- QUESTION: I own a small business with only five employees. Do I really need to have an employee handbook?
- QUESTION: Should an employer have a contract with his independent contractors?
- QUESTION: I develop, improve, and build on real estate in Pennsylvania. How do I decide if the people who perform work for me are employees or independent contractors?
- QUESTION: When must overtime compensation be paid?
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QUESTION: I own a small business with only five employees. Do I really need to have an employee handbook?
ANSWER: Absolutely. Employee handbooks provide valuable protection to employers of all sizes. Handbooks contain grievance procedures to protect both employers and employees in the event of an harassment or discrimination claim. Handbooks establish attendance and willful misconduct standards needed to defend unemployment compensation claims. Handbook acknowledgement forms are used as evidence in defending discrimination and unemployment claims. "Fitness for duty" or drug testing policies in handbooks are used to keep all employees safe on the job. Many insurance carriers now require employers to have handbooks as another means to communicate safety information and OSHA standards. Handbooks are essential for even the smallest companies.
By: Kimberly L. Russell, Esquire
QUESTION: Should an employer have a contract with his independent contractors?
ANSWER: It is very important for employers to have written contracts with independent contractors ("IC"). The IRS uses a 20-factor test to determine whether a worker is properly classified as an IC. These 20 factors point to the key question: Does the employer have the right to direct and control the manner in which the worker performs his services? Since the right to exercise direction and control over the manner in which the worker performs his services can exist whether or not it is exercised, it is important that a written contract expressly negate such right. The contract should also address as many of the other 20 factors as possible and other federal and state law tests that differ from the IRS' test.
QUESTION: I develop, improve, and build on real estate in Pennsylvania. How do I decide if the people who perform work for me are employees or independent contractors?
ANSWER: A new law which just became effective in Pennsylvania will affect your decision. The "Construction Workplace Misclassification Act" targets contractors who misclassify their employees as "independent contractors." Such misclassification can occur if a contractor incorrectly treats an employee as an independent contractor to avoid expense such as payroll taxes, worker's compensation insurance costs, and unemployment compensation expenses, which would be payable for actual employees. The Act provides for civil penalties, potential stop work orders, and criminal liability for such actions.
The Act applies to employers in the "construction industry," which is defined as a business involved in the erection, reconstruction, demolition, alteration, modification, building, assembling, site preparation and repair of real property on public or private projects. It narrowly defines an "independent contractor". An independent contractor must have a written contract, control his own performance, and be engaged in an independent trade, profession, or business. A person is so engaged only if he/she has their own tools, has a contract which provides for profit, performs services through a separate business, maintains a separate business location, maintains separate liability insurance of at least $50,000, and holds themselves out as a separate business. If a business misclassifies an employee as an independent contractor, it can be fined between $1000 and $2500 per offense, and a stop work order preventing the business from continuing to employ the misclassified individual may be issued. Intentional violations of the Act may result in a criminal referral to the Attorney General or a local District Attorney. Intentional violations of the Act are misdemeanors of the second or third degree. The Act also contains a whistle blower provision which protects individuals from retaliation from reporting violations of the Act. This new law imposes formidable risks, apart from federal tax liability, for businesses which misclassify employees as independent contractors. Construction employers are advised to review their hiring practices to ensure that they conform to the requirements of this new law.
QUESTION: When must overtime compensation be paid?
ANSWER: For covered, nonexempt employees the Fair Labor Standards Act ("FLSA") requires overtime pay at a rate of one and one-half times the employee's regular rate of pay. Section 13(a)(1) of the FLSA provides an exemption for employees employed as bona fide executive, administrative, professional and outside sales employees. To qualify for the exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis of not less that $455 per week. Job titles do not determine exempt status. In order for an exemption to apply, an employee's job duties and salary must meet all of the requirements of the Department of Labor's regulations. Most states also have enacted overtime laws. Where an employee is subject to both the state and federal overtime laws, the law with the higher standard will apply.
