DOL Says Plan Prevent Protect, Attorneys Say Audit Audit Audit

Gray and Joseph are partners at the Orange County, California office of law firm Nossaman LLP. Their suggestions came at BLR^®‘s National Employment Law Update, held recently in Las Vegas.

Plan/Prevent?Protect

DOL’s goal is to implement “Plan/Prevent/Protect,” a program designed to assure that employers and other entities regulated by DOL take responsibility for employment law compliance, as Congress requires.

Regulations will likely require:

• Plan. Require employers to prepare a written plan for identifying and remediating risks of legal violations (e.g., explain why certain workers are classified as independent contractors)
• Prevent. Require employers to implement the plan in a manner that prevents legal violations and risks to workers
• Protect. Require employers to ensure that the plan’s objectives are met; e.g., implement a misclassification initiative, including working with the IRS and state labor agencies to target employers who are not classifying workers properly

What is a Company To Do?

Gray and Joseph have a simple solution. Audit, audit, audit, they say. What to audit? It’s back to basics. Although DOL enforces some 180 laws, the main ones to look at are:

• Fair Labor Standards Act
• Family and Medical Leave Act (FMLA)
• Davis-Bacon Act
• Walsh Healey Public Contracts Act
• Copeland “Anti-kickback” Act
• Contract Work Hours and Safety Standards Act
• McNamara — O’Hara Service Contract Act
• The Federal Wage Garnishment Law — Title III of the Consumer Credit Protection Act
• Immigration and Nationality Act
• Employee Polygraph Protection Act
• The Migrant and Seasonal Agricultural Worker Protection Act

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What You Need To Do To Be Ready

Gray and Joseph suggest that you look closely at the following areas:

• Classification under the Fair Labor Standards Act (FLSA)
• Exempt/Non-Exempt classifications
• Independent Contractor classifications
• Improper Deductions/Docking
• Recordkeeping
• Posters
• Paying for All “Work”
• Bonuses Calculated in Overtime
• Booting-Up Computer
• Donning & Doffing
• Emails/Phone Calls
• Overtime
• Training Time
• Travel Time
• Waiting Time/On-Call
• Working Off-The-Clock

IRS Launches Nationwide Employee Misclassification Audit Campaign

Of course, DOL isn’t the only source of challenges—the IRS is also mobilizing to combat misclassification with a National Research Program that will target 6,000 businesses, Moore says.

Audit targets will be selected at random and audits will cover five employment tax-related issues:

• Worker Misclassification
• Fringe Benefits
• Non-Filers
• Officers’ Compensation
• Employee Expense Reimbursements

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How To Get It Right—There Is No Single Test

Misclassification is high on DOL and IRS agendas, so it’s a good place to start. Unfortunately, there is no single test for classification that fits all circumstances. Employers need to be aware of the following three tests plus court questions in order to make a determination, Gray says:

• The FLSA Economic Realities Test
• EEOC 16 Factor Test
• IRS 11 Factor Test
• Questions courts are likely to ask

The FLSA Economic Realities Test

• The degree of control exercised by the alleged employer
• The extent of the relative investments of the putative employee and employer
• The degree to which the alleged employee’s opportunity for profit or loss is determined by the employer
• The skill and initiative required in performing the job
• The permanency of the relationship
• The degree to which the service is an integral part of the employer’s business

In tomorrow’s Advisor: the three other tests plus court questions, and an introduction to BLR’s comprehensive audit checklist system.

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