Business Operations/Management

Employee Compensation - What You Need to Know

By Sharie Sipowicz |

08/01/14

It has been a common practice in the detail business to pay employees “by the car.” This means a certain price to detail the entire car, treating the employee like a sub-contractor, paying no taxes, and providing no workmen’s compensation insurance.
The only reason operators have gotten away with these practices was because nobody was watching. However, as the detail business continues to take its place as a legitimate retail auto service business, and as employees “get smarter,” detail business owners are putting themselves in jeopardy by continuing these practices.

 

WHAT IS THE FEDERAL LAW?

The Fair Labor Standards Act of 1938 is a federal law that requires employers to pay minimum wage as well as overtime. It also protects minors (anyone under 18 years of age) and requires employers to keep certain time and payroll records.
The Wage and Hour Division of the U.S. Department of Labor enforces this Act.

 

Are all detail shops required to pay minimum wage and overtime?

There are two simple tests to consider to determine if your shop must pay minimum wage and overtime to all employees under the federal law.

1. You must pay minimum wage and overtime if your sales are in excess of $500,000 per year

Or, if your detail business or dealership is part of another business (like a car wash) that has common ownership, control, or business purpose, and sales exceed $500,000.

2. If you are engaged in interstate business you must pay minimum wage and overtime.

It is likely that few, if any, detail businesses would be required to pay minimum wage or overtime in accordance with the Fair Labor Standards Act.

In Oregon, for example, we are required to pay minimum wage of $9.10 per hour (which is higher than the Federal minimum wage of $7.25) and overtime in excess of 40 hours per week.

 

If a detail business pays by the car, does it still have to pay overtime?

Yes, regardless of whether employees are being paid hourly, a salary, by the job, or by the day, if they work more than 40 hours in a week they must be paid overtime.

In fact, if you pay by the car, the employee must make in pay the equivalent of minimum wage for the hours they work. For example, if minimum wage is $7.50 in your state and the employee works 8 hours, his by-the-car pay must be $60. So, if he did two cars at $30 each, you would be okay.

 

What about a manager who is paid a salary, with a bonus, are they also eligible for overtime?

Managers who work alongside the workers they supervise must also be paid overtime. In short, if you have a manager who details, he must be paid overtime, even if he is on salary.

What employment and payroll records must we maintain?

• Full name of employee
• Home address with zip code
• Date of birth, if under age 19
• Sex
• Occupation
• Time and day when work week starts
• Date of pay
• Hours worked each day and week (use time cards)
• Non-overtime earnings
• Any other additions or deductions from pay
• Total wages paid
• Pay date and pay periods

If we pay by flat rate (where a job is allowed so many hours and employees are paid for those hours even if they get it done in less time), do we still have to keep records of actual hours worked?

Yes. If you do not keep such records, it violates the law. Without an accurate record of hours worked, there is no way to determine if minimum wage has been paid or if overtime is due. Further, if you employ minors, there is no other way to determine if you have complied with the restrictions on the hours they can work. In short, whether flat rate or by the job, you must know how many hours an employee works per day and per week.

 

What are the restrictions on employing young people?

No minor should be employed by a detail shop until they have reached their 14th birthday. Minors aged 14 and 15 may not work before 7:00 am or past 7:00 pm (past 9:00 pm between June 1 and Labor Day). They may not work more than 3 hours on school days, nor more than 18 hours in a week when school is in session. Don’t overlook these laws about minors; there are significant monetary penalties for violations. Again, check with your state to determine its child labor laws. Many are stricter than the Federal Law.

 

We pay by the car. Doesn’t that make our employees subcontractors or independent contractors?

A company cannot make its employees subcontractors or independent contractors. The U.S. Supreme Court and the IRS have ruled that the factors listed below are to be considered in determining whether a person providing a service to your company (doing detailing for you) is an employee or subcontractor.

None of these factors alone will determine the status of a worker, but the IRS weighs each on a case-by-case basis. Be objective and honest as you look at these questions to determine if you can honestly consider your employees subcontractors. Remember the labor laws are there to protect employees, not management:

 

  1. Do you instruct the person as to when, where, and how the work is to be completed? 
  2. Does the person get training from you or other company employees on how to do the work? 
  3. Does the person perform services that are integral to the nature of the business? 
  4. Does the person perform the agreed upon services themselves? 
  5. Does this person himself perform an end result, or is the person free to hire, supervise, or pay other workers with regard to performing the service? 
  6. Does the person have an on-going, continuous relationship with you? 
  7. Must the person follow set working hours? 
  8. Does the person work full-time for your company?
  9. Does the person perform the work at your premises?
  10. Must the work be done in a sequence determined by you?
  11. Does the person regularly report to you?
  12. Does the person receive regular payment at set intervals?
  13. Do you pay the person for travel expenses? Gas, mileage, etc. (This really weighs toward an employer/employee relationship.)
  14. Do you provide tools, chemicals, and supplies to allow the person to do the work?
  15. What financial commitment has the person made in tools, materials, and training to be able to provide the services? What financial gain or loss can the person suffer from performing the services for you?
  16. Does the person perform the services for more than one detail shop?
  17. Does the person himself offer his services to the public on a regular and consistent basis?
  18. Can you fire the person at will?
  19. Can the person quit at anytime without incurring any risk or liability?

2.     As you can see, a subcontractor is truly an independent businessperson according to the law. It is highly likely that what some detail businesses are trying to “pawn-off” as independent contractor relationships are in fact not.

My advice is to avoid this type of relationship. The way most detail businesses are operated, and must be operated, does not lend itself to independent contractors.

A final note: Contact your State Labor Office to determine exactly what the specific laws are with regard to your business.

 

Sharie Sipowicz is aftermarket sales manager with Detail Plus Car Appearance Systems Inc. She has been involved in the detail industry for over 20 years, both as a vendor of products and equipment and as a hands-on operator in a retail detail environment. You can contact Sharie at sharie@detailplus.com.



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