But, is this practice legal? Generally, the answer to this question is no. Under state and federal law, employees must be paid at least the minimum wage in cash. Providing equity, no matter how much the equity is worth, does not fulfill this requirement.
An exception to this rule is made, however, if the employee comes within the exemption for executive-business owners provided for in the federal Fair Labor Standards Act (“FLSA”). An individual who comes within this exemption is exempt from the FLSA’s minimum wage and overtime requirements.
To be exempt as an executive-business owner under the FLSA, an individual must (1) be employed in a bona fide executive capacity, (2) own at least a 20% bona fide interest in the business and (3) be actively engaged in the management of the business.
Unless an employee meets each of these requirements, paying in equity alone will run afoul of wage laws, and could result in significant liability for the employer, as well as possible individual liability for the president, treasurer, and individual “officers and agents” of the employer’s corporate entity.
For further help in determining whether your employee comes within the executive-business owner exemption or questions about paying employees with equity, contact a member of our Employment Law Group.
An executive’s employment agreement defines expectations regarding role, responsibilities and performance. It also establishes key contractual obligations for the executive and the employer concerning compensation and benefits, equity grants, the length or term of employment, early termination and its consequences, post-termination restrictions, and dispute resolution. Compensation, termination and other provisions may implicate tax rules and trigger penalties. Later, if there is disharmony in the relationship or disagreement about the parties’ obligations, these provisions may critically affect the rights and obligations of the executive.
Here are 10 important considerations when reviewing an executive employment agreement.
For more information on this topic, please contact Scott J. Connolly.
The Administrator of the U.S. Department of Labor (“DOL”) Wage & Hour Division issued a formal Interpretation to provide “additional guidance” concerning the misclassification of workers as independent contractors under the federal Fair Labor Standards Act (“FLSA”). Businesses continuing to utilize independent contractors need to understand that combating misclassification is a priority for DOL and this latest action may lead to increased misclassification litigation.
To learn more about this important issue read our Employment Law Advisor.
Significant Amendments To The Overtime Regulations Proposed By The DOL Will Result In Many More Workers Becoming Entitled To Overtime
If the U.S. Department of Labor’s (DOL) proposed rule is adopted, any exempt employees who earn less than $50,440 per year will need to be reclassified as non-exempt. These employees will now earn overtime if they work over 40 hours per week.
This proposal would increase the salary level required significantly in order for the employee to remain qualified for the “white collar” exemptions.
To learn more about this proposal and how it may affect you if it goes into effect, please read our full Employment Law Advisor.
Paid Sick Leave Law Creates New Employer Obligations for Intermittent, Temporary and Seasonal Workers, Including Interns
Employers who use temporary or seasonal employees including summer interns should already be aware of the importance of ensuring that those employees are paid in compliance with federal and state law. Massachusetts employers should also be aware that the new Massachusetts Earned Sick Leave Law (the “Law”) has created additional wage and hour obligations for some temporary and seasonal workers, including summer interns. (Generally, the Law requires that employers with more than 11 employees offer both full and part-time employees paid sick time; employees with fewer than 11 employees are required to offer unpaid sick time).
The Massachusetts Attorney General’s regulations addressing the Law include a provision which entitles temporary and seasonal employees like interns who work intermittently for an employer (e.g., work for the same employer for multiple summers) to sick time. The result of these regulations is that employers covered by the Law now need to track the accrual of sick time for temporary and seasonal workers, and permit those employees to take sick time once they have worked for the employer for more than 90 days.
Under the regulations, an employee with a break in service of fewer than four months will maintain the right to use any unused earned sick time accrued before the break in service. If the employee has a break in service of between four and 12 months, the employee will maintain the right to use earned sick time accrued before the break in service, but only if the employee’s unused bank of earned sick time equals or exceeds 10 hours. Employees with a break in service of greater than 12 months will not retain any accrued sick time.
Although temporary or seasonal employees are subject to the Law’s provision that employees are only entitled to use accrued sick time 90 days after the employee’s first day of work, employees with a break in service of fewer than twelve months will maintain vesting days from the employer and will not need to restart the 90-day vesting period upon their return to the employer before they can use earned sick time.
For example, an intern who works full time for an employer from June until August will likely have accrued more than 10 hours of sick time. If that intern returns to the employer the following June, he or she will (upon working 90 total days for the employer, including days worked before the break in service) be entitled to use that accrued sick time.
For more information on the use of temporary or seasonal employees including interns or the accrual of paid sick time, please contact a member of the Employment Law Group.
The final version of the Massachusetts Attorney General’s Earned Sick Time Regulations contains some important clarifications to the Earned Sick Time Law, including changes from the draft regulations. These changes include a fifth reason that leave may be taken, guidance regarding unlimited and lump sum policies, and a variety of other provisions.
Employers should review their policies to take advantage of the options provided in the new regulations. To see what changes have been made and how they might affect you please read the full alert.
The earned sick time law was approved by the voters on November 4, 2014. This law entitles employees in Massachusetts to earn and use sick time according to certain conditions, and will go into effect July 1, 2015. Massachusetts Attorney General Maura Healey has announced a transition policy under which employers who offer sufficient sick leave or paid time off to workers now have a six-month transition period in which to bring their policies into compliance with the new Massachusetts paid sick leave law.
To learn more about the transition policy, please see our full Employment Law Alert.