Beware of Recruitment Companies – The Halloween Nightmare of DOL Audits | Blogs | Labor and Employment Law Perspectives
Employers should be aware that the US Department of Labor (DOL) has intensified its review of payroll practices by recruiting companies, through comprehensive audits focused on overtime classification. Lately, the DOL seems particularly focused on whether employers are properly relying on two separate exemptions to avoid overtime obligations: (1) the IT employee exemption; and (2) the exemption of highly paid employees.
IT employee exemption
For starters, many national and regional staffing firms play a vital role in providing essential recruiting resources for the booming IT industry. In most cases, people hired by recruitment companies to fulfill various roles as IT consultants receive a substantial hourly rate for the work performed.
If a person qualifies for this exemption, investment firms are not required to pay overtime beyond forty (40) hours, even if the person’s compensation is tied to an hourly rate. (Unlike other occupational exemptions, these employees do not need to be paid on a salary basis to be exempt, as long as they are paid at least $27.63 per hour.)
Employers should understand that while job titles alone are not determinative, the IT employee exemption generally covers “[c]computer systems analysts, computer programmers, software engineers, or other computer-skilled workers” who perform certain identified primary tasks.1 To qualify for this exemption, the main task of the IT employee must consist of the following:
- Application of systems analysis techniques and procedures, including user consultation, to determine functional hardware, software or system specifications;
- The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
- The design, documentation, testing, creation or modification of computer programs related to machine operating systems; Where
- A combination of the aforementioned functions whose exercise requires the same level of competence.2
Although the current DOL may apply a narrower interpretation of this category, the law and its accompanying regulations expressly recognize that, generally, IT employees perform duties that simultaneously satisfy the executive and administrative employee exemptions.3 Importantly, the regulations recognize that employees do not need to exclusively perform covered work tasks to qualify for an exemption.4 (“The simultaneous performance of exempt and non-exempt work does not disqualify an employee from the executive exemption if the requirements of § 541.100 are otherwise met.”). Instead, the focus is on whether they perform enough exempt duties, in combination with non-exempt duties, so that they constitute the “main” duties of the employee’s job.5 The regulations of the act, in turn, define “primary duty” as “the main, principal, major or most important duty performed by the employee”.6
Factors the Department assesses to determine an employee’s primary duty include, but are not limited to, “the relative importance of exempt duties versus other types of duties; time spent performing exempt work; the employee’s relative freedom from direct supervision; and the relationship between the employee’s salary and the salaries paid to other employees for the type of non-exempt work performed by the employee. In all cases, this decision is made based on all the particular facts and circumstances of each case, taking into account primarily “the nature of the employee’s work in general.”
Staffing companies, especially those that focus on the IT industry, should take the opportunity to review job titles and responsibilities for each of their clients’ positions. These preventive measures will allow recruitment companies to respond to DOL audits in a timely and complete manner and hopefully avoid any form of fine or penalty.
Exemption for Highly Paid Employees
While applying the IT employee exemption may require recruiting companies to “double down” on their compliance obligations, using the high-paid employee exemption may prove more difficult in the context of other sectors such as healthcare or life sciences. To qualify for the high-paid employee exemption, a person must earn $107,432.00 on an annualized basis in 2022.seven Employees earning at least $107,432 are exempt if they regularly perform one or more of the exempt duties or responsibilities of an executive, administrative or professional employee. Although this threshold is clear at first glance, the analysis does not stop there.
Like their counterparts in the IT industry, people employed by recruitment companies in other industries are also usually paid on an hourly basis. Unlike IT consultants who are exempt in most cases under the IT employee exemption, even when paid hourly, there is no exemption allowing hourly compensation for IT consultants. other sectors. This means that even if the employee earns a significant hourly rate (annualized well over six figures, in amounts that would otherwise fall below the high-pay threshold), they may still ultimately be considered non-exempt.
In summary, the FLSA and its regulations require employees to be paid on a salary basis, wherein the employee “regularly receives each pay period on a weekly or less frequent basis, a predetermined amount constituting all or part of employee compensation, the amount of which is not subject to reduction due to variations in the quality or quantity of work performed.8 Other provisions of the regulations under the Act indicate that the emphasis in assessing compliance is on the extent to which the employee and the employer mutually expect regular and consistent work, both both in terms of quantity and quality.9 (recognize exemptions for employees who are paid on an hourly, daily or shift basis). Moreover, Congress has changed these exemptions over time to recognize covered compensation plans other than typical salary payments, further proof that the applicable standard is not so black and white.
For example, as originally enacted, the law did not recognize a stand-alone exemption for computer-related employees. Then, in 1996, the United States Congress directed the Secretary of Labor to issue regulations creating the IT employee exemption, apparently recognizing the market and employment realities of these professions and the compensation arrangements that exist. .ten At that time, Congress further directed the Secretary of Labor to apply the exemption to employees in computer-related positions if they received compensation. hourly wage it was at least six and a half times the basic federal minimum wage.11 Given that the Act recognizes as permitted these various methods of compensation other than a strict salary in the conventional sense, it follows that the exemptions described above are still met when the employee receives what is, in effect, salary, despite the absence of the typical label.
The current DOL is testing those limits, seeking volumes of information in expedited audits on how, when, and if these consultants — many of whom earn well over $125,000 — receive what equates to a typical salary. Recruitment firms would be wise to pay close attention to their compensation terms, which will surely come under scrutiny in the near future.
1 See 29 CFR § 541.400.
2 See 29 CFR § 541.400(b).
3 See 29 CFR § 541.402.
4 See 29 CFR § 541.106(a).
5 See 29 CFR § 541.700.
6 See 29 CFR § 541.700(a).
seven See 29 CFR § 541.601(a)(1).
8 See 29 CFR § 541.602(a).
9 See 29 CFR § 541.604(b)
ten See Small Business Jobs Protection Act of 1996, PL 104-188 (HR 3448).
11 View ID.