DOL Reverses Previous Classification of Mortgage Loan Officers

April 21st, 2010 § 0

On March 24, 2010, the Department of Labor’s Wage and Hour Division issued an Administrator’s Interpretation effectively reversing a 2006 Department Opinion in which it had found that mortgage loan officers were generally exempted from the pay requirements of the Fair Labor Standards Act (“FLSA”).  In the recently-issued Interpretation, the Department concluded that mortgage loan officers are not ordinarily covered by the administrative exemption to the minimum wage and overtime pay provisions of FLSA.

Though this Interpretation only directly applies to banks and other lenders, who will need to revise their pay practices for mortgage loan officers, employers in other industries should also take note because the reversal and the manner in which it was issued signals a fundamental shift in how the agency will work with employers seeking assistance with classification.  First, the substance of the Interpretation highlights the Department’s willingness to re-evaluate its approach to exemption classifications.  And second, as noted in a prior blog post, it reveals that the Department, going forward, will not respond to specific inquiries lodged by employers.

Banks and lenders should take note that the March 24th Interpretation did not address a prior, but apparently still valid, Administrator opinion finding that the “outside sales exemption” (as opposed to the administrative exemption) may apply to certain mortgage loan employees.  Thus, banks and lenders are encouraged to consider applying that analysis to the positions in question as it would appear that at least some will fall under that exemption.

Although the views of the DOL are often cited by the courts as being persuasive, those views are not technically binding on the courts, so it remains to be seen how much deference the courts will afford the DOL’s new position.  What is clear, is that the DOL’s 2006 opinion no longer provides a safe harbor for classifying mortgage loan officers as exempt from the pay requirements of FLSA.  Employers of who previously classified mortgage loan officers as exempt should re-evaluate the classifications in light of the “outside sales” exemption or revise their pay practices for these employees.

Department of Labor’s Wage and Hour Division Abandons Use of Opinion Letters

April 10th, 2010 § 0

Employers have traditionally and frequently relied on the Department of Labor Wage and Hour Division’s “Opinion Letters” in their efforts to comply with increasingly complex wage and hour laws.  In seeking guidance from the Wage and Hour Division, employers would present specific factual situations and the Division would provide specific guidance based on those concrete factual situations.  Just as important, if not more important to the employer, by receiving such an Opinion from the Division, the employer was provided with an “absolute good faith defense” to liability.

In a March 24th release, the Wage and Hour Division explained that it will no longer provide situation-specific Opinion Letters in response to employer inquiries.  Instead, the Division will periodically release “Administrator’s Interpretations” on issues or concerns that it believes requires addressing.  Unlike Opinion Letters, the Interpretations will “set forth a general interpretation of the law and regulations, applicable across-the-board to all those affected by the provision at issue.”  Employers with specific questions, therefore, will be referred to statutes and regulations for guidance.

While technically under 29 U.S.C. § 259, the new Interpretations qualify for the absolute “good faith defense,” it will now be harder for employers to plausibly assert such a defense.  This is because Administrator Interpretations will not rely on particularized facts submitted by an employer concerning a given position but will be based upon the Division’s generalized assumptions concerning the duties of a given position.  Since exemptions to the FLSA’s overtime and minimum wage requirements depend on an employee’s “actual job duties,” reliance on a generalized Administrator Interpretation may not be appropriate let alone defensible.

Also problematic for employers is that whereas in the past employers could reasonably and reliably turn to the DOL for timely guidance on pressing classification issue through an Opinion Letter request, now the Division will release Administrator Interpretations at its discretion, when it determines that clarification may be needed.

Notably, employers may still rely on previously-issued Opinion Letters in their compliance efforts, so long as these opinions are not superseded by new authority. The new Administrator’s Interpretations, however, provide guidance that is considerably less clear.

In all cases involving compliance with the FLSA and other employment statutes, it is worth consulting counsel when in doubt.

Employers’ Compliance with CHIPRA – Model Employer CHIP Notice Released

March 22nd, 2010 § 2

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) earlier this year released the model Employer Children’s Health Insurance Program (CHIP) Notice. The Notice, required under the Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA), is intended to assist employers in complying with their notification requirements to employees about possible opportunities for premium assistance and receiving medical coverage under an employer’s group health benefit plan. See EBSA Web Site.

Notice Content

The CHIP Notice conveys to employees basic information about premium assistance programs through Medicaid or state Children’s Health Insurance Programs in certain specific states. The Notice is intended to provide information about the availability of premium assistance, a Health Insurance Portability and Accountability Act (HIPAA) special enrollment right that may be triggered by eligibility for premium assistance, and a list of contact information for specific state Medicaid and CHIP agencies, current as of February 2010. The EBSA intends to update the model notice annually so as to keep the contact information accurate. See the DOL’s Model Notice.

Effective Dates

The CHIP Notice must be provided by: (1) May 1, 2010 for plan years that begin between February 4, 2010 and May 1, 2010; or (2) the first day of the plan year for any plan year starting after May 1, 2010 (January 1, 2011 for calendar year plans).

Distribution and Timing Requirements

The Notice must be sent to all employees who reside in states that offer premium assistance programs through Medicaid or CHIP, regardless of their enrollment status. An employer is subject to the notice requirement if it provides medical coverage to employees who reside in such states, without regard to the employer’s location. The Notice must be provided automatically and free of charge on an annual basis. The Notice may be distributed with annual enrollment and new hire packages ahead of the effective date.

Is Your Independent Contractor Really An Employee?

March 16th, 2010 § 0

For the first time in twenty-five years, the IRS began a comprehensive audit of employment tax issues last month.   This newly-initiated audit will transpire over a three-year period and when completed, will affect over 6,000 companies across the country.  Although we understand that the main issues to be examined are worker classification, executive compensation, and taxable fringe benefits; we anticipate that worker classification will undergo the most scrutiny.  Accordingly, we focus here solely on worker classification and the factors the IRS will consider in evaluating whether an accurate classification was made.

An effective worker classification analysis should begin with answering the following two threshold type questions:

  • Does the company pay one or more employees to perform essentially the same duties as the subject worker who is treated as an independent contractor?
  • Has the subject worker previously been paid by the company as an employee to perform essentially the same task?

If the answer to either of these questions is yes, the worker most likely will be deemed an employee for classification purposes.

Beyond these threshold questions, fundamentally, the IRS will allow independent contractor classifications only when the company hiring the contractor can show that it lacks the necessary control over the worker that otherwise would indicate an employer-employee relationship.  As part of the audit, therefore, the IRS will consider the following 20 factors in order to determine whether the company has “control” over the worker or workers in question:

  1. Instructions. A worker who is required to comply with another person’s instructions re: when, where, and how to perform work is likely an employee.
  2. Training. Training a worker indicates that the company wants the services performed in a particular method or manner, which indicates control.
  3. Integration. Integration of the worker’s services into the company’s core business operations suggests that the worker is subject to direction/control.
  4. Services Rendered Personally.  Where a worker must personally perform services for the company, control by the company is indicated. Alternatively, if a worker is free to engage others to perform the service for the company (i.e., subcontractors), lack of control is indicated.
  5. Hiring, Supervising and Paying Assistants. If the worker is unable to hire, supervise, and pay assistants to perform services for the company in the worker’s stead, control is indicated. By contrast, a lack of control is indicated when the worker is able to hire his/her own assistants and pay them from his/her own funds.
  6. Continuing Relationship. A lengthy and continuous relationship between the worker and company suggests an employment relationship.
  7. Set Hours of Work. If the worker works certain hours set by the company, employment status is indicated. Where hours are not controlled or set by the company, independent contractor status is indicated.
  8. Full Time Required. If the worker must devote substantially full-time to the company’s business, control is indicated.
  9. Work Performed on Employer’s Premises. If the work is performed on the company’s premises, the company is considered to have control, especially if the work could be done elsewhere. Control is also indicated when the company has the right to compel the worker to travel a designated route, to canvass a territory within a certain time, or to work at specific places.
  10. Order or Sequence Set. If a worker must perform services in the order or sequence as determined by the company, the worker is generally subject to an employer’s control. But if the worker chooses his/her own method for completing a job, a lack of control exists.
  11. Oral or Written Reports. A requirement that a worker submit regular or written reports is an indicator of control.
  12. Payment by Hour, Week, Month. Hourly, weekly or monthly payments generally point to an employment relationship. On the other hand, payments based on a contract or for completing a particular job or task will generally indicate an independent contractor relationship.
  13. Payment of Business and/or Traveling Expenses. If the company ordinarily pays the worker’s business and traveling expenses, the worker is ordinarily an employee.
  14. Furnishing of Tools and Materials. If the company furnishes significant tools, materials, or other equipment, an employment relationship is indicated.
  15. Significant Investment. If the worker does not invest in his/her own facilities, control is indicated because the worker depends on the company.
  16. Realization of Profit or Loss. A worker who cannot realize a profit beyond an ordinary salary or suffer a loss is generally considered an employee.
  17. Working for More Than One Firm at a Time. If the worker cannot perform services for more than one company at a time, the company generally controls the worker. A lack of control, however, is indicated when the worker is allowed to perform services for multiple companies simultaneously.
  18. Making Service Available to General Public. If a worker is not free to advertise his or her services to the general public on a regular basis, control is indicated. Workers who advertise their services are generally considered independent contractors.
  19. Right to Discharge. The right of the company to discharge a worker without breaching a contract indicates an employment relationship as control is exercised through the threat of dismissal.
  20. Right to Terminate. If the worker has the right to end his or her relationship with the company at any time without incurring liability, an employment relationship is indicated.

See Rev. Rul. 87-41;  see also IRS Form SS-8. None of these factors are singularly determinative. Instead, all factors should be considered in making an accurate determination.

It is important to understand that the various state revenue and labor departments are also concerned with worker misclassification and have been increasing enforcement over classification at varying speeds. The worker classification analysis used by many states will differ substantially from the 20-factor test used by the IRS.  This means that different classifications can result based on the same facts.  Accordingly, the IRS could, for example, determine that a worker is rightfully classified as an employee when another agency could determine that that same employee should be classified as an independent consultant.

If your company uses independent contractors and you have classification questions after reviewing this 20-factor test, either at the federal or state level, please contact HR COMPLIANCE SOLUTIONS at info@hrcs.biz or 720-283-1021.  We specialize in conducting attorney-client-protected audits and devising corrective strategies.

180 Employers Receive Notices of I-9 Inspections

March 11th, 2010 § 0

The Department of Homeland Security’s Immigration and Customs Enforcement (“ICE”) agency announced that it is issuing notices of inspection to review the hiring records of 180 businesses throughout the southeast.  See ICE Announcement.  The notices alert business owners that ICE will inspect their I-9 forms and other hiring records to determine whether the employer is in compliance with employment-eligibility-verification laws and regulations.

The 180 notices of inspection result from a relatively new enforcement strategy designed to focus on auditing and investigating employer compliance practices. Issuance of these notices evidences the agency’s commitment to establishing a meaningful I-9 inspection program to promote compliance with the law.

Employers should be mindful that raids by immigration officials and criminal prosecution can ensue if the government discerns or finds I-9 violations. The best strategy to mitigate the risk of inspection and the potential application of criminal or economic sanctions is to manage your I-9 files through proactive employee file management and review, and the implementation of other processes to comply with ICE’s regulations. HR COMPLIANCE SOLUTIONS is here to assist with I-9 audit, employee file reviews and overall compliance management.