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IRS Hires Enforcement Agents to Support Worker Misclassification Initiatives

May 6, 2016

By Jonathan Flora

Despite major reductions in budget since 2010, the IRS has remained vocal about stepping up enforcement actions against employers whose employees are misclassified as independent contractors. The IRS is about to get a significantly expanded workforce to back up these proclamations. In particular, the IRS Commissioner recently announced that the agency is adding between 600 and 700 new employees in its enforcement area. The new enforcement positions will be located around the country, both in the IRS small business/self-employed division and large business and international division.

It is no secret that over the last several years the IRS has been taking a variety of steps to recover what it estimates are billions of dollars in lost tax revenue due to the misclassification of independent contractors. For example, in early 2014, the IRS promoted a program that allows individual workers to file a Form SS-8 to initiate a review of their independent contractor status if they feel they have been misclassified. The IRS announced in June 2014 that it is increasing its corporate audits of S corporations because it has found that many are misclassifying their workers as independent contractors. It also entered into a memorandum of understanding with the U.S. Department of Labor calling for collaboration and information sharing on misclassification activities.

While the Commissioner’s announcement of new enforcement positions does not earmark any of them specifically to worker classification, it seems very likely that it will match at least some, if not many, of these positions to that on-going enforcement objective. Even more enforcement positions are called for in the Administration’s 2017 budget proposal. The Commissioner claims that each dollar U.S. Treasury spends on enforcement positions “typically returns almost $10 to the U.S. Treasury.”

For more information regarding this issue, please contact Jonathan Flora, a member of Schnader’s Tax Practice Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

Overtime Exemption Changes Expected Next Week

May 4, 2016

By Anne E. Kane

The U.S. Department of Labor (DOL) is poised to release the final rules regarding overtime exemption changes.  On March 14, the DOL submitted its final version of the regulations to the Office of Management and Budget (OMB) for review. Although OMB has 90 days to review the rule, we expect it to release the new regulation before May 16 to avoid a situation where the new administration could overturn the rule under a provision of the Congressional Review Act.  Once the final rule is published in the Federal Register, employers will have 60 days to comply.

As a reminder, the minimum salary required to classify workers as exempt is currently $23,660.  This will more than double under the proposed new rule, to $50,440. As we previously discussed here, the DOL maintains that this increase is necessary to preserve the intent of the Fair Labor Standards Act (FLSA) and to simplify the identification of nonexempt employees. The new salary threshold is at the 40th percentile of average weekly wages of full-time salaried employees according to the Bureau of Labor Statistics. The new rule proposes to index the minimum salary to the Consumer Price Index for All Urban Consumers (CPI-U) or maintain it at the 40th percentile of average weekly wages of full-time salaried employees.

In light of the imminent new rules, we recommend identifying employees who are currently exempt but paid less than $50,440. Now is the time to gather information about the number of hours these employees work so that you can make an informed decision about whether to reclassify or adjust salaries prior to the compliance deadline, which will likely be in mid-July.

For more information regarding this or other labor and employment issues, please contact Anne E. Kane, co-chair of Schnader’s Labor and Employment Practices Group.

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

Wolf Signs Sexual Orientation Non-Discrimination Orders

April 11, 2016

By Karen Baillie

On April 7, Pennsylvania Governor Tom Wolf signed two executive orders barring discrimination against workers on the basis of sexual orientation or gender identity. Executive Order 2016-04 prohibits government agencies from discriminating against employees or employment applicants on the basis of race, color, religious creed, ancestry, union membership, age, gender, sexual orientation, gender identify or expression, national origin, AIDS or HIV status, or disability. It also mandates that each agency designate an Equal Opportunity Officer to implement the new policy. The order further encourages independent agencies, state-affiliated entities and state-related agencies to adopt similar practices.

The second directive, Executive Order 2016-05, bars discrimination, including by reason of sexual orientation or gender identity, in the award and selection of contracts issued by Commonwealth agencies. It extends to companies and individuals awarded Commonwealth contracts in the hiring and treatment of their employees, as well as any related subcontracts or supply contracts.

These executive orders add to a patchwork of state and local laws governing these matters. Although many of the state’s largest cities, including Philadelphia and Pittsburgh, have ordinances that prohibit discrimination based on sexual orientation, no such state-wide law exists. In August of 2015, state lawmakers introduced legislation that would update Pennsylvania’s nondiscrimination law to add sexual orientation and gender identity and expression as protected categories, but no action has been taken on the bills. Meanwhile, the Equal Employment Opportunity Commission has taken the position that discrimination based on sex extends to sexual orientation, and has filed lawsuits accusing employers of discrimination under this theory.

In light of these orders, we recommend that all employers doing business with the Commonwealth review their employment policies and amend them where necessary.

For more information regarding this or other labor and employment issues, please contact Karen Baillie, a member of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

California On Its Way to $15.00 Minimum Wage

April 4, 2016

By Scott J. Wenner

The $15.00 minimum wage has been the goal of a loud and active national movement for some time now. A report by the Los Angeles Times of a California-style deal between unions and the California legislature suggest that a 50% hike in the present $10.00 an hour state floor on wages will be phased in by 2022. Small employers will be given an additional year to comply. It appears that the lawmakers involved knuckled under to the unions in part to avoid losing control of the issue (and credit for its passage); union leaders had threatened to use California’s initiative process to put the substantial minimum wage hike on the ballot in November, and reports claimed that more than two-thirds of voters supported its passage.

According to The Times, the legislature could vote on the deal within weeks. Governor Brown’s office has announced that the Governor will meet with unnamed leaders on the issue in the near future.

Reports on the proposal note that the Governor may postpone temporarily the phased increases contemplated if the economy falters. In addition, once the $15.00 minimum wage is reached, future increases in that rate would be linked to inflation – a provision found in many state minimum wage laws – which obviates the need for legislation each time an increase in the minimum wage is sought.

One question to consider in the likely event that the minimum wage deal comes to fruition is whether those California cities that have passed “living wage” laws that push the minimum wage to levels higher than state laws require will be tempted to raise their minimum wage levels in response to the state action. Advocates no doubt will argue that workers in San Francisco, Los Angeles and other high cost areas deserve to be paid a higher wage than, say, residents of Stockton or Fresno due to the far higher cost of living they face.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

Supreme Court Hands Labor Unions a Reprieve

March 30, 2016

By Jo Bennett

In the second split decision since the passing of Justice Antonin Scalia, the Supreme Court gave organized labor a status quo victory in Friedrichs v. California Teachers Association on Tuesday.

The case was brought by the Center for Individual Rights on behalf of ten California public schoolteachers. At issue in the case is whether a system of “agency fees” for non-union teachers violates the First Amendment. California is one of many states where public employees who chose not to join unions must pay a “fair share service fee.” The fees, also known as agency fees, are usually equivalent to union dues and help pay for collective bargaining activities. The theory behind the law is that non-union members profit from union activities, in the form of higher wages, better benefits, leave policies and grievance procedures.

The per curiam opinion, noting only that “judgment is affirmed by an equally divided court,” set no precedent, and the issue may be revisited by a full court in the future. For now, the decision leaves intact the 1977 Supreme Court ruling in Abood v. Detroit Board of Education. In that case, the Court ruled that non-union members can be compelled to pay for a union’s collective bargaining efforts, but not its political activities.

The case is likely to heat up the standoff between the Obama administration and Senate Republicans, who vowed to hold no hearings on any Supreme Court nominees until after the election.

For more information regarding this or other labor and employment issues, please contact Jo Bennett, a member of Schnader’s Labor and Employment Practices Group.   

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

NJ Adopts Final Regulations on Criminal Background Inquiries

March 16, 2016

By Michael J. Wietrzychowski

New Jersey has promulgated its final ban-the-box regulations, clarifying the law passed on March 1, 2015, which severely restricted public and private employers with 15 or more employees from inquiring into an applicant’s criminal background at the beginning of the hiring process.

Under the law, employers cannot ask about an applicant’s criminal history on the job application and during the first interview with the applicant. The law also prohibits employers from posting or advertising that a position requires a clean criminal record, unless such a requirement is mandated by law. Importantly, the law does not apply to positions where another law requires a criminal background check or if the job is predicated upon a specific criminal background history.

Important questions addressed in the final regulations include:

Which Employers are Covered By the Law? The regulations provide that Employers who employ 15 or more employees for 20 calendar weeks. It doesn’t matter if you are a private or public (except for federal) employee. It also doesn’t matter if not all 15 employees work in New Jersey.

Which Applicants are Covered by the Law? Prospective employees are covered, as well as paid or unpaid “interns” and “apprentices.” Interns include students or recent graduates, working as a trainee to gain practical experience in an occupation. An apprentice is an individual who is registered in good standing in an apprenticeship program approved or certified by the U.S. Department of Labor’s Office of Apprenticeship.

Are Independent Contractors Covered? No – provided that the person is properly categorized as an independent contractor and not an employee, apprentice or intern. Similarly, a company is not prohibited from inquiring into the criminal backgrounds of employees employed by temporary staffing agencies assigned to work at the company as long as such employee is not employed by the company. However, applicants referred by a recruiting firm are covered where they are referred with the intent of becoming an employee of the company. Therefore, companies can’t circumvent the law by outsourcing their employment process to a third party.

What is an Interview? The regulations define an interview as “any live, direct contact by the employer with the applicant” to discuss the employment being sought or the applicant’s qualifications. This includes contact in person, by telephone or video conferencing, but does not include an exchange of emails or the completion of a written or electronic questionnaire. Once this first interview is complete, the prohibition on criminal background inquiries has ended under this particular law.

What if the Applicant Volunteers Criminal Information? If an applicant volunteers criminal information, then the door is opened for the employer to inquire further into the criminal background of the applicant.

What if I Use the Same Application for All States? Under the regulations, the employer can continue to ask criminal background questions on the application – provided that the application contains this disclaimer right after the question: “an applicant for a position the physical location of which will be in whole, or substantial part, in New Jersey is instructed not to answer this question.”

Are Drunk Driving and Other Motor Vehicle Violations Covered? Yes, the regulations treat DWI/DUI and motor vehicle violation inquiries the same as criminal background inquires, and therefore, are prohibited until after the first interview.

Are Internet Searches or Public Record Searches Criminal Record Inquiries? The regulations say YES. So before you Google an applicant’s criminal history, or have a third party do it on your behalf, make sure you have completed the first interview.

When Can I Inquire About Criminal Histories? You can conduct criminal history inquiries after completing a first interview. However, the law does not apply where another law disqualifies an applicant from the job because of a criminal conviction.

Do I Have to Hire Someone with a Criminal Record? This specific law does not prevent employers from refusing to hire applicants with criminal histories. However, federal and state anti-discrimination laws as well other laws, such as the Fair Credit Reporting Act, could come into play when the decision not to hire is based on a criminal history.

What Employers Should Do

Covered employers should modify their applications and recruitment policies and practices to ensure compliance with the law. Employers also should be aware that even though the law does not prohibit an employer from refusing to hire an applicant with a criminal background, other federal and state laws may prohibit such a bright line practice in many circumstances.

For more information regarding this or other labor and employment issues, please contact Michael J. Wietrzychowski, Co-Chair of Schnader’s Labor and Employment Practices Group.   

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

Philadelphia’s “Ban the Box” Ordinance Now Applies to All Private Employers

March 10, 2016

By Anne E. Kane

New amendments to the Philadelphia “Ban the Box” ordinance, signed into law by former Mayor Nutter in January, will take effect on March 14, 2016. The current law, also known as the “Fair Criminal Records Screening” ordinance, prohibits private employers with 10 or more employees in Philadelphia from asking a Philadelphia applicant about criminal convictions until after the initial employment interview. Borrowing generously from the Equal Employment Opportunity Commission’s guidance on the use of criminal background checks in hiring, the amendments extend the reach of the existing law to more businesses and impose additional restrictions on the use of background checks and criminal records in the hiring process.

Critical Changes

More employers coveredThe ordinance now applies to all employers with at least one employee in the City of Philadelphia.

Applications may not include criminal history questionsEmployers may not include criminal history questions on employment applications provided to Philadelphia applicants. Because it will no longer be compliant to direct Philadelphia applicants not to answer such questions, multistate employers will need to use a separate application form for Philadelphia applicants or remove criminal history questions from its multistate application altogether.

Background checks are barred until after conditional offer of employment, and are subject to other limitationsEmployers must now wait until after making a conditional job offer to conduct background checks. Other significant new limitations include:

  • Employers may only consider the applicant’s criminal history for seven years from the date of the background check (excluding any periods of incarceration).
  • A conditional job offer may only be withdrawn based on a conviction record that reasonably leads the employer to conclude that the applicant either would “pose an unacceptable risk in the position applied for” or that the applicant “failed to meet legal or physical requirements of the job.”
  • An employer must engage in an individualized risk assessment before rejecting an applicant based on the applicant’s criminal history. This risk assessment must consider the applicant’s record in light of the “particular job being sought” and take into account the following six factors: (1) the nature of the offense; (2) the time that has passed since the offense; (3) the applicant’s employment history before and after the offense and any period of incarceration; (4) the particular duties of the job being sought; (5) any character or employment references provided by the applicant; and (6) any evidence of the applicant’s rehabilitation since the conviction.
  • Notice must be given to any applicant who has been disqualified based on a conviction and the applicant must have 10 days to offer proof that the background check is inaccurate or to provide an explanation.

Posting requirementPhiladelphia employers must post a workplace notice summarizing the amended ordinance.

New penalties for non-compliance. The ordinance will now administered by the Philadelphia Commission on Human Relations. In addition to administrative fines available under the current law, the Commission may order injunctive relief and award compensatory and punitive damages as well as attorneys’ fees. The amendments also create a private right of action for rejected applicants who believe that they have been a victim of discrimination.

Action steps for Philadelphia employers

  • Review your hiring policies, procedures and standard forms (including all application materials) for all jobs in Philadelphia to ensure compliance with the new requirements.
  • Train all personnel involved in hiring not to inquire about criminal history or conduct criminal background checks until after a conditional job offer.
  • Document consideration of the required six factors when considering criminal convictions as a potential bar to employment.
  • Obtain required poster from the Philadelphia Commission on Human Relations.

For more information regarding this or other labor and employment issues, please contact Anne E. Kane, co-chair of Schnader’s Labor and Employment Practices Group.

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

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