FLSA Overtime Obligations: Application of the "Motor Carrier" Exemption is Now Very Limited
Employers who operate businesses that involve courier, messenger, or delivery services, vending equipment stocking, on-site repairs of various types of equipment, and household moving and storage companies, as well as other employment that involves driving vehicles to transport "property" in interstate commerce, have traditionally been able to claim the "motor carrier" exemption. These employers could legally refrain from paying overtime compensation to drivers and other "safety-affecting" employees. Legislation enacted August 10, 2005 limited the ability to apply this overtime exemption when the motor vehicles weigh less than 10,001 pounds.
A June 2008 technical corrections statute convolutes matters even more. DOL now takes the position that the performance of safety-affecting duties in connection with < 10,001 pound vehicles, transporting property that is moving in interstate commerce, results in the application of overtime pay standards. The requirement that overtime wages be paid, even to exempt employees, is on the basis of duties performed by each employee during each workweek. This is a huge problem for mixed-fleet (large and small vehicles) carriers, particularly with regard to loaders, mechanics, and drivers whose work is in connection with vehicles that are over and under the 10,001 pound (weight or gross vehicle weight rating) threshold.
Examples of employment that typically involves the operation of vehicles with a GVW of less than 10,001 pounds, previously subject to the "motor carrier" exemption (overtime compensation provisions now generally apply):
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- Courier and/or messenger services, runners for law firms, and similar employment
- Delivery services such as package/parcel delivery, private mail delivery services, and delivery of appliances or televisions
- On-site repair or installation of various types of equipment (e.g., computers, copiers, industrial or medical equipment, heating/air conditioning systems, swimming pool mechanical equipment, etc.)
- Floor covering (carpet, tile, hardwood, etc.) delivery and installation
- Moving and storage of household goods (mixed fleet; some vehicles less than 10,001 pounds)
- Vending equipment stocking or repair
- Stocking of newspaper and/or magazine racks
- Transportation of special orders, such as automotive or appliance parts, windows, mirrors, other construction materials, etc.
- Rental firms: delivery of furniture and appliances from a central warehouse
- Transportation of human organs, tissue, or blood
- Transportation of human or animal specimens for laboratory analysis
- Merchandising firms
- Newspaper transportation by employees of a publisher, distributor, or contractor (for example, dropping off bundles of newspapers where carriers* begin their routes)
*Newspaper delivery to the consumer qualifies, under certain circumstances, for an exemption from the FLSA child labor, minimum wage, and overtime compensation standards.
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A complicating factor for many affected employers is that they have traditionally paid wages on some basis other than hourly (salary, commission, mileage, or per delivery). In fact, numerous employers are not even aware of the "motor carrier" exemption; they erroneously believe that they have not been required to pay overtime wages because of the method of compensation. Achieving compliance will require becoming educated regarding FLSA intricacies, and meticulously following the rules.
It is potentially very costly to refrain from complying merely because it is common practice in the industry to pay wages on an incentive basis without paying the required overtime premium.
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Another consideration is that many previously exempt workers have traditionally been classified as "independent contractors." There is no provision in the statute indicating that ownership of a business-use vehicle automatically creates an independent contractor relationship. An owner-driver of an automobile, van, SUV, or light truck, performing work primarily for one firm, is likely to be treated (by DOL or the courts) as an employee of the firm for FLSA purposes. The Wage and Hour Division of DOL has, for more than sixty years, applied a six-factor test to determine employment relationship. The IRS approach, and that of other agencies, is irrelevant for FLSA purposes. The FLSA broadly defines "employ," and there is no "safe harbor" in the event of misclassification. Failure to pay correctly computed overtime wages to owner-drivers sets the stage for an assertion of a substantial back wage liability.
Plaintiffs' attorneys are actively litigating employers who do not pay overtime wages. These suits often involve owner-drivers. DOL also litigates when necessary. A 1998 DOL case in one U. S. Court of Appeals Circuit held owner-drivers of a courier firm to be "independent contractors," based on the evidence presented. However, such determinations are so fact-specific that each employer must decide whether it is worth the risk to "go out on a limb" with regard to FLSA compliance.
If your workers use their own vehicles or other equipment in connection with employment, overtime compensation might not be your only FLSA problem. Minimum wage compliance will require careful scrutiny. If an employment relationship may be asserted under FLSA rules, owner-driver expenses (depreciation, insurance, interest, maintenance, repairs, fuel, etc.) must be reimbursed to the extent that they erode the minimum wage.
At "first blush," it can seem impossible to comply with the FLSA overtime standards (as well as minimum wage and record keeping) with regard to owner-drivers, especially when the method of pay is commission or another incentive computation. However, it can be done. Achieving compliance stops the back wage accrual, and there are other advantages. Morris is able to guide employers in setting up a compliant record keeping and pay plan, with minimal disruption.
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Calculation of Wages for Drivers Paid Commission, Mileage, per Delivery, etc.
Once an employer makes a decision to achieve FLSA compliance, it is vital to ensure that the method utilized in the computation of overtime pay results in the actual payment of overtime wages. Morris has worked with several employers who thought that they were complying, but scrutiny of the underlying payroll calculations revealed flaws that resulted in back wage liabilities. FLSA rules regarding overtime pay are quite explicit and there is no room for ingenuity on the part of an employer. The records may look great, and a DOL investigator might have even refrained from asserting violations because of ineptness or failure to explore the actual methodology, but a subsequent investigation is likely to result in an assertion of concealment and willful violations.
A true FLSA expert is able to examine precisely how you are dealing with overtime calculations and determine whether your approach, though well meaning, leaves you vulnerable. More importantly, you will be informed of the flaws and how to correct them.
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