Employment Law 101: Classifying Workers Dan Hart May 19, 2010 Firm/ Corp Logo

2 Mission of Pro Bono Partnership of Atlanta: To provide free legal assistance to community-based nonprofits that serve low-income or disadvantaged individuals. We match eligible organizations with volunteer lawyers from the leading corporations and law firms in Atlanta who can assist nonprofits with their business law matters.

3 Pro Bono Partnership of Atlanta Eligibility & Other Information In order to be a client of Pro Bono Partnership of Atlanta, an organization must: Be a 501(c)(3) nonprofit organization. Be located in or serve the greater Atlanta area. Serve low-income or disadvantaged individuals. Be unable to afford legal services. Visit us on the web at Host free monthly webinars on legal topics for nonprofits To view upcoming webinars or workshops, visit the Workshops Page on our websiteWorkshops Page

4 Introduction A substantial body of law governs wage and hour issues Employers must carefully analyze both federal and state law – the rule that provides more expansive benefits to employees controls Federal wage and hour law primarily is contained in the Fair Labor Standards Act and its implementing regulations. The Department of Labor (DOL) is responsible for enforcing the FLSA

5 Threshold Issues When determining employee classifications under the FLSA and other applicable laws, non-profit employers should consider two threshold questions: 1. Are my independent contractors really employees? 2. Are my volunteers really employees? If the answer to either question is yes, the employer must then determine how the employees must be paid.

6 Case Studies Case Study 1: Tim is a licensed clinical psychologist who has presented hundreds of seminars for a non-profit organization over the course of several years. The non- profit pays Tim a stipend for the seminars that he provides, but it does not withhold taxes from the stipend, it does not pay Tim overtime, and it does not provide Tim with benefits. After the non-profit severs its relationship with Tim, Tim sues for benefits and overtime compensation. The non-profit argues that Tim is an independent contractor and not entitled to benefits or overtime wages. Is Tim an independent contractor?

7 Case Studies Case Study 2: Marci volunteers to assist a non-profit in grant-writing. A few months later, the non-profit obtains a state grant to provide parenting classes. The non- profit hires Marci to teach the parenting classes with the expectation that it will pay Marci with the funds that it receives through the grant. After the non-profit terminates Marcis employment, Marci sues, alleging that she should have been paid for both the parenting classes and the grant writing. The non-profit argues that, although Marci is an employee with respect to the teaching, she is a volunteer with respect to the grant- writing. Is Marci a volunteer?

8 Case Studies Case Study 3: Julie is an administrative assistant for a non-profit organization that provides after-school programs for children. Julies husband Mike is a counselor who supervises the children during after- school activities. The non-profit sponsors a Saturday field-trip to a professional baseball game. Julie and Mike volunteer to chaperone the children to the baseball game, even though Saturday is their day off. May the non-profit permit Julie and Mike to volunteer their time on Saturday, or must the non-profit pay them for their time?

9 Independent Contractors vs. Employees Determining whether a worker is an employee or an independent contractor is an important – and, if made incorrectly, costly – decision for an organization to make. Misclassifying an employee as an independent contractor may result in significant exposure. Key issue is whether the organization retains the right to control the means and manner by which the work is performed.

10 Independent Contractors vs. Employees Employees Protected by FLSA minimum wage / overtime rules Generally receive benefits Protected by Title VII and other anti-discrimination laws Potentially eligible for unemployment benefits Wages subject to withholding, reported on W-2 Independent Contractors Not protected by FLSA minimum wage / overtime rules Do not receive benefits Not protected by Title VII and other anti-discrimination laws Not eligible for unemployment benefits Earnings not subject to withholding, reported on 1099

11 Independent Contractors Common Law Test Factors The skill required; The source of the instrumentalities and tools; The location of the work; The duration of the relationship between the parties; Whether the hiring party has the right to assign additional projects to the hired party; The extent of the hired partys discretion over when and how long to work;

12 Independent Contractors Common Law Test Factors (continued) The method of payment; The hired partys role in hiring and paying assistants; Whether the work is part of the regular business of the hiring party; Whether the hiring party is in business; The provision of employee benefits; The tax treatment of the hired party.

13 Independent Contractors Georgia Employment Security Law A worker is presumed to be an employee unless: Such individual has been and will continue to be free from control or direction over the performance of such services, both under the individuals contract or service and in fact; and Such individual is customarily engaged in an independently established trade, occupation, profession, or business; or Such individual and the services performed for wages are the subject of an SS-8 determination by the Internal Revenue Services, which decided against employee status.

14 Independent Contractors Consequences of Misclassification FLSA liability for unpaid minimum wages / overtime and potential DOL audit; Liability for back taxes and penalties under state and federal tax laws; Loss of protection of workers compensation statutes; Potential liability under ERISA for failure to provide same benefits to misclassified independent contractors as those provided to employees

15 Independent Contractors Case Study 1: Is Tim an independent contractor? Maybe: Muller v. American Mgmt. Assn Intl, 368 F. Supp. 2d 1166 (D. Kan. 2004) (workers who provided seminars for non-profits were independent contractors under ERISA and possibly under FLSA even though they were employees under state workers compensation law)

16 Independent Contractors Practice Pointers Have written independent contractor agreements. Watch your language. Parties Independent contractor relationship Authority of contractor Mode of payment Responsibility for taxes Termination of contract

17 Independent Contractors Practice Pointers Do not Seize the Day – Let it Be Hours of work Location of work Equipment Employees Expenses Benefits Exclusivity

18 Volunteers No broad statutory exception to FLSA coverage for volunteers in private sector. Supreme Courts recognized exception: An individual who, without promise or expectation of compensation, but solely for his personal purpose or pleasure, worked in activities carried on by other persons either for their pleasure or profit, is outside the sweep of the [FLSA]. Tony & Susan Alamo Found. v. Secretary of Labor, 471 U.S. 290 (1985) (citing Walling v. Portland Terminal Co., 330 U.S. 148 (1947)).

19 Volunteers Factors considered by DOL in determining volunteer status: The receipt of any benefits from those for whom the services are performed, Whether the activity is a less than full-time occupation, and Whether the services are of the kind typically associated with volunteer work.

20 Volunteers Case Study 2: Is Marci a volunteer with respect to the grant-writing work? Maybe not: Livingston v. Gaviolo, 2006 WL (W.D. La. 2006) (summary judgment to non-profit denied on workers claim for wages even though worker admitted that she had no expectation that she would receive compensation for grant-writing)

21 Can Employees Be Volunteers? Under DOL standard, paid employees of non-profits may volunteer their services only if: The services that they volunteer are not the same type of service the employees are employed to perform and The services take place outside of the employees normal working hours. WH Admin. Op. FLSA (June 1, 2006); 29 C.F.R. §

22 Can Employees Be Volunteers? Case Study 3: Can Mike and Julie volunteer to work without pay on their day off? Julie probably can but Mike probably cant: WH Admin. Op. FLSA (June 1, 2006) (If the employees regular duties involve work similar to chaperoning... then the employee may not volunteer. For example, a secretary may volunteer to chaperone a trip, but a counselor whose regular duties involve supervising the children may not volunteer to chaperone a trip.)

23 Volunteers: Practice Pointers Requirement acknowledgment of volunteer status Provide thanks you gifts of only minimal value Be mindful of employees volunteering their time for activities sponsored by the organization

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