Spotting clients’ labor and employment mistakes

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We know what you’re thinking:Why should I care about labor and employment laws when that’s not what I do?”

The answer is simple: CPAs and accountants often are trusted company advisors. As a result, you are often asked for general advice well outside of your expertise. Even if you are not directly asked, you sometimes learn of issues that need attention – issues your client may not even be aware of. While you don’t want to advise clients beyond your expertise, being able to spot an issue and point your client in the right direction is priceless. Presented here are just some of the opportunities you may have to assist your client by spotting labor and employment issues.

Wage and hour issues

Wage and hour problems come from a range of issues including unpaid overtime, missed meal and rest period issues, improper payroll deductions, mandating confidentiality of wage issues, off-the-clock/unpaid work – the list goes on. Some of the biggest (and most costly) mistakes a business can make in the wage and hour arena, however, involve the misclassification of workers and employees.

Misclassification of workers: The misclassification of workers occurs when an employer inaccurately classifies a worker as an independent contractor rather than an employee. The definition of “employee” varies between federal and state laws, but generally speaking, if you have direction and control over the worker, you likely have an employee.

Misclassifying a worker as an independent contractor spawns a litany of significant problems, including but not limited to:

  • Failure to pay overtime;
  • Failure to provide benefits promised to all employees;
  • Failure to withhold income taxes and pay other taxes like unemployment and worker’s compensation; and,
  • Failure to issue W-2s.

Misclassification of employees: This occurs when an employer mistakenly classifies an employee as exempt from overtime. Typically, non-exempt employees are paid hourly, receive overtime pay, and maintain various records of their hours. Exempt employees are instead paid a salary and do not receive overtime.

There are two interwoven tests for determining an employee’s status as exempt versus non-exempt: a duties test and a salary test. The Fair Labor Standards Act, the federal wage and hour law, breaks down the duties test into five basic categories: Executive, Administrative, Professional, Computer Employee, and Outside Sales. The definition of each of these categories is often muddy. Under the salary test, to be exempt, administrative, professional, and executive employees must earn a salary of at least $455 per week or $23,600 a year, while Computer employees must earn $455 a week or $27.63 an hour. Some states enforce a higher salary threshold than that required by the FLSA and some states refuse to recognize all of the FLSA categories. If questions arise regarding who gets overtime, it’s time to recommend the employer find competent counsel.

Unlawful inquiries and stereotyping

Employers ask potential applicants a number of different things – some of which may now be unlawful. When was the last time your client reviewed their job application or interview procedures to ensure compliance with changes in the law?

The “Ban the Box” Initiative: Cities and states across the country have been taking steps to remove barriers to employment for workers with criminal records. These so-called “Ban the Box” laws come in many shapes and sizes, and generally prohibit employers from asking applicants about their criminal history at an initial stage of the application and interview process.

Currently, 32 states have some form of a Ban-the-Box law on the books – mostly prohibiting these sorts of inquiries from public-sector employers. Some states extend the law to private employers. Some cities and municipalities also have their own Ban-the-Box ordinances. It is usually just a small box on the application – but it could have costly implications for the employer that doesn’t realize it’s there.

Pay Equity Movement: In yet another attempt to limit unfair hiring practices, some states have passed “Pay history bans” that prohibit employers from asking applicants how much they made at their previous job. Some of these bans only relate to public employers, but many extend the ban to private employers.

The underlying issue is sex discrimination. The purpose of the ban is to close the pay gap between the genders. By basing a new employee’s starting salary on what they made at their last job, an employer may be inadvertently perpetuating a history of gender discrimination, i.e., paying women less money for performing the same job as a man. While there are some exceptions, many of these laws carry steep fines for an employer who missteps and asks the wrong questions.

The #MeToo Movement: The #MeToo movement has provided many states and the federal government traction for a crack-down on workplace harassment. Depending on the state where your clients are located, they might be required to conduct sexual harassment training of their employees and even of their independent contractors. Training – and not just sexual harassment training – is vital to the success and viability of businesses and could protect them down the road. If you need more proof of the importance of adequate training programs of all kinds, think: Starbucks, which last year closed all of its stores for a day.

Employers are generally liable for sexual harassment committed by their supervisory employees, even without being on notice. If supervisors aren’t trained properly, this could be a ticking timebomb for your clients.

Failure to accommodate

Employers also have responsibilities regarding a number of categories of employees.

Americans with Disabilities Act: The Americans with Disabilities Act is a federal law that applies to employers with at least 15 employees and requires employers to engage in the “interactive process” with an employee who has a disability and can’t quite do the job as designed. Nowadays, “disability” can mean nearly anything! The “interactive process” requires employers to:

  • Analyze the purpose and essential functions of the job;
  • Work with the disabled employee to identify what barriers exist to that employee’s performance of the job;
  • Work with the employee to identify possible accommodations (work arounds); and,
  • Assess each accommodation with the employee and select an effective option if one exists that does not pose an undue hardship for the employer.

Employers who fail to use the interactive process, even if no accommodation is available, violate the law. Employers with disabled employees and applicants should be encouraged to seek counsel to ensure compliance with the myriad of potential ADA issues.

Pregnancy: Federal law prohibits most employers from discriminating on the basis of pregnancy, childbirth, or related medical conditions. It requires employers to treat pregnant employees as they would a disabled employee. Many state and local governments also have their own pregnancy discrimination and accommodation laws. Compliance with all these mandates is key, especially in light of the #MeToo movement. Also gaining speed lately are “lactation room” laws that require certain employers to provide an appropriate place (not in the bathroom) for a woman to expel breast milk. This is certainly an ever-expanding area your business clients should be watching closely.

Having a basic understanding of these issues will make you a more effective issue-spotter for your clients. While you are not suddenly a labor and employment law expert by virtue of reading this article, hopefully you now feel confident you can spot these issues and steer your client in the right direction if they come up. Good luck!

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Employee relations FLSA Employment and benefit-related legislation