September 1, 2015
By Sarah H. Lamar, as published in the September/October 2015 issue of The Georgia Contractor
Every Georgia employer is required to comply with workforce regulations dictated by the Internal Revenue Service (IRS), the U.S. Department of Labor, the Georgia Department of Labor, and the Department of Homeland Security, among others. Often, businesses are not aware that they are out of compliance, and those oversights can be costly. A business owner’s best means of preventing serious repercussions from government investigations and lawsuits is to conduct regular internal self-audits to identify and rectify issues before they are flagged by a regulating agency. Although there are many valuable self-audits, here are my top five:
Are workers correctly identified?
It’s crucial that workers are correctly identified as either employees or independent contractors. The U.S. Department of Labor, IRS, and Georgia Department of Labor all have specific guidelines for how workers must be treated based on this determination, and there are serious penalties for getting it wrong.
Independent contractors generally work only when their services are required and use their own materials, know-how, and methods for getting the job done. On the other hand, employees typically have a regular schedule, receive training and equipment from the employer, and report to a manager who often closely supervises not only the employees’ work product but also the means by which employees accomplish their duties. To label workers properly, employers must take into consideration all aspects of the job and how it is performed, as opposed to relying on a precedent set by other organizations or even the company’s own past practice. Further guidelines for making the distinction between independent contractor and employee may be found on the IRS, U.S. Department of Labor, and Georgia Department of Labor websites.
Are employees appropriately classified?
Once a worker has been identified as an employee, there are important considerations to be made under the Fair Labor Standards Act (FLSA). The FLSA is the federal law that requires that employers pay employees minimum wage and overtime for all hours worked over 40 in a given workweek. In addition, the FLSA provides for certain “white-collar” exemptions from these requirements. It is the employer’s burden to prove that these exemptions apply. The decision to make an employee exempt from the minimum wage and overtime regulations must be made intentionally based on specific facts and an understanding of the FLSA – not just because it has always been done that way.
Identifying an exemption can be complex, and job title alone is not enough to qualify an employee for an exemption. Workers must meet certain guidelines regarding their duties and must be paid a minimum salary of at least $455 a week, which is generally not subject to deductions for the quantity or quality of work. (Note that The U.S. Department of Labor has recently proposed increasing this minimum salary to $970 a week). Three main white-collar exemptions exist. The “executive” exemption applies to supervisors and managers, but not working foremen, whose primary duty is managing two or more full-time employees or their equivalent (for example, four part-time employees). The term “primary duty” generally means more than 50% of the employee’s time is spent on the exempt activity. The “administrative” exemption applies to office employees who use their independent judgment and discretion on matters of significance relating to the operations of the employer’s business or its customers. Typical administrative exempt employees include the CFO, office manager, or human resources director. This is probably the most misunderstood exemption of all. Just because someone works in an office, like a secretary, does not mean she is exempt, even if the employee receives a salary as opposed to an hourly rate of pay. The “professional” exemption covers degreed professional employees such as engineers, CPAs, doctors, lawyers, and architects as long as they actually perform exempt work. Remember, titles don’t matter. The “janitorial engineer” is still the housekeeper! There are additional exemptions for creative professionals, computer professionals, outside salesmen, highly compensated employees who make at least $100,000 a year, and still more industry based exemptions.
Fact sheets are available on the U.S. Department of Labor website to help clarify these exemptions. Incorrectly classifying a worker as exempt can result in legal disputes over actual time worked and years of back pay for overtime hours. Cracking down on improper exemptions is a priority for the IRS and the U.S. Department of Labor, which is very active in investigating employee complaints of misclassification.
Are all Forms I-9 complete?
The Form I-9 is required for every new employee working in the United States. The purpose of the I-9 is to ensure the employee is who he/she says he/she is and is authorized to work in this country. Each employee must fill out section 1 of the I-9 on his/her first day of work, and the employer must complete the remainder of the form within three days. Business owners should conduct a self-audit to ensure that they have fully executed and completed Forms I-9 for all employees and that the information contained therein is accurate.
The Form I-9 is a complicated two-page document, and it is easy to make mistakes in filling it out. Government, through U.S. Immigration and Customs Enforcement (ICE), can fine businesses for each erroneous form. Even simple mistakes can aggravate the fine and turn an incorrect form into a serious legal violation. In fact, any individual who signs section 2 of the form on behalf of the company is doing so under penalty of perjury. Ultimately, criminal penalties can apply if the employer is found to have knowingly hired illegal workers. It bears noting that in more than 20 years of legal practice I have never found 100% I-9 compliance in any government or self-audit!
These are all federal considerations, but here in Georgia there is an additional requirement to use the U.S. Department of Homeland Security’s Electronic Employment Verification System, commonly known as E-Verify. Employers with more than 10 employees are required to use this online system, which checks federal government databases to determine whether an employee is eligible to work in the United States. E-Verify can make identifying immigration problems faster and easier, but it also adds a layer to already complex immigration regulations.
Is the job application complete and legal?
Business owners should also self-audit their application forms, both online and paper versions.
There are many questions employers are legally barred from asking under the Americans With Disabilities Act, Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, and the Immigration and Nationality Act, among other federal statutes.
The application should not ask about an applicant’s age, other than asking if the applicant is under 18 in order to comply with child labor laws. Asking about an applicant’s race, sex, religion, and family obligations is also improper. In addition, an application must not inquire about existing medical issues that may impact the applicant’s work or whether the applicant is pregnant.
In Georgia it is still legal for private employers to ask if the applicant has ever been convicted of a crime, though there is a national “ban the box” movement to abolish this practice. Governor Nathan Deal recently signed an executive order that prohibits questions about criminal history on applications for state jobs, except for certain safety sensitive positions.
Is the employee handbook adequate?
An employee handbook can not only provide valuable information to employees about company practices and procedures, but also offer many avenues of legal protection for the employer. However, if the employee handbook is not prepared thoughtfully with input from an employment attorney before implementation, the handbook can end up being the company’s Achilles Heel. In this regard, many federal employment laws require certain written policies be included in an employee handbook, such as a policy under the Family and Medical Leave Act, an FLSA pay deductions policy, a “Safe Harbor” policy under the Genetic Information Non-Discrimination Act, and an Unlawful Harassment Policy under Title VII of the Civil Rights Act.
Additionally, if employers intend to limit worker privacy and reserve the right to search employees’ things, subject them to drug tests, read employee emails, and more, it’s essential that these intentions be clearly stated in writing so that workers do not have a false expectation of privacy in the workplace.
Finally, it is critical that the employee acknowledge receipt of the handbook in writing. An employee handbook offers little protection if the employer can’t prove that the employee received it. The acknowledgment of receipt should be placed in each employee’s personnel file. A periodic self-audit will reveal whether any acknowledgments are missing.
Although these self-audits take time to complete, performing them as a preventative measure is far preferable to being exposed in a government audit or lawsuit where damages, penalties, attorney’s fees, and significant time, aggravation, and even bad press can result. I suggest consulting with your company’s employment attorney and getting started today!
