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Child Labor Restrictions

Cobra

Department of Labor

Employee vs. Independent Contractor

Exempt and Nonexempt

Fair Labor Standards Act (FLSA)
Family Medical Leave Act

Federal vs. State Minimum Wage

Statutory Employees

Statutory Non-employees

Termination Payments

Workers' Compensation




Child Labor Restrictions
The FLSA (Fair labor Standards Act of 1938) places restriction on the type of work a child can do and the hours they can work. Some of the restrictions are: Persons under the age of 14 are generally prohibited from working unless they are working for their parents.

Minors 14 and 15 can work 3 hours per day but only 18 hours per week but they cannot work during school hours. When school is not in session, they can work between the hours of 7 a.m. and 7 p.m. up to 8 hours a day and 40 hours a week. Minors under 18 may not work in a job that has been determined to be hazardous by the Wage and Hour Division.

All states have child labor laws. Some states are more restrictive in their child labor laws. Employers are required to adhere to the more restrictive state laws. Civil and criminal penalties can be the result of violations of the FLSA. Employers can be fined or jailed for each violation of the FLSA.

For more information go to the Department of Labor's Web Site.

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COBRA (Consolidated Omnibus Budget Reconciliation Act of 1986)

With the passage of the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 1986, terminated employees or their families who may lose coverage because of termination of employment, death, divorce, or other life events may be able to continue the coverage under the employer's group health plan for themselves and their families for limited periods of time.

The law generally covers group health plans maintained by employers with 20 or more employees in the prior year. It applies to plans in the private sector and those sponsored by state and local governments. The law does not, however, apply to plans sponsored by the Federal government and certain church-related organizations.

Under COBRA, a group health plan ordinarily is defined as a plan that provides medical benefits for the employer's own employees and their dependents through insurance or another mechanism such as a trust, health maintenance organization, self-funded pay-as-you-go basis, reimbursement or combination of these. Medical benefits provided under the terms of the plan and available to COBRA beneficiaries may include:

1. Inpatient and outpatient hospital care.

2. Physician care

3. Surgery and other major medical benefits

4. Prescription drugs

5. Any other medical benefits, such as dental and vision care.

Life insurance is not covered under COBRA.

For more information on COBRA go to the Department of Labor's Web Site, the IRS' Web Site or the Department of Health and Human Services Web Site.


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Department of Labor

The U.S. Department of Labor is charged with preparing the American workforce for new and better jobs, and ensuring the adequacy of America's workplaces. It is responsible for the administration and enforcement of over 180 federal statutes. These legislative mandates and the regulations produced to implement them cover a wide variety of workplace activities for nearly 10 million employers and well over 100 million workers, including protecting workers' wages, health and safety, employment and pension rights; promoting equal employment opportunity; administering job training, unemployment insurance and workers' compensation programs; strengthening free collective bargaining and collecting, analyzing and publishing labor and economic statistics.

For more information go to the Department of Labor's Web Site.


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Employee vs. Independent Contractor

In 1987, the IRS developed a list for its auditors to use to determine if an individual was an employee or an independent contractor. The measure of control an employer has over its workers is the determining factor. If the employer controls the results of the work and not the day to day performance of the task, then the individual is probably an independent contractor. If one answers yes to any of the questions below, the individual may be an employee and not an independent contractor.

1. Does the employer give specific instructions as to how the job or service is to be completed?

2. Is training required for the individual to complete the job or service in a specified manner?

3. Is the completion of the job or service necessary to ensure the continuation of the business?

4. Is the individual required to perform the job or service personally?

5. Is the individual hired, supervised, and paid by the employer?

6. Is there a continuing relationship between the individual and the employer?

7. Is the individual required to perform the job or service within specified hours?

8. Is the individual required to work only for the employer?

9. Is the individual required to perform the job or service on the employer’s premises, even though the work could be performed elsewhere?

10. Is the individual required to adhere to the employer’s schedule?

11. Does the employer require regular written or oral reports?

12. Is the individual paid by the hour, week, or month instead of by the job or straight commission?

13. Does the individual pay their own business and travel expenses?

14. Does the individual furnish their own tools and materials?

15. Does the individual have any investment such as an office or machinery that is required completing the job or service?

16. Can the individual realize a profit or loss based on the job or service performed?

17. Does the individual work for more than one person at a time?

18. Are the individual services performed for the general public?

19. Can the individual be fired if they are performing the job or service agreed upon contractually?

20. Can the individual terminate the job or services without risk or financial loss due to breach of contract litigation?

The above test is to be used only as a guideline. Read the IRS Publication 15-A and consult with the IRS to verify specific instances.

For more information go to the Internal Revenue Service's Web Site.


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Exempt and Nonexempt

Exempt and nonexempt refers to an employee's status under the FLSA (Fair Labor Standards Act). Employers are not required to pay exempt employees minimum wage or overtime premiums. Nonexempt employees must be paid minimum wage and overtime premium for all hours worked over 40 per week. Exempt employees primarily perform office or nonmanual work, academic instruction or training, regularly assist a proprietor, exercise discretion, use independent judgement, and spend less than 20% (40% in retail or service industries) performing nonexempt work. Typically, nonexempt employees work is routine with predefined standards and rules. Nonexempt employees generally do not exercise discretion, do not use independent judgement, and spend more than 20% of their time on nonexempt work. Nonexempt employees are required to account for time worked and sick and vacation time taken on an hourly basis.

For more information go to the Department of Labor's Web Site.


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Fair Labor Standards Act (FLSA)

This Act establishes minimum wage, overtime pay, recordkeeping and child labor standards that affect over 100 million full- and part-time workers in the private sector and in federal, state and local government.

For more information go to the Department of Labor's Web Site.


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Family Medical Leave Act

Requires employers to provide eligible employees up to 12 weeks of leave for their own serious illness, the birth or adoption of a child, or the care of a seriously ill child, spouse, or parent. The law is effective for employers not covered by a union contract on August 5, 1993. For unionized employees, the law is effective upon termination of the agreement, but no later than February 5, 1994.

Coverage: Private employers of 50 or more employees. Federal civil service workers, state and local government employees, and congressional employees also are covered by law.

Requirements: Employees who have been employed for at least 12 months by an employer, and who have provided at least 1,250 hours of service during the 12 months before leave is requested are eligible.

Employers may require employees to first utilize any paid leave available. The employer then must grant unpaid leave sufficient to provide 12 weeks of leave.

For more information on the FMLA go to the Department of Labors' Web Site or the Bureau of National Affairs Web Site.


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Federal vs. State Minimum Wage

The federal minimum wage rate is set by the Fair Labor Standards Act (FLSA). Some states have wage-hour laws in place where minimum wage rates differ from the federal rate. In the states where the minimum wage rate differs from the federal rate, the higher rate must be paid to the employee.

There is also a lower minimum wage for teenagers under 20 years of age that may be paid during the first 90 consecutive calendar days of employment with an employer. Once again, states can enforce a youth minimum wage that differs from the federal rate and the higher must be paid to the employee.

For more information go to the Department of Labor's Web Site or refer to The Payroll Source distributed by the American Payroll Association.

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Statutory Employees

Statutory employees are workers that are not employees under common law. Statutory employees are however treated as employees for tax purposes.

Income tax is not withheld from statutory employees, but Social Security and Medicare taxes are withheld and in some instances, the employer must pay the Federal Unemployment Tax (FUTA).

There are four categories of statutory employees:

1) An agent driver or commission driver that is paid a commission or the difference between the sales price of the goods and services and the amount paid by the driver. The driver is restricted to distributing meat, fruit, vegetables, beverages other than milk, and baked goods.

2) A full-time life insurance salesperson if the salesperson is selling primarily for one insurance company.

3) Homeworkers that do not work on the employer’s premises, but follow the employer’s specifications, use the employer’s materials, and return all goods to the employer. The Homeworker’s pay must exceed $100.00 before FICA must be withheld.

4) A traveling or city salesperson that works full-time away from the employer’s premises soliciting business for the employer. The merchandise that is sold must be bought for resale and the sales must be made to establishments such as hotels, restaurants, wholesalers, or retailers.

For more information refer to The Payroll Source distributed by the American Payroll Association.


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Statutory Non-employees

Statutory non-employees are considered employees under common law but are considered as independent contractors for taxing purposes.

Federal Income tax, Social Security, and Medicare taxes are not withheld from statutory nonemployees’ earnings if certain conditions are met. The employer is not responsible for FUTA tax.

The two categories of statutory nonemployees are:

1) Qualified real estate agents. The individuals must be licensed real estate agents engaged in the sale of real property. Their duties would include advertising, showing and selling real property. They may also recruit, train or supervise other agents.

2) Direct Sellers. These individuals sell out of their home on a commission basis.

Most of the income the statutory employee receives must come from sales and not hours worked. They must also have a contract that states the individual will not be treated as an employee for federal Income Tax, Social Security, Medicare, or FUTA tax.

For more information refer to The Payroll Source distributed by the American Payroll Association.


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Termination Payments

The requirements for final payment at the time an employee is terminated due to discharge, layoff or resignation differs from state to state. Some states have no provisions, where others require final payment immediately upon termination.

For more information refer to The Payroll Source distributed by the American Payroll Association.


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Workers' Compensation

Workers' compensation insurance is designed to provide benefits to the employee that is unable to work for a period of time due to an injury on the job or suffering a work-related illness. Laws regarding workers' compensation differ from state-to-state but in general, employers purchase workers' compensation insurance. In some states larger employers who are solvent can self-insure (act as their own insurance company). When a worker is injured, his or her claim is filed with the insurance company or self insuring employer, who pays medical or disability benefits according to a state approved formula. By providing this form of insurance to their employees, employers are also protecting themselves from potential lawsuits brought on by an injured or ill employee.

For more information on Workers' Compensation refer to The Payroll Source distributed by the American Payroll Association.


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