10:02:53 Good, good. Thanks for joining us. 10:02:41 This is our third series like to thank everybody for joining us. This is a great topic, I mean, employee. 10:02:57 It looks like we may have lost, Joe. Well that's all right what I will do is that, we will certainly if we get him back, get. We'll have him check in, but I do want to be respectful of everybody's time this morning. 10:03:10 And so with that, 10:03:17 Joe, I think we lost you there for a second you back on now looks like. 10:03:26 And it looks like you're muted So Joe maybe what we'll do is we'll go ahead and dive into the presentation. 10:03:32 Yeah I'm back, bad, bad Wi Fi take it over Paul Thank you. Sure. Not a problem. 10:03:38 Well, so we're going to talk today about misclassified workers. This is something that I find as an HR professional. A lot of employers do and a lot of them are doing it totally unintentional right they have the best of intentions with classifying workers, 10:03:56 but it can be a challenge because there are a lot of different rules regarding that. And we get a lot of these rules from the Fair Labor Standards Act, so I'm going to spend a little bit of time recapping what that was and what is in that law. 10:04:10 Then we're going to spend a lot of time talking about exempt versus non exempt employees. Right. I think this is probably out of all the sort of confusing things that I deal with this major professional people don't necessarily understand the specific 10:04:25 distinctions between an exempt and a non exempt employee fact, I'm going to talk about one of the biggest myths that is out there about exempted non exempt employees. 10:04:37 We're going to go through some examples of exemption tests. Now I want to be very clear about these exemption test. 10:04:45 When you are looking at whether an employee is exempt or non exempt. There are a number of factors that come into play. 10:04:53 I'm going to be giving an overview today about some of the things that are included in those tests. 10:04:58 We have exempt versus non exempt worksheet that you can help that you can fill out that will help you figure that out and so at the end of the presentation today I'll have my email address. 10:05:10 Up on the screen, and I am happy to share those exemption worksheets, with everybody. 10:05:16 So, keep in mind, we're going to review a highlight of what is in there today, but what I present today in the presentation is not going to be all inclusive, just for the sake of time. 10:05:27 So present that highlighted version of those exemption test, and then the actual worksheets will be available. 10:05:34 If anybody wants them following the presentation. 10:05:38 Then we're going to talk about is somebody an independent contractor or an employee, and what are the different requirements that an employer has or responsibilities and employer has to an employee versus an independent contractor and why that's such 10:05:52 a big deal. 10:05:55 All right, then we'll spend the last couple of minutes today going through some discussion and I'm happy to answer any questions that come in via the chat. 10:06:03 So with that, let's go ahead and dive in and let's talk about misclassification. So I mentioned, there are many rules and regulations that govern the responsibilities that an employer has their workers, right, we can think of all this is a safe work environment. 10:06:18 Right. You have rules and regulations talking about pay you have rules and regulations talking back hours that somebody can work. Right. so there's all these different rules and regulations that are out there, having to do with compensation and hours, 10:06:35 but also control. 10:06:37 Right. As an employer, you have a lot of control over your employees. Right. and so in exchange for that control over their actions and their behavior, you have some responsibilities to them. 10:06:52 Because we have all these rules and regulations out there, we sometimes end up with workers being classified incorrectly. 10:07:00 And this can lead to several problems for an organization, not the least of which is possible fines penalties back pay for Miss classifying and employee. 10:07:13 Right. 10:07:13 There can be constant tax consequences to not classifying an employee properly. 10:07:19 Right, so there's a lot of risk and what we're here to talk about today's risk management, how do you manage that risk. And so, not having them classified properly is a major risk, we want to talk today about how can I make sure that my employees are 10:07:33 classified properly. Right. I want to make sure that by the end of today's presentation. You sign off from the webinar and said well I've got a good idea now exempt versus non exempt I have, you know, a hand on a handle on that. 10:07:48 I've got an idea of who is and who isn't an independent contractor, and hopefully you'll say yourself. 10:07:54 Well, boy, we're in great shape. All of our employees are classified right, or you might say, you know what, we need to take a look at certain people maybe it's a department, maybe it's an individual, where you say I'm not quite sure we have them classified 10:08:08 properly and then what can we do moving forward, to make sure they're classified properly. 10:08:14 So, the first misclassification that I'm going to talk about today is probably the biggest one. and that's exempt versus non exempt employees. 10:08:25 So, some employees out there are subject to overtime provisions, while others are exempt. That's where we get this phrase exempt or non exempt. It's exempt from over time provisions. 10:08:39 The common mistake and probably the biggest sort of myth out there for a lot of people is that they substitute the words salary and hourly for exempt non exempt. 10:08:51 And while there is a lot that has to do with salary in our league. 10:08:57 When we talk about exempted not one is not a replacement for the other. You cannot just substitute salary for exempt and think you're meeting all the criteria and thresholds. 10:09:11 Right. And so we need to be very careful when we talk about these things. There are exempt employees who are paid hourly. There are also non exempt employees who are paid a salary. 10:09:22 And there are times where that's okay, provided you are also following all of the overtime permissions. So, if there's one myth that I want to dispel today it's the idea that exempt non exempt are interchangeable with salary and our way. 10:09:40 So again, don't use these phrases interchangeably, we want to talk about what are the specific differences between an exempt employee, and a non exempt employee. 10:09:51 And to do that, we'll start with the Fair Labor Standards Act. And when we talk about overtime we're talking about a 40 hour work week right if you work more than 40 hours a week, you are entitled to time and a half pay. 10:10:03 If you work less than 40 hours a week, there is no overtime pay. 10:10:09 So where do we get this idea of a 40 hour work week who came up with 40 as our standard. Well, we had high unemployment, obviously in the Great Depression. 10:10:18 And that put a ton of pressure on political leaders to alleviate poverty create more jobs, increase the number of people in the labor market well how do you do that. 10:10:30 One way is to establish the standards across industries that include a series of incentives and penalties for employers to hire more workers if you hire more workers, you want to be incentivized to do that if you are not hiring or workers. 10:10:45 If you're saying well I'm going to keep the staff that I have, they set up some potential penalties for that, by requiring an employer to pay time and a half wages to an employee works more than 40 hours a week that put pressure on employers to limit 10:11:01 the number of hours that employees were working, what it also did was some industries had to have more than, you know, 40 hours a week from their employees and so they said okay well if you're going to do that. 10:11:16 Instead of paying somebody time and a half, why not hire another person, and bring them in. So that was the idea of creating the 40 Hour Workweek, and the incentive structure around, paying overtime, right, the federal government's idea was we would rather 10:11:31 have you go out and hire a second person, then just keep that one person and work then, you know, 5060 hours a week. 10:11:43 So this was all part of the Fair Labor Standards Act and was one of the New Deal programs from FDR Fair Labor Standards Act passed in 1938. It has been amended a number of times since then. 10:11:56 But we are still dealing with some of the basic constructs of the fly as a as it was originally passed, and what are those well established sort of an eight hour day or a 40 Hour Work with your time requirement. 10:12:11 You fly says where we get the idea of a minimum wage. 10:12:15 So from the very first time there was a federal minimum wage, the federal minimum wage, I believe at the time was something like 25 cents. 10:12:24 It's obviously been increased since then. 10:12:26 We also have state minimum wages, right and so New York State has a different minimum wage and the federal minimum wage, the tire. 10:12:34 I always like to ask people, which one or do you have to pay. 10:12:38 You have to pay the one that's more generous to the employee. So if you're a New York State or another state that has a higher minimum wage than the federal minimum wage, you have to pay the state 10:12:50 Fair Labor Standards Act, also eliminated, or limited the types of jobs that miners could perform in the hours, they could perform them again, the idea here being that if we limit, you know, minors we don't necessarily want children in the workforce we 10:13:06 want adults and workforce, adults who may be supporting a family, right, that idea of alleviating the poverty, and so by limiting child labor. 10:13:15 They were, in theory, increasing the labor market for adults. So that's where we get the 40 Hour Work Week. This is where we get these ideas have limited time for an employee to work. 10:13:28 That fella also defines what is considered compensable time. What do you owe an employee for their time. Well, if an employee takes a meal period, and they are not working during that meal period. 10:13:42 You do not have to pay that. 10:13:43 If an employee is working through their meal period. If they are eating a sandwich, while they're doing their job, right, that is compensable time they are working 10:13:58 training. So, if you're going through the annual New York State sexual harassment training you have to take an hour every year, and have your whole staff go through training. 10:14:09 Right. That is compensable time an employee needs to be paid for that time. 10:14:15 Generally speaking, if somebody is going out to do continuing education to maintain a professional license or certification. 10:14:24 Generally, that is also compensable time. 10:14:28 If somebody is going out and pursuing training or classes sort of on their own time for their own purposes, that is not editable. 10:14:39 Some travel time is compensable. Right. Time spent traveling from one job site to another, other time, such as your commute is not compensable time. 10:14:50 Right, so the FSA has all these standards, and it's important that employers understand that this is time that counts towards those 40 hours a week. 10:15:03 So that's why tracking time. 10:15:07 Having people punch in and punch out me strong policies on that is going to help you with these employees who are non exempt, who are not exempt from the overtime provisions are subject to overtime provisions. 10:15:20 So you should have a system for tracking employee work time. 10:15:30 Some employers do timesheet some employers have a time clock, whether it's a punch clock or card scan. Some employers are now doing it using an app right there are a number of different payroll companies that provide this type of technology that allows 10:15:41 you to track employees time in a way that best fits your current business needs. 10:15:49 But you also have to have policies outlining when an employee can and can't punch in. 10:15:55 Do you have an employee who comes in at eight o'clock every morning punches in and sits there and has a cup of coffee and waits until the day begins around 830. 10:16:07 Well that's 30 minutes of time that counts towards their 40 hours. So if that's happening five days a week. Right. You want to have policies that talk about when an employee can and cannot punch in, when should they punch him when Shouldn't they constrain 10:16:23 in your brakes, this is a big one. Do you want your employees to punch in and out for their breaks, and it's a balancing act. 10:16:33 Right. Someone needs, you know, five minutes to run to the restroom. Generally we don't necessarily want to have them go through okay and clocking in and clocking out. 10:16:43 If somebody is constantly though. Yeah. 10:16:49 Every day like clockwork, taking 1015 minutes to go outside and them cigarette, and they're not clocking out for that. 10:16:57 Right, that time is counting towards their 40 hours. 10:17:01 So it's incredibly important for employees who are non exempt or subject to the rules of overtime, that you have policies about when they clock in how they clock in, right, that you have a good system in place to keep track of that for some organizations 10:17:18 are Tz right your manufacturing facility, you have a time clock, the work is done at your facility. If you're a landscaper or something like that, you're out and about, right, your employees are in and out of trucks all day, various job sites. 10:17:37 So how are you tracking their time, when they're remote. And this is where having an app can be very helpful to an organization. 10:17:48 But not everybody is subject to the overtime. 10:17:50 Right. So, the FSA gets past and, you know, business community throws up their hands and says Whoa Whoa Whoa there are a lot of people who should not be subject to overtime, and they kind of started with, okay well executives. 10:18:12 Right. 10:18:07 An old a business owner needs to spend time working in their company right order to make it successful. Maybe you have other positions where somebody has a unique skill set, or just the nature of the work is not necessarily conducive to an overtime situation. 10:18:26 And so over the years, there have been a number of exemptions from the overtime law. And so these including executive roles administrative roles. 10:18:38 Professional roles computer roles and outside sales employees. These are all exempt from over time. 10:18:47 Now these are for the broadcast. 10:18:49 Right. You can't just say anybody who is in an administrative role is exempt from overtime. Right. They must meet certain criteria. 10:18:59 If you are not sure if they meet those criteria. you should sort of default treating them as if they were nodding. 10:19:08 When it comes to exemptions. 10:19:11 I told you, we've got these worksheets these can help you arrive at a decision, where you can say with maybe 99% confidence, this employee is exempt or non exempt. 10:19:22 but at the end of the day, the Department of Labor is the final decision maker. So if the Department of Labor comes in, and they do an investigation. 10:19:31 They have the final authority to tell you who is and who is not exempt. 10:19:35 But with some work with some digging in, you can get yourself to a place where you're at that 99% level of confidence that this person exempt. This person is not exempt. 10:19:47 But you've got to actually go through and make sure people meet that criteria. 10:19:52 So let's talk about exemption tests. So, two principal criteria that determine whether or not an individual is exempt from overtime. One is a salary test, right, is an employee compensated at or above a required threshold. 10:20:10 Right. 10:20:12 So just like there is a minimum wage hourly there is a minimum wage for salary exempt employees, we call the salary threshold. There are different salary thresholds for different exemptions. 10:20:27 And so generally the federal again just like minimum wage, the federal 10:20:34 salary threshold, something like $684 a week. 10:20:38 It is substantially higher in New York State. For the executive and administrative exemptions. And I'll talk about what that looks like in a mock. 10:20:50 And then the other thing with this our test this is a salary structured properly. 10:20:54 Right. The idea of a salary is that you're paying somebody a regular amount of money every week, right, that there is some regularity to that you're not necessarily docking their pay willy nilly right there, laws regarding how you go about doing things 10:21:14 so salary component is a big part of exemption test. 10:21:19 The other is the duties test. 10:21:21 Just the employees primary function, align with the Fair Labor Standards Act definition of, who does who does not qualify, or an exemption. 10:21:37 So I talked a moment about that salary structure. So here are the kinds of questions that are on that doesn't imply right you will receive a predetermined amount of compensation each paper. 10:21:48 Right. 10:21:50 Do they receive their full salary, regardless of the quality of the work that they're turning out. 10:21:57 Do they receive the full salary for working less than a week due to an absence caused by the employer or operating costs of the company. 10:22:07 Right. So there are some things in your house our needs to be structured. 10:22:14 Generally speaking, most salaries are structured. 10:22:16 Very rarely come across anybody's compensation structure, who is exempt and getting a salary that didn't work like this. 10:22:25 So let's go through now what those exemptions look. 10:22:29 So the executive exemption is the employees primary duty management of an enterprise, or customarily recognized department or subdivision. Right, is the person actually making sure the executive decisions management decisions. 10:22:47 Does the employee customarily and Gregory direct the work of at least two full time employees, or their equivalent. Right, so you've got part time employees. 10:22:57 Right. You cannot just label somebody a manager or supervisor and have them qualify for the exception they actually have to be managing employees. When we talk about direct the work of the employees. 10:23:11 Some of the things we're talking about by, who is the person who is assigning the tasks for the day. Who is the person who is evaluating employee performance, does this person have the authority to hire fire those people, or does their recommendation 10:23:27 carry particular weight. 10:23:30 Right, even if they may not necessarily be the final decision maker on hiring and firing decisions does their opinion carry some weight when it comes to that. 10:23:41 The administrative exemption. 10:23:44 Right. So, people said well we have to have some administrative tasks going on an organization, and you have those can't necessarily be subject to overtime permissions they can't they don't lend themselves to fitting meet me and do a 40 Hour Work Week. 10:24:00 So again, is the employees primary duty office work or non manual labor directly related to the management of business, right, or the employers customers. 10:24:12 Does an employee exercise discretion independent judgment, right and you see this list of duties. So, this is a category of exemption that could include maybe at operations folks, HR department because an HR department is involved in the administration 10:24:32 of the organization and HR director or manager may not necessarily have anybody reporting to them so they wouldn't qualify for the executive exemption. 10:24:41 But again, they're performing work that affects business operations, they write can waver deviate from an employer's establish policies and procedures without authorization. 10:24:55 This could be a marketing manager for an organization. Right. So there are a lot of sort of office type roles that fall into this category of the administrative exemption. 10:25:08 Yeah outside sales exemption, obviously number one does the employees job involve outside sales is their primary duty obtaining orders or contracts that will be paid by the customer right this is your outside sales force or they regularly engage working 10:25:25 away from the place of business. 10:25:29 So, the outside sales exemption. 10:25:32 Right, can cover a lot of commissioned employees, if they are out there making sales for the organization if that is where they're driving a lot of their income is from sales commissions. 10:25:46 Then they may qualify for the outside sales exemption. 10:25:54 The professional exemption. So when we think about organizations that may have engineers, right, accounts, architects, these are the types of folks who will fall into the professional exemptions. 10:26:07 It would also include people like teachers and creative professionals would all fall under the professional exemption category and you can see here there's some different questions that you have to ask yourself about. 10:26:21 Do they qualify for professional exemption for the learned professionals, again, so this is kind of a big category includes engineers accountants, anybody working in the sciences, right, is their primary duty work that requires advanced knowledge. 10:26:40 Right, do they have to go to college and get a four year degree sort of in this field. If so, then they would probably qualify for this professional exemption and can go through and check some of the other box. 10:26:53 Right. 10:26:54 So, this is somebody who's that work may not necessarily be directly involved in sort of the management or administration of a business. It's not sales. 10:27:07 But it's this other category. 10:27:10 That is a professional exemption. 10:27:13 One of the more recent exemptions. 10:27:16 That was added was the computer related section. 10:27:19 Right, so the people that maintain computer systems programmers software engineers. Right. They are not subject to overtime, they're exempt from over time. 10:27:34 And, again, are they involved in the application of, you know, systems analysis. Do they design, the IT system they manage the IT systems for an organization. 10:27:46 If you're in a computer related field, you may be eligible for this exemption. Again, depending on all of the duties depending on whether or not you meet those salary requirements, highly compensated employee. 10:28:02 Right. you said yourself. Yeah, I'm not sure this person right fits in any of these categories but with him a lot of money so that should be exempt from over time. 10:28:12 This is the highest salary show the salary threshold for the highly compensated employee is over $100,000 see right there 107,000 change is their primary duty office or non manual work and do they normally perform any one or more of these other exemptions 10:28:33 right so if you've got somebody who you say I don't know if they're quite executive I don't know if the plate administrative they meet you know one or two of the things. 10:28:45 Well, if you want to pay them a salary of 107,000 and change per year, they can get an exemption from overtime is a highly compensated employee. 10:28:57 So just a note about those salary thresholds again. I know that the Federal salary threshold 684 for all exempt positions, other than outside sales outside sales does not have a salary threshold. 10:29:12 New York has its own salary threshold for the executive and administrative exemptions, and that is going up at the end of this year. 10:29:21 It depends on where in the state you are so obviously large parts of the state downstate are not going to go up there already at the higher level within New York City in Long Island and West Chester, those rates are going up in December and the rest of 10:29:40 New York State. 10:29:42 They're also going at the end of December. 10:29:46 So, if you have somebody who you said, Yep, they're an administrative person they meet all the duties tests of the administrative exemption. You often need to make sure that they meet this, the salary threshold. 10:30:03 And so this is a weekly salary threshold that the employee must make this much. In order to be considered exempt from over time. 10:30:16 So yeah, I talked about sort of this myth of just saying oh I'm going to pay the person that salary and then I'm worried. 10:30:24 Right. 10:30:25 You cannot override the duties tasks by just deciding to pay somebody, and we're giving them a title, calling it a day. 10:30:33 This is, I think, when we get to violations, and Miss classifications of employees. 10:30:42 This is a big one that the Department of Labor is looking for. 10:30:46 If there is a Department of Labor audit. And I can tell you as somebody who is represented clients, going through this type of wage in our division audit. 10:30:56 You don't want to go through it. They asked for a lot of information, but this is what they're looking for. They're looking for this misclassification that you've taken somebody should be subject to overtime. 10:31:08 And you said now I'm just going to pay this out. I'm going to call him a manager. 10:31:12 Right. 10:31:13 So let me give you a very recent example, this was this fall. This is very recent so entertainment chain Top Golf right you go and you can play go. They were just find almost a million dollars for failing to pay overtime to 255 employees across the country, 10:31:34 that they misclassified is exempt. And if you look at, you know, the types of roles that these people were in. 10:31:41 It was their titles like food service manager. 10:31:45 Well, but they weren't actually performing any, you know, they didn't have anybody that reported to them so they weren't necessarily qualified for executive exemption. 10:31:57 Right. 10:31:59 The work was more manual and labor. 10:32:02 Right. It was manual labor, and so they didn't necessarily qualify for the administrative exemption to be a food and beverage manager is not a higher field of learning per se, so they didn't qualify for the professional exemption. 10:32:16 And so they just had the title of well you're a manager so you get a salary. 10:32:22 Well what ends up happening then is. These individuals are frequently working more than 40 hours a week, doesn't even have to be frequent it can be five times a year you work more than 40 hours a week. 10:32:34 Well if your employer is not compensating you time and a half. For those hours over 40, and you are subject to overtime, you are entitled to some back pay the damage the burden to demonstrate this falls upon the shoulders of the employer. 10:32:50 Right. So when we talk about well how far can, the Department of Labor go back. If they're looking for violations if they do do an audit. 10:32:59 Generally it's a two year statute of limitations of price, recovery it back pay, unless they go in there do an investigation say well this was a willful violation, then they'll take another year or two. 10:33:11 Right. So this is why it's so important that as an employer, you maintain accurate payroll records right then you not only have the classifications right, you have the payroll records to back it up that you can say yep, going back three years. 10:33:28 Here's how everybody was paid for those employees who are subject to over time. Here's their timesheets. 10:33:36 Here's the compensation that they received for that the times that they worked overtime. This was, you know, what they were compensated that the whole idea here is it. 10:33:47 You have the responsibility is important to make sure employers are classified properly, to make sure they are paid properly, and that you maintain those records in case there is a Department of Labor wage in our division on it. 10:34:02 I will share with you in the audit that I did for a client was just prior to coven. 10:34:13 They went back two years, where they were looking at all the time sheets, the employer, had been paying overtime. They just have not been calculating the rates properly. 10:34:25 Well they ended up settling with the division of wage an hour for approximately $25,000. 10:34:36 And that $25,000 was distributed amongst a number of employees and so what happens I get asked about what's the enforcement How does that work enforcement works because you will have a disgruntled employee or somebody who has seen an attorney advertisement, 10:34:53 talking about back wages and overtime. 10:34:57 And they'll say, well, maybe worth it for me to file a complaint, see what's going on here. And then once that happens, the Department of Labor is not just looking at what were the pay practices with that employee who filed the complaint. 10:35:11 They are going to be looking at a practices company wide. 10:35:15 So it's critical. 10:35:18 You have employees classified properly and it's critical that you have an accurate records regarding their time and compensation. 10:35:27 The other big misclassification that you may hear about a lot is independent contractors right somebody an independent contractor or are they an employee. 10:35:37 So let's get back to this idea of employers have responsibilities towards their workers. Right, one of the principles that determines just how much responsibility you have your work is tied to the idea of how much control do you exercise over the worker, 10:35:53 and the work that they do. 10:35:55 Right. Obviously if you hire somebody and you say, okay, you're going to be on my premises, five days a week. Here's your office I want you to wear this as a uniform, you're going to be doing this I'm providing you a phone a laptop, right, you're exercising 10:36:11 a lot of control over that employee and how they do their work. And so they are an employee, an independent contractor is not generally speaking, this is somebody who's providing goods or services based on a contract on an as needed basis, right if I 10:36:30 hire an employee. 10:36:33 The idea is that they're here they're working for an independent contract or, you know. 10:36:40 A good example is a graphic artist I say I want my company to have an updated logo right well I don't have anybody necessary maybe I don't want to bring anyone in on staff, they may not necessarily have the tools, the equipment qualifications experience 10:36:54 to do it. 10:36:56 So I don't necessarily, you know, go out and hire a marketing firm. 10:37:01 I might, but somebody may say to me, oh, you know, I have somebody who's a friend who's a graphic designer, they do it. And I sort of hire them on a freelance basis to do a new company work for me. 10:37:15 That would be an example of an independent contractor. 10:37:23 So, independent contractors versus employees or Employers are required to withhold employment taxes from their employees right. 10:37:41 Employers are required to offer or provide certain benefits to eligible employees, and this could be anything from saying your employees. Well, because you work for me I have responsibility to to provide Workers Compensation Insurance I have a responsibility 10:37:49 to even to provide New York State statutory disability paid family leave for certain large employers under the Affordable Care Act, you may have the responsibility to offer or to provide health insurance to employees. 10:38:05 Right. So, you have responsibilities to employees that you may not necessarily have to an independent contractor right so for example, independent contractors are responsible for paying their taxes, providing their own insurance coverage right. 10:38:21 You don't have to go out and provide a health plan to an independent contractor that if you do, then they are an employee and contract. 10:38:31 Both the Department of Labor, and the IRS have tests to check whether somebody is an independent contractor or an employee. Right. So we talked about how we have those exemption worksheets. 10:38:43 Well, there are some ways that you can tell whether or not somebody is an independent contractor or no start with talking about the Department of Labor's seven factors. 10:38:56 The first thing we want to say is, is the extent to which services rendered by the independent contractor. Are they an integral part of the principles business. 10:39:06 So again use the example of me hiring somebody to do it, new logo for the company. Let's say the company is ch. Well, someone who do we don't make logos, right, we don't design logos. 10:39:20 That's why we have somebody else to come in and do that. Right. 10:39:24 If I'm an insurance agency, it becomes difficult for me to say, I'm going to hire an independent contractor who's going to sell insurance because that is again an integral part of the principal business. 10:39:38 What is the permanency of the relationship. Again, if I'm hiring somebody to design a logo for me, and do an updated logo. 10:39:45 Maybe the relationship lasts approximately. Yeah, two or three weeks, I tell them what I'm looking for. They come back with a couple of sketches, I meet with them I approve it. 10:39:59 Our relationship, and all the business has been transacted within the space of a few weeks is not a sort of long term or permanent relationship. 10:40:10 What is the amount of the contractors investment in the facility and equipment. 10:40:15 Well if I'm hiring a graphic designer, right, presumably, they have the tools, the software to do that. 10:40:23 If I'm an insurance agency, I don't necessarily have graphic design software as part of what I do. And so, this person owns their own tools owns their own equipment. 10:40:35 They don't necessarily need to be working out of my facility. 10:40:41 What is the nature and degree of control by principle. If I order a logo from somebody. 10:40:47 I'm ordering the logo, but I'm not necessarily telling the person, and I want you to work between 3:30pm and 5pm, Monday through Saturday. Right. I don't have control over that. 10:41:00 They get to control and say to me, Well, I can have this done by the end of the week or by the end of next week. 10:41:08 What is their opportunity for profit and loss. Right. Is this something they're doing to make money for themselves, are they doing this. 10:41:19 How much initiative and judgment. 10:41:23 Do they exercise over. Right. Well, ideally again using the example of a graphic designer, quite a bit. They know the software, they know. 10:41:33 You know, color theory they know what my past brand has looked like what I'm going for right so they have a lot of judgment, and independent control. 10:41:46 And then, 10:41:50 Finally, the last thing is the. 10:41:55 We want to make sure it is at the degree of independent organization, and operation that they have. 10:42:06 Yeah. Is it somebody who has their own business doing graphic design, and that's pretty good indication that they are an independent contractor. 10:42:14 Right. 10:42:17 The IRS has what they call a balance test. 10:42:20 And again, you'll see a lot of this comes back to control. So when the IRS balancing test. Does the company control or have the right to control what the worker does and how they do it. 10:42:32 No, I don't. The graphic designer is going to do with the graphic designer is going to do and I already bought back is the logo. That's an independent contractor. 10:42:41 I don't have control versus if I had an employee. And I said to somebody on my staff. 10:42:47 I want you to design a logo have a tune but yet we hear you can go in that office and work in that office right I'm exercising control over that person, financial, or business aspects of the workers job controlled by the payer. 10:43:04 Right. So, I don't run the other person graphic designers business. Right. 10:43:12 They say to me, here's an invoice. 10:43:15 You need to pay it. 10:43:16 Great. 10:43:17 And it again, who's providing tools supplies. All of that was the financial control, the more of that that is on the worker and not on the organization, the better the chances are that this person is a true independent contractor and not an employee. 10:43:35 What is the type of relationship. 10:43:38 Right. So, again, with a written contract. Right, what are the types of benefits that they're getting their pension plan insurance vacation pay if those things are part of the contract, then they're probably an employee and not an independent contractor. 10:43:55 Right. 10:43:56 What is the nature of the relationship that you have with the worker. 10:44:01 That's what will help determine what is it is not an independent contractor, and who isn't who is not an employee. 10:44:11 When in doubt, treat the person like an employee right if you say, I don't really know, again, unless it's obvious that you know again there's somebody that they have their own business, they are doing this type of project for me, then they're an independent 10:44:27 contractor. 10:44:29 There is a form that the IRS has it's the SS eight form. 10:44:34 Determination of worker status for purposes of federal employment taxes and income tax. 10:44:40 So you could fill that out and submit it to the IRS and they could come back and say, yes, this person is an independent contractor, your day on your way. 10:44:51 You can also just sort of take the form and treat it like sort of a worksheet to help you make your own decision. 10:44:59 Right. I think it's a helpful exercise for employers who work with independent contractors to review this for. 10:45:09 Right. 10:45:09 Go through the SS a look at the types of questions it's asking that will help sort of steer you towards is this person an independent contractor or are they actually an employee. 10:45:21 Right. So in some sense, there's no penalty for training an independent contractor like an employee, anything you're providing you're going above and beyond. 10:45:30 There are significant penalties though, if you miss classify an employee, as an independent contractor. So what are we talking about again, things like back pay. 10:45:41 Right. If you're not necessarily tracking all of the hours that they work, and then end up working over time, they're entitled to back pay. 10:45:59 If you're treating somebody who is actually an employee as an independent contractor. Let me Jim no longer withholding taxes right that could create some issues, you're not fail, you're failing to provide wage statements that an employer needs to provide 10:46:06 employees like w Tues. 10:46:16 You may not be providing statutory benefits to this individual if they're misclassified. Right. So there are all these penalties, and then you look down the last to hear. 10:46:23 The there could be some civil liability penalties. Again, somebody misclassified, and they get injured. 10:46:30 Right. How does that work violations of federal or state labor laws if somebody is misclassified that can include additional fines and penalties on top of the liability that you may have. 10:46:45 For back pay for the failure with whole for not providing the benefits right. 10:46:51 So Miss classifying an employee as an independent contractor is a big no no we want to avoid at all costs and that's why if there's ever any doubt, go through the process to go through that SS eight form. 10:47:05 See what that the types of qualifications are that they're looking for for an independent contractor, and then make your own decision. 10:47:14 But if you're in doubt, treat the person like an employee. 10:47:19 Right. 10:47:20 Do the withholding put them on payroll, get them set up as an employee. 10:47:27 How do we avoid Miss classifying employees. 10:47:31 The best tool that I think employers have their disposal. Is it up to date and accurate job description. 10:47:38 Right. So we want to do ideally is have the exemptions test, and the job description, and you can go back, or the independent contractor test and the job description, you go back and forth, and say yes yes yes or no. 10:47:54 Well, this may not be a fit. Right. 10:47:57 That's number one. Go through. Make sure you have up to date job descriptions. 10:48:02 Make sure that employees that you have classified as exempt or non exempt actually meet the duties test, make sure your pay practices are in line to pay people property properly yet make sure you're up to date on the latest minimum wages, and the latest 10:48:21 salary threshold. 10:48:23 Make sure that you have time tracking systems in place. Right. For those employees who are non exempt again talking about. Yeah, things like excessive breaks or a punching and punching out for mealtimes. 10:48:39 Right. You want to make sure you're staying on top of that, so that you know when they go over 40, what your responsibilities are to make sure they're getting the time and a half. 10:48:51 When we go through these exercises sometimes we may find that we have to change somebody's status. Right. This can be a difficult conversation. 10:49:00 You may have an employee that you thought was exempt and so you've been paying them a salary. Now all of a sudden you have to go to them and say, Hey, we're changing the structure of your compensation. 10:49:13 We're making it hourly, we're going to start asking you to clock in and clock out, right, that can make the employee feel in some sense that, well what did I do wrong and I getting paid less now on getting paid. 10:49:26 Right. 10:49:27 It's a difficult conversation. Do not avoid have those conversations with employees, if it appears that they have been this class. 10:49:35 Right, because it can save you from real trouble down the road. 10:49:42 So I mentioned that I had a number of these exemption tests. I more than happy to send a copy to anybody that would like one, please shoot me an email, p been esky at ch insurance.cc, and I can get you a copy of those exemption tests, so you can go through 10:50:01 and start looking at that. 10:50:04 If anybody has any questions. I'm going to open up the chat window right now. 10:50:11 To do that, but again, feel free if something maybe is a particular instance having to do organization you would rather not. 10:50:19 Share it here, send me an email, but I am happy to answer any questions that people have I know we're about 10 minutes from 11 o'clock. 10:50:31 All this is you know, just want to interject here for a minute if I could. 10:50:35 Sure. 10:50:38 You know, many of you are probably sitting out there saying wow, what if, what if I'm not doing this properly. 10:50:47 What if I get an audit, and I get a clean. 10:50:52 And where am I, where's my coverage, where am I, where am I protected. 10:50:58 And, you know, this is the policy that will respond to a situation like this would be an employment practices liability insurance policy. 10:51:12 Okay. 10:51:13 And specifically, you need to have the wage and our endorsement or coverage on the policy that is not something that is generally thrown in. it is an extra. 10:51:34 You know, coverage that requires to be added. 10:51:39 So that's where that's where this coverage of where, you know, there could be some liability misclassification. 10:51:50 That's what policy would respond that's your input EPL I employment practices liability insurance policy. 10:52:05 Okay. So I just want I just felt that it would it would be prudent to sort of bring that up and let you guys know, if you don't have an epi policy by all means, reach out and we will get you one. 10:52:16 And, or at least give you a quote for one.