We’re trying to determine whether we need to include owners in the when deciding if we fall under FMLA. We have 3 owners who are not in payroll (K-1) and 48 employees in payroll (W-2). Do owners count as employees for FMLA?
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The Family and Medical Leave Act (FMLA) requires employers with 50 or more employees (and all public agencies and schools) to provide up to 12 weeks of job-protected leave for various family and medical reasons to eligible employees. Thus, it becomes very important to understand how employees are counted, particularly if your organization is hovering around that 50 or more employees’ threshold.
Unfortunately, the statute and implementing regulations do not address specifically whether owners, partners, and shareholders are considered employees under the FMLA.
The FMLA defines a covered employer to mean any person engaged in commerce or in any industry or activity affecting commerce who employs 50 or more employees for each working day during each of 20 or more calendar workweeks in the current or preceding calendar year. (See 29 U.S.C. sec. 2611(4)).
The FMLA regulations further indicate that any employee whose name appears on the employer’s payroll, including part-time employees, is considered employed each working day of the calendar week and is counted even if he does not receive compensation for that week. See 29 C.F.R. sec. 825.105(b) and (c).
Based on this definition, since your owners are not “on” the payroll, there is an argument to be made that they should not be counted as employees for the purposes of the FMLA.
However, it probably is a good idea to also look at whether they are subject to the company’s control or if they act independently and participate in the management of the company. This standard was used by the Supreme Court to determine whether partners in a medical practice should be counted as employees under the Americans with Disabilities Act in Clackamas Gastroenterology Assoc., PC v. Wells 538 U.S. 440 (2003).
The Department of Labor, in Wage and Hour Administrative Opinion Letter, FMLA 2004-1-A, indicated that the factors relied on by Supreme Court in the Clackamas ADA decision could be used to determine whether owners are employees under the FMLA as well, although the letter did not have enough facts to apply the definition.
In Clackamas, the Supreme Court indicated its method of determining employees’ status is guided not by the title of the individual or by the existence of an employment agreement, but by common law principles which may be applied to partners, officers, directors and shareholders of the employer.
The Supreme Court also found the EEOC’s Compliance Manual instructive and cited it favorably, even though it is not controlling. The EEOC uses a six-factor guideline for determining whether a partner, director, or shareholder may be considered an employee for purposes of applying Title VII and other antidiscrimination statutes.
In short, under the EEOC’s guideline, if the individuals are found to be subject to the organization’s control rather than to be acting independently and participating in managing the organization, they are employees. The EEOC six factors include:
(1) Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work;
(2) Whether and, if so, to what extent the organization supervises the individual’s work;
(3) Whether the individual reports to someone higher in the organization;
(4) Whether and, if so, to what extent the individual is able to influence the organization;
(5) Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and
(6) Whether the individual shares in the profits, losses, and liabilities of the organization. See EEOC Manual Section 2-III (A)(1)(d).
Accordingly, you may wish to consult with an attorney about using the above factors to determine if the owners may be excluded from the FMLA definition of employees.