Recently, more clarification on the definition of “employment relationship” and the significance of that determination in applying provisions of the FLSA has been published. An employment relationship under the FLSA must be distinguished from a strictly contractual one, such as an employee vs. independent contractor. Typically, an employee is dependent on the business which he or she serves. The employer-employee relationship under the FLSA is tested by “economic reality” rather than “technical concepts”.

The U.S. Supreme Court has on a number of occasions indicated that there is no single rule or test for determining whether an individual is an independent contractor or an employee for purposes of the FLSA. The Court has held that it is the total activity or situation which controls. Among the factors which the Court has considered significant are:
1)The extent to which the services rendered are an integral part of the principal's business.
2)The permanency of the relationship.
3)The amount of the alleged contractor's investment in facilities and equipment.
4)The nature and degree of control by the principal.
 5)The alleged contractor's opportunities for profit and loss.
6)The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
7)The degree of independent business organization and operation.
 
Other factors may need to be considered, depending on the situation.  When hiring independent contractors, it is wise to review the most current FLSA guidelines and document the review process.

More details can be found at:

​www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship

​Under the One Big Beautiful Bill Act and effective for 2025 through 2028, employees who receive qualified overtime compensation may deduct a portion of the overtime earnings from their taxable income. Employees who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half” compensation -- that is required by the Fair Labor Standards Act (FLSA). The overtime must be reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.

• As an example, if an employee makes $30/hour and works overtime, the typical overtime rate would be 1 ½ times the typical $30/hour rate, making the overtime rate become $45/hour.  Only $15/hour would be considered qualified overtime compensation since it exceeds the regular rate of pay. If, due to an agreement, contract of state law, an employee receives “double time”, more clarification from the IRS is needed.  
• The maximum annual deduction is $12,500 ($25,000 for joint filers) and the deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
• Employers and other payors are required to file information returns with the IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year.

The overtime provides a tax deduction that can reduce the federal income tax burden on overtime earnings. Also, the exemption only applies to federal income tax, which means employees will still owe Social Security tax and Medicare tax, as well as applicable state and local taxes. In the next several months, the IRS should provide more guidance on how to report overtime earnings.  

More information; 

• New deduction:  
  • Maximum annual deduction is $12,500 ($25,000 for joint filers).
  • Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
• Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
  • Taxpayers must:
    • include their Social Security Number on the return and
    • file jointly if married, to claim the deduction.
• Reporting: Employers and other payors are required to file information returns with the IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year.
• Guidance: The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and other payors subject to the new reporting requirements.

This past January, the Dole Act was an amendment added to USERRA. The Dole Act enhances job protections for military members and strengthens USERRA enforcement, ensuring greater safeguards for those who serve. The following outlines six key changes;

• Retaliation Protections Broadened: Employers are barred from taking any form of retaliatory action
• Increased Liquidated Damages: A minimum award of $50,000 has been established
• Broadened Injunctive Relief: USERRA allows individuals suing an employer to seek an early injunction to stop violations before the case is fully resolved
• Prejudgment Interest Rate: A more specific rule for prejudgment interest where courts can require employers to pay 3% interest per year on lost wages or benefits
• Mandatory Attorney Fees Awards: Employees who win a lawsuit or proceeding against a private or state or local government employer are now entitled to reasonable attorney’s fees
• Clarified Protection for Career Military Members: The law now states that one of USERRA’s purposes is “to encourage service in the uniformed services,” confirming that regular military members are fully protected

Recent legislative updates, along with any changes to company policies, are good reasons for companies to review their current Employee Handbook.  Employee Handbook good practice guidelines include; 

• If you have employees in multiple states, always adhere to the strictest Federal and State law. 
• For initial Employee Handbooks or updates, always require an employee to sign a “Handbook Acknowledgement” indicating receipt of the Employee Handbook or Updates.    
• Know your employee group and distribute Employee Handbooks accordingly—while most companies may keep the Employee Handbook on a shared drive; in some situations, it may be better to distribute a “hard-copy” Employee Handbook.
• Plan a review of the Employee Handbook annually; Internal policies may have changed or need to be added, as well as legislative updates. 
• Depending on the updates, an Employee Handbook Amendment may be sufficient to communicate the changes; instead of an entire Employee Handbook update. 

We are currently taking into account recent legislative changes and determining how policies that are in Employee Handbooks are affected. If you would like a review of your Employee Handbook, please reach out to us.