This Presentation covers the DOL's new Proposed Rules. Topics covered include: • The DOL Adopting more Restrictive Tests for Independent Contractor • The Proposed Changes to DOL White Collar Exempt Status Regulations • The Computer Professionals Exemption Decision Tree • The Salary Basis Test, Permitted Salary Deductions • The Exceptions from "No Pay-Docking" Rule • Examples & Effects of Improper Deductions • Payroll Practices that Do Not Violate the Salary Basis Test • Additional Compensation. DISCLAIMER: By using this site and accessing the information presented by CowanPerry, PC., you understand that there is no attorney client relationship between you and CowanPerry, PC. The site and information contained therein should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. The information contained on this site is summary in nature and does not include all conditions, limitations, or exceptions that may be applicable to a particular situation. Every effort has been made to present current information without inaccuracies; however, errors, additions, deletions, and changes in the laws or procedures may occur and could make the information out of date or inaccurate. CowanPerry, PC does not assume any liability whatsoever for the "up-to-dateness", accuracy and completeness of the information.

1. Changes on the Horizon:
The DOL’s Proposed Rules Regarding
Independent Contractors and the FLSA
White Collar Exemption
James K. Cowan, Jr.
jcowan@cowanperry.com
Eric D. Chapman
echapman@cowanperry.com
540-443-2850 main
888-755-1450 fax
www.cowanperry.com

2. Section 1
The DOL Adopts More Restrictive
Test for Independent Contractors

3. The DOL Adopts More Restrictive
Test for Independent Contractors
The Department of Labor’s Wage and Hour Division (the “DOL”) recently
issued new guidance on determining whether a worker is an independent
contractor or an employee, in the form of an “Administrator’s Interpretation”
(No. 2015-1). This interpretation has been issued in furtherance of the DOL’s
ongoing agenda to extend minimum wage and other wage-hour protections
as broadly as possible.
The DOL has taken the position that most workers who are currently
classified as independent contractors are actually employees (subject to
employment tax withholdings and overtime payment regulations) under the
Fair Labor Standards Act (the “FLSA”), and stated that they intend to focus
investigations on these misclassifications. Such misclassifications, if upheld
by the courts, may result in significant exposure by employers for overtime
compensation, unemployment insurance, and workers’ compensation
coverage.

4. The DOL Adopts More Restrictive
Test for Independent Contractors
The DOL has now adopted what it calls the “economic realities” test to determine
whether a worker should be classified as an employee or as an independent
contractor. The test consists of six factors to be considered:
1. Is the work performed an integral part of the employer’s business?
If the worker performs services that the company is in the business of
providing, he/she is more likely to be considered an employee.
2. Does the worker’s managerial skill affect his or her opportunity for profit or
loss?
This goes beyond a worker’s ability to simply work more hours to increase his/her
compensation.
3. How does the worker’s relative investment compare to the employer’s
investment?
The worker must have made a significant investment to be considered an
independent contractor.

5. The DOL Adopts More Restrictive
Test for Independent Contractors
4. Does the work performed require special skill and initiative?
A worker’s “business skills, judgment, and initiative, not his or her technical
skills, will aid in determining whether the worker is economically independent.”
5. Is the relationship between the worker and the employer permanent or
indefinite?
A long-term relationship between the parties suggests the worker is an
employee.
6. What is the nature and the degree of the employer’s control?
“The worker must control meaningful aspects of the work performed such that it
is possible to view the worker as a person conducting his or her own business.”

6. The DOL Adopts More Restrictive
Test for Independent Contractors
None of these factors alone is dispositive, however, the factors are weighed
in their entirety and will be applied in the context of the FLSA’s broad
definition of “employ” as being to “suffer or permit to work.” One good
indicator, in the DOL’s view, of whether is worker is an independent
contractor or an employee is whether the worker is “economically dependent
on the employer or truly in business for him or herself.”
In addition, the DOL will also apply this analysis in determining independent
contractor eligibility for leave and job protection under the Family and Medical
Leave Act.
While the DOL’s Interpretation is not law and the extent of deference afforded
to it by the federal courts is yet to be seen, there is no doubt that independent
contractor relationships are under renewed scrutiny, and now is the time to
closely review any independent contractor relationships you may have.

7. Possible Mitigating Measures….
But Will They Work?
• Written Independent Contractor Agreements
• New terms to include? Indemnity? Tailor to the new test?
Term limits?
• Require contract with LLC?
• Contractor Obtaining Liability and Worker’s Compensation
Insurance
• What About Staffing Company Employees contracted to you?

8. Section 2
Proposed Changes to DOL White
Collar Exempt Status Regulations

9. Proposed Changes to DOL White
Collar Exempt Status Regulations
The Department of Labor (DOL) has released its Notice of
Proposed Rule Making Amendments to the Fair Labor Standards
Act white-collar exemption.
Theses amendments, if passed, will increase the minimum
salary test from $23,660 to $50,440 for hours worked over 40
in a work week.
The amendments, if passed, will have far-reaching impacts
on many industries, which may need to reclassify many currently
exempt employees and corresponding wage and hour policies.

10. Proposed Changes to DOL White
Collar Exempt Status Regulations
The DOL’s proposed amendments include:
1. Establishing a mechanism for automatically updating the
salary levels going forward;
2. Increasing the standard salary level at the 40th percentile of
earnings for full-time salaried workers which currently is
equivalent to $47,892 and projected to be $50,440 in 2016;
3. Increasing salary level for highly compensated employees to
the equivalent of the 90th percentile of weekly earnings.

11. Proposed Changes to DOL White
Collar Exempt Status Regulations
Missing from the proposed amendments are any proposed changes to
the primary duties test. Many expected that the DOL would propose a
change to the primary duties test and implement a quantitative primary
duty test that would require an employee to spend more than 50% of
his/her time on tasks deemed exempt.
However, DOL indicates in the Notice of Proposed Rulemaking that it
believes the proposed salary level increase and automatic updates
may address most of the concerns so that a change in the primary
duties test will not be necessary.
DOL is seeking public comment on this issue and changes the proposed
amendments may include changes to the primary duties test as well.

12. Proposed Changes to DOL White
Collar Exempt Status Regulations
The proposed amendments were made public as of June 30,
2015. There will be a public comment period of 60 days after
the amendments are published in the Federal Register and
the DOL may modify them.
While the proposed rules will likely not be effective until this
fall or possibly early 2016, employers need to start preparing
now by reviewing current classifications with a particular
emphasis on an employee currently classified as exempt
whose salary is less than $50,440.

13. White Collar Exemption Tree
Does the position have as its primary duty work consisting
of the management of the enterprise in which it is located or
of a recognized department or subdivision?
NO YES
Does the position customarily
and regularly direct the work of
two or more employees in the
enterprise, department, or
subdivision?
NO YES
Executive
Exemption
Administrative
Exemption
Executive
Exemption
Does the position have as its primary duty
office or non-manual work directly related to
the management policies or general business
operation of the employer?
NO YES Does the position customarily
and regularly exercise discretion
and independent judgment in
performance of duties?
Professional
Exemption
Non-Exempt
Does the position have as its primary duty the
performance of work requiring knowledge of an
advanced type in a field of science or learning and
the consistent exercise of discretion and judgment?
NO YES
Does the position have as its primary duty
the performance of work requiring
invention, imagination, or talent in a
recognized field of artistic endeavor?
NO YES
YES
NO

14. Computer Professionals Exemption Decision Tree
Does the position have as its primary duty the application of systems
analysis techniques and procedures including consulting with users to
determine hardware, software or system functional specifications?
Computer
Professionals
Exemption
Computer
Professionals
Exemption
Computer
Professionals
Exemption
Does the position have as its primary responsibility the design,
development, documentation, analysis, creation, testing, or modification of
computer systems or programs including prototypes based on related to
user or design system specifications?
NO YES
NO YES
Does the position have as its primary responsibility the
design, documentation, testing, creation or modification
of computer programs related to machine operation
systems?
Non-Exempt
NO YES

15. The Salary Basis Test
• Most of the exemptions require that employees be
paid on a “salary basis”
• Payment of a salary has always been required for
the “white collar” exemptions
• The new regulations make several significant
changes in the salary basis test

16. The Salary Test Defined
• Regularly receives a predetermined amount of
compensation each pay period (on a weekly or less
frequent basis)
• The compensation cannot be reduced because of
variations in the quality or quantity of the work
performed
• Must be paid the full salary for any week in which the
employee performs any work
• Need not be paid for any workweek when no work is
performed

17. The Salary Test Defined
• An employee is not paid on a salary basis if
deductions from the predetermined salary are
made for absences occasioned by the
employer or by the operating requirements of
the businesses
• If the employee is ready, willing and able to
work, deductions may not be made for time
when work in not available

18. Permitted Salary Deductions
• Seven exceptions from the “no pay-docking”
rule:
1. Absence from work for one or more full
days for personal reasons, other than
sickness or disability
1. Absence from work for one or more full
days due to sickness or disability if
deductions are made under a bona fide
plan, policy or practice of providing wage
replacement benefits for these types of
absences

19. Exceptions from
“No Pay-Docking” Rule
3. To offset any amounts received as
payment for jury fees, witness fees, or
military pay
4. Penalties imposed in good faith for
violating safety rules of “major
significance”
5. Unpaid disciplinary suspension of one or
more full days imposed in good faith for
violations of workplace conduct rules

20. Exceptions from
“No Pay-Docking” Rule
6. Unpaid leave taken pursuant to the Family
and Medical Leave Act
7. Proportionate part of an employee’s full
salary may be paid for time actually
worked in the first and last weeks of
employment

21. Improper Deductions – Examples
• Deduction for a partial-day absence to attend a parent-
teacher conference
• Deduction of a day of pay because the employer was
closed due to inclement weather
• Deduction of three days of pay because the employee
was absent from work for jury duty, rather than merely
offsetting any amount received as payment for the jury
duty
• Deduction for a two day absence due to a minor illness
when the employer does not provide wage replacement
benefits for such absences

22. Effects of Improper Deductions
• An “actual practice” of making improper deductions
from salary will result in the loss of the exemption only:
– During the time period in which improper
deductions were made
– For employees in the same job classifications
– Working for the same managers responsible for
the actual improper deductions
• Isolated or inadvertent improper deductions, however,
will not result in the loss of exempt status if the
employer reimburses the employee

23. Safe Harbor
• The exemption will not be lost if the employer:
– Has a clearly communicated policy prohibiting
improper deductions and including a complaint
mechanism;
– Reimburses employees for any improper
deductions; and
– Makes a good faith commitment to comply in
the future
• Unless the employer willfully violates the policy by
continuing to make improper deductions after
receiving employee complaints

24. Clearly Communicated Policy
• The best evidence of a clearly communicated
policy is a written policy distributed to
employees prior to the improper pay deductions
by, for example:
– Providing a copy to the policy to
employees at the time of hire
– Publishing the policy in an employee
handbook
– Publishing the policy on the employer’s
Intranet

25. Payroll Practices That Do Not
Violate the Salary Basis Test
• Taking deductions from exempt employees
accrued leave accounts
• Requiring exempt employees to keep track of and
record their hours worked
• Requiring exempt employees to work a specified
schedule
• Implementing bona fide, across-the-board
schedule changes

26. Additional Compensation
• An employer may provide compensation in
addition to the guaranteed weekly salary, such
as:
– Commissions
– Bonuses
– Additional pay based on hours worked
beyond the normal workweek

27. 202 South Main Street, Suite 202
Blacksburg, VA 24060
p: 540.443.2850
317 Washington Avenue, S.W.
Roanoke, VA 24016
p: 540.777.3450
www.cowanperry.com
James K. Cowan, Jr.
jcowan@cowanperry.com
Eric D. Chapman
echapman@cowanperry.com
540-443-2850 main
888-755-1450 fax
www.cowanperry.com