Page 38 - Network Magazine Summer 2019
P. 38

       MAYDAY, MAYDAY, ITS PAYDAY:
The Dangers of Paying Employees Improperly
EDWARD EASTERLY, ESQ.
HOFFMAN HLAVAC & EASTERLY
Much like the iceberg that sunk the Titanic, improp- erly classifying and paying employees has sunk its fair share of employers. It seems like each week, or at least each month, employers are faced with a new law, regulation, or case interpretation which impacts the manner in which they have to pay employees.
By way of example, recently, the Pennsylvania Supreme Court heard argument in the matter of Chevalier v. Gen. Nutrition Centers, Inc., which pertains to an employer’s use of what is referred to as the “fluctuating workweek” and the potential significant difference between the federal and the Commonwealth’s interpretation of the law. The federal Fair Labor Standards Act (FLSA) permits an employer to use the fluctuating workweek to pay an employee a fixed weekly salary for all hours worked, so long as the employer also pays an overtime premium equal to one-half of the employee's regular hourly rate for hours worked in excess of forty (40) per week. All states must adhere to the requirements of the FLSA. States, however, are also permitted to implement their own wage and hour laws, and employers must fol- low whichever law is more beneficial to the employee.
In this regard, Pennsylvania has implemented the Penn- sylvania Minimum Wage Act (PMWA), which mirrors the FLSA in most regards; however, it does include differing language as it pertains to the fluctuating workweek. The PMWA is more "employee-friendly" because it requires employers to pay 1 and 1⁄2 times the regular rate to em- ployees for overtime worked rather than merely adding the "one-half" to such an amount as required by the
FLSA. As such, under the PMWA, an employer would be required to pay an employee more for the overtime hours worked than if the FLSA language applied. The foregoing is significant because employers are required to follow the law that is more beneficial to the employee, not the employer. Depending on how the Pennsylvania Supreme Court rules, it may have a significant impact on an employer who uses a "fluctuating workweek" and may result in claims by employees for unpaid wages.
The fluctuating workweek is just one example of the potential pitfalls employers face when dealing with properly paying employees. Given that it is summer, two other potential issues arise more often: the use of independent contractors and unpaid interns. Employers love using independent contractors because they do not have to pay overtime or payroll taxes. Employers also love using unpaid interns because they are, well, unpaid. In order for a worker to be classified as an independent contractor or an unpaid intern, however, they must meet specifically defined tests. If they do not meet such tests, they have to be paid at least minimum wage and overtime for all hours worked over forty in a workweek.
So, who is an “independent contractor”? As a general matter, for someone to be an independent contractor, the company cannot control the manner or means by which the individual performs the work. By way of example, a company should not inform the worker how to do the work, what hours to do the work, or provide the tools to complete the job. The company also should not provide the worker with any benefits that
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