Category: Business Law Blog

Labor Law: What You Need to Know About the Latest Changes

On January 12, 2020 the U.S. Department of Labor (“DOL”) released its long-awaited final rule  updating its regulations regarding joint-employer status under the Fair Labor Standards Act (“FLSA”). The FLSA’s joint-employer regulations had not been substantively amended in over sixty years. This new rule becomes effective March 16, 2020.

The final rule gives employers greater guidance and clarity when determining if a joint-employer relationship exists. The DOL has now adopted a four-factor balancing test to evaluate whether the purported is a joint employer. This test assesses whether the employer:

  • Hires or fires the employee;
  • Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  • Determines the employee’s rate and method of payment; and
  • Maintains the employee’s employment records.

It is important to note, that no single factor is dispositive in determining joint-employer status, but instead the factors are weighted based on the facts of each case. The final rule states that to be a joint employer under the FLSA, the other actor must actually exercise – directly or indirectly – one or more of the four factors.

The final rule includes a number of examples illustrating the application of the four-factor test, providing for practical guidance to employers who may have joint employment concerns based on their company structure and business relationships with other companies.

In addition to the DOL issuing its final rule on this topic, the National Labor Relations Board (“NLRB”) released a final rule on February 26, 2020 setting forth standards for joint-employer status under the National Labor Relations Act. The NLRB’s final rule will be effective April 27, 2020.

In light of these final rules, it is important for employers to seek counsel in any situation where joint employment is possible.

All employers need to make sure their payroll practices are compliant. Doing so will protect your business from costly lawsuits. If you would like help reviewing your employee classifications, or if you have any other employment law questions, you can contact us here. 

Avoiding Constructions Lawsuits

3 Tips for Avoiding Lawsuits in the Construction Industry

The construction industry faces unique challenges. Disputes over quality, timing and non-payment are common between project owners and contractors. But, the good news is there are several strategies your company can use to avoid costly lawsuits. Review the list below to learn how you can protect your construction company.

1 – Clear Communication is Key 

If you want to avoid disputes with clients, employees and competitors, good communication is essential. You should always take time to clarify expectations and make a habit of doing the following.

  • Never over promise.
  • Keep the promises that you make. However, if you cannot keep your promise for some reason, let the person know. Offer a plan on how you will resolve the issue and make it right. Call first, then follow up with an email detailing the agreed-upon terms to resolve the issues.
  • Don’t avoid difficult situations or conversations. Avoidance is more likely to cause the problem to escalate.
  • Evaluate how your tone may be perceived. And remember that email or text messages can make it difficult to effectively convey your desired tone.
  • Don’t be afraid to swallow your pride. Doing so could help you resolve an issue before it becomes a legal matter.
  • Evaluate and enforce best practices regarding how your employees should communicate.

2 – Make Documentation a Priority – especially when it comes to change orders

To help protect yourself and your business, take time to document important communications and commitments. A few best practice tips for keeping appropriate documentation:

  • Don’t do handshake deals. All contracts should be committed to writing – even if it’s a simply one-page agreement setting forth the most basic terms, like price, scope and timing.  In particular, when dealing with change orders, it is especially important to get everyone’s approval in writing.
  • Be sure to have key customer contracts reviewed by counsel, in order to help you understand the relevant provisions. It is also best to hire legal counsel for, at a minimum, reviewing and/or drafting of custom deal contracts, settlement agreements, employee handbooks, document retention policies, sexual harassment policies, and non-compete agreements.
  • Be sure to have counsel review your company’s standard contracts every 2 to 3 years.
  • Save only what is important, such as contracts, loan documents, key documents underlying contracts and relevant negotiations, proof of payment, calendars, and tax information.

Important note – If you are anticipating business litigation, you must implement a litigation hold (also known as a preservation order or hold order).  Once you know of the existence of a dispute or even a potential dispute, save all information. The loss of relevant evidence because of failure to institute a litigation hold can result in negative sanctions against you by the Court in any related litigation.

3 – Protect Yourself: Review your insurance, business formation and employee classifications regularly. 

Insurance isn’t a popular topic of conversation, but it is an important aspect of risk mitigation especially in the construction industry. Review the following points to help ensure your business is accurately covered.

  • Make sure that all current policies are correct and appropriate for your organization.
  • Investigate your options with multiple brokers.
  • Determine if the insurance company you are working with focuses on your niche business needs. Are they industry-specific to you?
  • Understand your potential need for multiple types of policies, including general commercial liability, errors and omissions, auto, property, workers comp, product liability, and other riders/endorsements.
  • Understand the obligations you owe to your insurance company, such as notice requirements, providing documents and cooperating fully in any investigation. Don’t settle with the other side without first getting your insurance company involved if you expect your insurance company to contribute funds toward the settlement.

Business Formation – Occasionally, business owners are surprised to learn their business structure is not aligned with their type of work. To help minimize liability, you should engage counsel to help determine the appropriate corporate entity for your business. You will also want to keep corporate records, annual reports and minutes if your business formation requires it. Make sure to follow all the formalities of your business structure in order to ensure protection from personal liability. And don’t commingle funds or use the company bank accounts as your personal piggy bank!

Employee classifications and wage issues – The Fair Labor Standards Act and the US Department of Labor (DOL) have established strict criteria for determining how your employees must be paid. On January 1, 2020 the DOL announced an updated overtime and salary level threshold. It’s important your company stays up-to-date and adheres to all labor laws.  Unfortunately, many employers (especially in the construction industry) haven’t correctly classified their independent contractors and employees or are engaging in “banking” of hours that directly violates the overtime laws. Often employees are thought to be exempt from receiving overtime pay when they actually should have non-exempt status and be paid 1.5 times for any overtime hours earned each week. Payroll errors can lead to potential lawsuits (including class actions) from either past or present employees.

To learn more about business litigation and how you can proactively protect your construction business, you can contact us here or call us at 920-996-000.

Is Your Health Care Practice Socially Savvy?

Health care companies are operating in a technology-driven world. Patients expect access to your practice through technology, including social media. Today, over 94% of hospitals have an active Facebook page, and an increasing amount also use additional social media platforms to reach their current and potential patients. A practice’s lack of or unsavvy social media presence may even have patients looking for a provider with a more robust online presence.

Why your social strategy matters

Ten years ago, patients would turn directly to their physician for medical advice. Today, they turn to the internet for online research and advice through their social networks. Research shows, 73% of millennials use the internet as their primary, even only, source of health information, and nearly half of adults in our country rely on the internet for healthcare decision making. Having a health care social media strategy is vital, and few simple steps can help physicians better reach and engage with their patients, ultimately improving quality of care and even decreasing readmission rates.

  • Identify your goals and target patient audience.
  • Set a time commitment and decide how often you’ll post.
  • Partner with your staff to educate customers with multimedia content. This is an opportunity to answer common patient questions, share relevant health alerts, provide accurate information in an area inundated by inaccurate and often risky content, and strengthen your brand by creating trust.
  • Engage in conversations around healthcare policy and practice issues, allowing your practice to proactively manage patient expectations and relationships.
  • Engage with influencers to share your content.
How to create an effective and compliant social strategy

An important consideration in building a socially savvy practice, is utilizing employees to expand your social media presence. But with this, comes the need to protect patient privacy. Developing a solid social media policy will ensure your staff understands the dos and don’ts as it relates to using technology to communicate about work. This policy should cover both materials posted on the practice’s social media platforms as well as employees use of personal social media related to work-related posts. Such policies ensure compliance with HIPPA and HITECH and safeguard protected health information (PHI) and confidential business information (e.g. vendor agreements, marketing plans, employee files, etc.). And then, don’t forget, you must balance all of this with the employees legally protected rights under the National Labor Relations Act (NLRA).

Build out a clear and concise social media policy, having a trusted attorney review. A well-crafted social policy can limit the risks associated with employee electronic media use, while allowing health care providers to take advantage of technology. This policy should include:

    • What the policy applies to (e.g. work-related posts only, or also personal posts related to the medical practice)
    • Technology covered – list applicable social media sites while being broad enough to allow for changes in technology
    • Unacceptable activities – inform employees what social media activities would result in a violation of the policy (e.g. giving specific medical advice, sharing PHI, acknowledging a physician-patient relationship, revealing confidential business information, etc.)
    • Compliance and enforcement – outline how the organization will ensure compliance with the policy and consequences of a violation.

Once your policy is drafted, you’ll also need to: 

  • Develop employee training on the topic.
  • Make sure all employees receive, read, understand and sign off on the policy.
  • Train employees, giving specific examples and hypotheticals.
  • Enforce the policy consistently and fairly, thoroughly documenting any violations and disciplinary action.
  • Provide annual refresher training.
  • Update the policy when necessary, as social media, labor law, and HIPPA regulations are all subject to change.

Social media is an important tool for your practice. It’s essential that you understand how to leverage the benefits while still mitigating the risks. Having a social media policy in your employee handbook is an important first step. For questions or concerns about your handbook and social media policy, you can always email us here or call us at 920-996-1000.

 

More Educational Opportunities for Health Care Practices

Lunch and Learn – Complying with DOL Laws

The health care field has been under strict scrutiny about their payroll practices. The Department of Labor (DOL) announced an updated overtime and salary level threshold rule that took effect on January 1, 2020. To protect against the threat of litigation, it’s imperative that health care companies take a pro-active approach.  Join us for a free lunch and learn. We’ll review the changes to the law, share best practices and answer your questions about how you can protect your practice.

Wednesday, March 4 2020 at 12 PM – 1 PM 

Epiphany Law, 2800 East Enterprise Ave, Appleton WI 54913

Register Now

Data Privacy

5 Data Privacy Tips for Business Owners

Essential tips for cyber security and managing associated legal risks

Having information about clients and customers is important to the health of any business. More important, however, is how businesses ensure that private information remains secure. Technology can be a business owner’s best friend, especially in today’s ever evolving digital world. It can help streamline processes, better collect and store data, and improve customer service efforts. Although this technology greatly aids businesses, it also increases the size of the target on their back for hackers and cyber attacks.

To help combat cyber attacks and ensure data privacy for customers, it is crucial for businesses to have basic security measures in place and abide by a set of cybersecurity best practices. Here are five tips for protecting your business and ensuring data privacy:

1. If you collect it, protect it.

Follow reasonable security measures to ensure that customers’ and employees’ personal information is protected from inappropriate and unauthorized access. Invest in the most current security software, operating systems, and web browsers to defend against malicious hacks. Outdated programs are easier to infiltrate, so regularly updating a system strengthens its defenses against malware and viruses. More importantly, have in-house accountability. Putting up-to-date procedures in place for maintaining the security of the company’s network and software is key. Should a security breach occur, existence of such procedures can make a difference in the company’s liability.

2. Know what you’re collecting and don’t collect what you don’t need.

When collecting client and consumer information, be aware of all the personal information you have, where you are storing it, how you are using it, and who has access to it. Understand the kind of assets you have and why a hacker might pursue them. The more valuable information you have, the bigger a target you might be. Avoid using social security numbers or other personal information for customer identification. Opt instead for log in identification and passwords. More layers of identification help keep attackers from being able to simulate users. Ask consumers only for information needed for the delivery of the company’s service or product and consider deleting personal information that you don’t really need.

3. Have a strong privacy policy.

Whether you are an online or brick-and-mortar business, customers need to know that you are protecting their information. Make sure you have a policy they can refer to explaining how you are keeping personal information safe. Make sure you are straightforward with customers about the consumer data you collect and what you do with it. Being honest with them will help you build consumer trust and show you value their data and are working to protect it.

4. Educate employees.

Employees are often the handlers of customer data. To best protect themselves, businesses must ensure their employees know about the latest threats so they do not unwittingly hand over consumer information. Regularly communicating with employees about best practices and implementing in-house data handing procedures and policies can protect consumer privacy. Best practices can interrupt phishing schemes and ransomware attacks, among other threats.

5. Check the Security of Service Providers.

A business can implement and abide by the best data and security practices and hackers can still compromise consumer privacy if the business works with service providers who do not take reasonable safety precautions. Should this happen, the business would be held accountable. Therefore, companies must carefully vet who handles their consumer data and ensure their practices follow the highest safety standards.

If you would like to learn more about how you can protect your business, you can contact us here or call our office at 920-996-0000.

We’re Growing – Proudly Introducing Epiphany Law’s New Partnership Team

Epiphany Law is proud to be “Just Different.” We’ve never operated like a traditional law firm. Instead, we’ve always taken steps to make sure the firm’s and client’s incentives are aligned. Epiphany Law’s mission is to help families, business owners and entrepreneurs achieve their goals. We’re proud to announce our partnership team is growing. This growth will better empower Epiphany Law to live out our mission.

Epiphany Law is now co-owned by attorneys Kevin Eismann, Katie Blom, Heather Macklin and Rob Macklin. All attorneys are equal partners in the practice and share ownership responsibilities. Over the last 15 years, Epiphany has proven to be an innovative leader in serving the business community and individuals in northeast Wisconsin.

Kevin Eismann explains, “Epiphany Law started as a boutique firm, giving us the flexibility to offer our clients more time and attention. We took a different approach than the other, big law firms. We created genuine partnerships with our clients and worked together to achieve their business goals. None of that has, or will change. But, over the past 15 years, the business community has changed. It’s evolved. There’s more talent, better technology and stiffer competition. We’ve evolved too. Epiphany Law’s new partnership model gives our clients more options and resources. It better empowers our clients to succeed in today’s business landscape.”

Meet the Partners

Rob Macklin 

Rob Macklin has over 20 years of experience offering businesses top-notch legal service and practical, actionable advice. Rob started with Epiphany Law in July of 2019 and in his previous roles he served as General Counsel to several successful companies, ranging from $5 million to $1 billion in global revenue. In addition, Rob took time from his legal career to serve with the US Navy as part of Operation Iraqi Freedom, running intelligence operations for SEAL Team 8. As a trained lawyer, small business owner and Department of Defense certified interrogator, Rob’s diverse skill set can help you navigate any challenge your business may face.

Heather Macklin

Heather Macklin is an experienced commercial litigator and joined Epiphany Law in 2018. Over the last 20 years, Heather has represented clients across a broad spectrum of industries, including financial institutions, construction, real estate developers and small, closely held corporations. Heather understands that corporations are not in the business of litigation, but sometimes litigation is unavoidable.  When commercial disputes do arise, she believes in a pro-active, focused and well-prepared strategy, designed with the goal of finding a practical and economic resolution, so her clients can quickly get back to their primary business objectives. When early resolution cannot be achieved, however, she will diligently and aggressively represent her clients’ best interests.

Kathryn Blom

Katie Blom is a business attorney and trusted legal adviser and has served as a partner at Epiphany Law since 2013. Katie has a proven track record of putting her clients in the best position possible and she enjoys the challenge of using her legal skills to help clients achieve their goals. A large portion of Katie’s practice focuses on mergers and acquisitions as well as business transition planning. Katie has been an essential part of Epiphany Law’s success in the past and in her new role, she will ensure Epiphany Law continues to live out its mission and values while pursuing excellence.

Attorney Kevin L. Eismann

 Kevin Eismann is the founding partner at Epiphany Law. As a business owner, Certified Exit Planning Advisor, as well as an attorney, he brings a unique, multi-point perspective to his clients that’s invaluable. Kevin enjoys building comprehensive strategies that protect his client’s long-term best interests. Kevin understands the true talent of an advisor is in understanding not only the legal issues, but also how the legal issues fit into the business as a whole.  Kevin’s approach to the law has set Epiphany apart from other, traditional law firms. As Epiphany Law continues to grow and evolve, Kevin’s vision for superior client service will remain the same.

Tax Preparedness in a Sale of a Private Company

I recently had the opportunity to participate in a webcast with four amazing experts on the topic of Business and Tax Preparedness in a Sale of a Private Company.  My fellow experts, Louis Vlahos, Cynthia Romano, Vanita Spaulding and Alex Kasdan were specialists in investment banking, business valuation, restructuring and process improvement and tax law – I was asked on as the corporate law expert.

The focus of the program was how to maximize the value of your business in a sale context.  What was amazing to me was the remarkable underlying consistency of all of the experts in one key area – the time to start preparing for a sale is long before an offer comes along.

Each expert, from the tax lawyer to the process improvement expert was convinced that the only real way to maximize your businesses value was to conduct your business with the ultimate end goal – a transition – in mind.  Whether you are planning to sell your business today or not, there’s a good chance that you’ll get an unsolicited offer in the future – and the future might be sooner than you think.  So it’s critical to ensure that your business is ready to transact, even if you don’t have present plans.  For certain issues, like tax elections, the IRS might look back five years or more in time before deciding whether to honor your election.  For other critical items – like succession planning and talent development – you’ll need a long time to train your team to be ready to run your business.  And from a corporate law perspective, you certainly want to avoid contracts that might pay dividends today, but lock you into a bad deal for the future when a potential buyer comes along.

How then, can you make your company completely “transaction ready”?  While tax preparedness certainly plays a part, that’s a much longer question than we have time for here. There are a number of things to consider and explore.  So, watch out for an upcoming article with some ideas on how to get started with that. In the meantime, you can check out the full webcast here.

You can also contact us with any questions you may have. Our office phone number is 920-996-0000 or you can email us here.

 

Family Business Services

What’s going to happen to the family business?

Are you the owner of a family business? Then, you probably already know you face unique challenges that other companies don’t have to worry about. And, those challenges only grow more intense as you start thinking about an exit strategy.

More than 70% of businesses put on the market never sell.   That’s 70% of those put on the market, don’t sell.  And countless more businesses never even get listed but rather die quietly due to an owner’s unexpected death or illness.

Only 34% of family businesses survive to the 2nd generation.  That’s 2 out of 3 never successfully make it from mom and dad to the kids.  And only 14% of family businesses survive to the 3rd generation.

Why?  Simple:  Failure to properly plan for the succession of the business to a buyer/next generation and failure to plan for the successful exit of current owners.

Bottom line: Business owners wait too long to begin planning for this HUGE transition. It’s a major issue afflicting our society, and one that will only grow over the next decade as hundreds of thousands of baby boomers look to sell.

As we well know, the first step in solving any problem is recognizing there is one. In the case of the aging business owner, the simple act of talking openly with someone about exit planning can spark action. And action can mean the difference between a seamless transition at fair value or a disastrous failure. If you are a loving spouse, child, parent, friend or confidant of a business owner that is avoiding tackling exit planning for their business, this article is written for you. As this tsunami swells, it is critical that you – the child, the spouse or the close friend – assume a vital role: Starting the Conversation.

Whether you are the business owner, next in line for a business succession or simply a concerned loved one, here are some tips for starting the conversation :

  1. Have empathy. It’s the ability to understand someone else’s feelings, attitudes, and perspectives. The ability to “put yourself in someone else’s shoes”. Start by opening your mind to think about the situation exclusively from their side. Think about how they feel about their business. Think about the hours they put into it, the hard times they have endured, and the success they have achieved. Respect and embrace those thoughts, and keep them with you as you talk.
  2. Treat it like a business meeting. This is a BIG deal. Do not treat it as you would if you were talking about last weekend’s college football games. Don’t bring up in passing or with playful jests. Doing so diminishes the importance and may provide an avenue for the owner to continue avoiding the topic. Set aside time for this conversation, as you would with an important business matter. Ensure there are no distractions. Doing so will set the tone that it is a serious conversation. You words will instantly come across as more sincere and genuine.
  3. Prepare yourself. Come into it with a list of things you would like to say and questions you would like to ask. Mentally, have an open mind and be prepared to listen. Emotionally, try to remain neutral so they can express themselves completely.
  4. Understand your ideal outcome. The ideal outcome may be lightly different for everyone having this conversation, but it generally looks something like this:
    • You effectively express your own concern and love for this business owner.
    • You are able to ask a few questions.
    • You schedule a time to revisit the conversation at a later date (with more information, a 3rd party, after serious thought).
  5. Don’t be discouraged if they aren’t ready. It is very likely that they won’t be ready to open-up the first time you talk. Don’t be discouraged! Be respectful of their process for dealing with this, and focus on committing to another time to talk in the future (a couple weeks later). The business owner will probably think and process extensively over the next couple weeks, before coming to your next meeting much more prepared.
  6. Seek the help of a 3rd party — eventually. Not for the first meeting – you may risk blindsiding and/or offending the business owner. You want them to open up, not shut down. However, assuming an initial conversation went well, you may suggest having a 3rd party present for subsequent meetings in order to help facilitate discussion. Look for their most trusted advisor – whether a financial planner, banker, accountant or attorney. If they don’t have a most trusted advisor, look for a Certified Exit Planning Advisor (CEPA), as they have a deep understanding of common concerns, as well as strategies to move forward.
  7. Just do it. We all want to avoid having the difficult conversations – its human nature. Most will avoid it, ignore it, and make excuses not to do it. Be one of the few. You aren’t doing it for yourself, you’re doing it for someone you care about. Someone who is woefully unprepared. Someone who’s future happiness depends on you Starting the Conversation. Your choices will make the difference between implementing a successful exit or the destruction of a lifetime of work.

Thinking about the future can seem overwhelming. But, it doesn’t have to. At Epiphany Law, we partner with our clients and their families to help them find the best path forward. We are known for helping family business owners navigate complex issues and find innovative solutions. To learn more about how we can help your family business write its next chapter, call us at 920-996-0000 or contact us here.

SCAM ALERT: Payment Fraud Warning

It is no secret that schemes and scams designed to fraudulently separate you from your money abound.  Every day it seems we learn of new and creative ways criminals have devised to defraud innocent people. Sometimes the schemes are brand new, sometimes they are recycled.  Whether new or old, however, they can hurt the people who fall prey to them.

Recently, we have learned that banking institutions have seen increased activity surrounding a fraud scheme that has been around for a while.  You may be aware of this particular scheme, but we believe it can’t hurt to remind you to be vigilant and use best practices to protect yourself from fraud.

Here’s how the scam plays out.

You receive a fraudulent email or letter disguised as one of your current suppliers.  In the communication, the “supplier” informs you that they have recently changed their payment processes or their banking relationship and provides new wiring, ACH or other payment information to be used on all future orders.  The communication seems entirely legitimate, so you direct your accounting department to input the changes and your next payment is made accordingly.  Unfortunately, the criminals now have your money and it will be withdrawn from the account before you catch on and can get it back.

How you can protect yourself.

ALWAYS double-check directly with your suppliers BEFORE you change any information in your company’s payment system.  Make a phone call directly to a trusted contact at your supplier to confirm whether the communication and new payment instructions are legitimate or not.  A phone call to a direct contact is better than email.  Email can be hacked and/or redirected.  A phone call will take only minutes but will provide you with significant protection against scams.  It will also signal to your suppliers that you are vigilant and care about your relationship with them.

Long story short: Do NOT make any changes to how you pay your suppliers or vendors until you first confirm with them that the change of payment instruction is legitimate.

Fraudsters often target businesses, trying to steal money or personal information. Make sure your business is taking proper steps to avoid scams. Employee education and cyber security are paramount  for defending your business from fraud.

 

About the Author

Heather Macklin

Heather J. Macklin is an experienced corporate litigator. She has spent her legal career helping businesses and business owners find practical and economic resolutions to legal disputes. You can learn more about Heather here.

Partnering Together to Fight Breast Cancer

Pictured Above: Epiphany Law team at the Real Men Wear Pink Guest Bartending Event

I often say moving to northeast Wisconsin was one of the best decisions I’ve made. It has been a great place to raise my five boys, make a career and a home. There is a real partnership between the public and business community here and I am proud to be a member of both. Good corporate citizenship is important, that’s one of the reasons I was excited to participate in The Real Men Wear Pink campaign supporting northeast Wisconsin’s American Cancer Society (ACS).

Over the years, several of my friends, clients and employees have been affected by cancer. Research from the U.S. Department of Health and Human Services tells us that 1 in 8 women will get breast cancer at one point in their lives.

Because of the donations given to the ACS, they can continue their important work. Here’s just a few examples of what they’ve accomplished so far.
  • $59M invested in breast cancer research grants
  • 5M free rides have been provided to treatment
  • 40K patients guided through the complex health care system by ACS patient navigators
  • 5M breast cancer patients were provided one-on-one support services

When I was approached to be one of the community leaders representing The Real Men Wear Pink campaign, I was glad for the chance to give back. I believe businesses and business owners need to have a collaborative partnership with their community. And, this campaign is a great example of what we can achieve when we work together for an important cause.

This community has been my home for over 25 years. I’m grateful the American Cancer Society is working to attack cancer from every angle and make our area an even better place to work and live.

Attorney Kevin Eismann

 

About the Author

Kevin Eismann is a business attorney and owner of Epiphany Law, LLC. Epiphany Law’s mission is to positively impact lives through education, empowerment and an innovative approach to solving problems. Kevin was proud to join the fight against breast cancer this past October and participate as one of the business community leaders in the Real Men Wear Pink Campaign.

Compliance with the Fair Labor Standards Act is Good Business

Have you heard about the Department of Labor’s latest rule change? In this week’s blog, Epiphany Law attorney Sarah Coenen breaks down what the Fair Labor Standards Act means for your business.

Q: Can a salaried employee be entitled to overtime pay?

A: In general, regardless of whether an employee is paid an hourly or salary rate, he or she may be entitled to overtime pay. The Department of Labor (“DOL”), however, created an exemption under the Fair Labor Standards Act (“FLSA”) allowing certain employees to be exempt from receiving overtime pay.

Q: How do you know if an employee is qualified for the exemption?

A: To qualify for this exemption, the employee must:

  1. be salaried, meaning that he or she is paid a predetermined and fixed salary not subject to reduction because of variations in the quality or quantity of the work performed;
  2. be paid at least a specified weekly salary level; and
  3. primarily perform executive, administrative, or professional duties, as defined in DOL regulations.

Q: How will the Department of Labor’s 2019 update affect the rule?

A: The update raises the annual standard salary level from $23,660 to $35,568. This equates to the weekly rate increasing from $455 to $684. Therefore, an employee must have an annual salary level above $35,568, to be exempt from receiving overtime pay.

Q: Does the DOL update affect highly compensated employees (HCEs)?

A: Yes, the rule also increases the total annual compensation level for highly compensated employees (“HCEs”) from $100,000 to $107,432. HCEs are employees whose primary duty includes office/non-manual work and who customarily/regularly perform one or more of the exempt duties of an executive, administrative, or professional employee. For example, an employee may qualify as an HCE if he or she customarily and regularly directs the work of two or more other employees, even though he or she does not meet all of the other requirements in the standard exemption test.

Q: Are employers allowed to use commissions and incentive pay toward the employee’s salary?

A: Yes, the rule allows employers to use nondiscretionary bonuses and incentive pay (including commissions) to satisfy no more than 10 percent of an employee’s salary in order to qualify that employee under the exemption.

Q: What happens if the employee has not earned enough in nondiscretionary bonuses and incentive payments to retain his or her exempt status?

A: Then, the rule allows for the employer to have a “catch-up” payment at the end of the 52-week period. If the employer does not make up the “shortfall” during that one pay period, the employee is entitled to any overtime pay earned during the previous 52-week period.

Q: When does the new rule go into effect?

A: The new rule goes into effect on January 1, 2020.

Q: Why does this matter for me?

A: If you have any employees who are receiving a salary rate, you will need to re-evaluate those employee classifications to ensure that your business is in compliance with the new Fair Labor Standards Act rules by January 1, 2020.

Epiphany Law attorney’s can help you make sure your business is protected. For more information, contact us here.

Employment and Compliance Attorney
Sarah Coenen

About the Author

Sarah M. Coenen is an experienced business attorney with Epiphany Law. She focuses her practice on employment services including non-competition agreements, employee handbooks, compliance, hiring and termination. Sarah enjoys educating and empowering her clients to help them achieve their personal and business goals. You can learn more about Sarah’s background here.