings records. All basictime and earning cards or sheets

Wage rate tables

Order, shipping, and billing records



Where records show insubstantial or


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Where records show insubstantial orinsignificant periods of time

1. In recording working time under the Act, insubstantial orinsignificant periods of time beyond the scheduled workinghours, which cannot as a practical administrative matter beprecisely recorded for payroll purposes, may be disregarded

2. This rule applies only where there are uncertain and indefinite

periods of time involved of a few seconds or minutesduration, and where the failure to count such time is due toconsiderations justified by industrial realities

3. An employer may not arbitrarily fail to count as hours workedany part, however small, of the employee's fixed or regular

working time or practically ascertainable period of time he isregularly required to spend on duties assigned to him

4. 10 minutes a day is not de minimis




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Use of time clocks (1)

Time clocks are not required

Employees who voluntarily come in before their regularstarting time or remain after their closing time, do nothave to be paid for such periods provided, of course,

that they do not engage in any work.

Their early or late clock punching may be disregarded

Minor differences between the clock records and actual

hours worked cannot ordinarily be avoided, but majordiscrepancies should be discouraged since they raisea doubt as to the accuracy of the records of the hoursactually worked



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Use of time clocks (2)

1. Rounding practices. There has been the practicefor many years of recording the employees' startingtime and stopping time to the nearest 5 minutes, orto the nearest one-tenth or quarter of an hour

2. For enforcement purposes this practice ofcomputing working time will be accepted

3. But it must not result, over a period of time, infailure to compensate the employees properly forall the time they have actually worked




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Speaker Biography

Gerard P. Panaro, Esq. is of counsel to Howe &Hutton, Ltd. in its Washington, D.C. office. He hasover 30 years of experience in the practice ofemployment law and representation of nonprofitorganizations in the District of Columbia and Maryland.

Jerry advises tax-exempt organizations and smallbusinesses and negotiates on their behalf on mattersrelated to employment, corporate and tax matters,antitrust and administrative law. He is the author ofEmployment Law Manual (1998), and writes anewsletter on employment law for Aspen/Panel Press.

He also does writing, training and seminars onemployment law matters for clients and has donewebinars for BankersonLine.com.

Gerard P. Panaro, Esq.Of Counsel

Howe Hutton, Ltd.Washington DC - Chicago IL

- St. Louis MO

Mobile: 301-518-9267Office: 202-466-7252 x 102

E-mail: [email protected]

O i


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Overview:

Accounting requirements

Reliable financial information

Effective & efficient internal controls

Grant requirements

What to look for in timekeeping & payrollsystems

A i R i


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Accounting Requirements

Reasonable

Consistent

Timesheets

Estimates

R li bl Fi i l I f ti


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Reliable Financial Information

Labor is often the largest expenditure

Daily time recording

Signed by the employees and approved by their

supervisors

Payroll recorded based on timesheets

Benefits recorded based on personnel

Well documented and communicatedprocedures

Eff ti I t l C t l


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Effective Internal Control

Following should occur and have confidence ofstaff that it is in operation:

Time is tracked accurately

Transactions are authorized and approved

Segregate the timekeeping, payroll preparation,payroll approval, and payment functions

Information is properly and promptly retained

Applicable risks are weighed to ensure errorsand omissions are minimized

Eff ti I t l C t l ( )


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Effective Internal Control (continued)

Meet needs of users

Monitor the results/outputs for accuracy

Clearly written and communicated policies andprocedures setting forth responsibilities

Applying available technology and concepts to

achieve efficiency and effectiveness

G t R i t


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Grant Requirements

Acceptance of grant creates legal obligation

OMB Circulars

Grant agreement

G t R i t


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Grant Requirements (continued)

Overview Segregate federal grant/contract program costs

Support all payroll and fringe benefit costs

Consistent application

Ensure no expenses claimed were misused

Administrative or financial capability to managegrant/contract funds

Awareness to document labor expenditures

G t R i t


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Personnel Activity Reports: Must reflect after-the-fact determination of true activity

Must account for total activity for which employee iscompensated

Must be signed by the employee and responsiblesupervisor

Approvals must be visual with an audit trail

Must be prepared daily and coincide with one or morepay periods

Must reconcile to dollars charged to grant/contract

Grant Req irements


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When Audited

Substantiate federal grant/contract expenditures.

Appropriate timekeeping procedures are in place

Procedures are documented Appropriate accounting and payroll tracking system in

accordance with government agency directives are inplace

Efficient Internal Control


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Efficient Internal Control

Weigh cost vs. benefit of processes and detailsrequired

Integrated timesheet, payroll and accountingsystems

Reminders

Programmed approval process

What to Look for in a Tracking System


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What to Look for in a Tracking System

Compliance with applicable legal requirements

Compliance with grant requirements

Reliable financial information

Be effective

Be efficient

What to Look for in a Tracking System ( t )


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What to Look for in a Tracking System (cont.)

Multiple approvers

Lock out codes

Deactivate codes

Adjust rates based on hours worked

Export capabilities

Syncing to other systems

What to Look for in a Tracking System ( t )


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What to Look for in a Tracking System (cont.)

Remote access

Reminders

Reports

Back-ups

Questions?


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Questions?

Speaker Biography


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Speaker Biography

Anna. M. Hofmeister, CPA is the partner in charge ofTate and Tryons Outsourced Accounting Servicesdepartment and has more than 20 years of experienceservicing the accounting, consulting, audit, and tax needsof the nonprofit industry. She is responsible foroverseeing all phases of our outsourced accountingengagements.

In her role as an interim or permanent CFO, Ms.Hofmeister frequently presents to finance committees andboards of directors on topics such as financial results, keyperformance indicators, improving financial performance,cash flow projections, cost allocations, U.S. and foreign

operations and unrelated business income. Some of themost notable clients she oversees include the AlexanderGraham Bell Association for the Deaf and Hard ofHearing, American Association of Poison Control Centers,Global Health Council, and National Court ReportersAssociation

Anna M. Hofmeister, CPAPartner - Outsourced ServicesTate & Tryon CPAs andConsultantsDirect: 202-419-5103E-mail:[email protected]
mailto:[email protected]://www.tatetryon.com/http://www.tatetryon.com/mailto:[email protected]

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