Convenience retailers should prepare for heightened enforcement of labor practices, due to latest policies from DOL
The Department of Labor (DOL) has been busy of late — and convenience store owners should pay attention. Convenience store owners may soon face significant new employment costs relating to overtime, and they now may be liable for substantial penalties related to their employment of independent contractors.
Earlier this month, DOL proposed a rule that would extend overtime protections under the Fair Labor Standards Act (FLSA) to nearly 5 million white-collar workers within the first year of its implementation. Specifically, the proposed rule would raise the salary threshold – that triggers when an employee becomes ineligible for overtime – from the current $23,660 per year level to the 40th percentile of weekly earnings for full-time salaried workers: approximately $970 per week, $50,440 annually. But DOL did not just stop at overtime.
Shortly after proposing the overtime rule, they issued a guidance aimed at curbing the misclassification of employees as independent contractors. Significantly, DOL states that most workers are employees – not independent contractors – under the FLSA. To address this problem, the guidance lays out a six-factor test that should be used to evaluate the worker-employer relationship to assess whether a worker is an independent contractor.
This is a big deal because the possible penalties for misclassification under the FLSA, the tax code and the Affordable Care Act (ACA) could be astronomical.
For example, if misclassified independent contractors (who did not receive offers of health-care coverage under the ACA), are reclassified as employees, then the result is that less than the required minimum number of full-time employees received offers of coverage. This misclassification will trigger a penalty of $2000 times the overall number of the entity’s full-time employees on an annualized basis. That’s right — the potential fines are staggering.
Separately, both of these DOL actions are cause for concern. The overtime proposal could significantly impact the c-store business model and a retailer’s ability to hire full-time employees. Similarly, the guidance may force companies to alter their hiring structure. Taken together, the DOL’s actions raise a red flag that the administration is planning to be more active in employment matters. The guidance, in particular, is putting employers on notice that DOL plans to intensify enforcement in this area.
Convenience store owners need to begin preparing for heightened enforcement now by reviewing worker classifications to make sure they are appropriate. Because if they are not, c-store owners may find themselves flooded with penalties so enormous that they threaten store viability.