So this is exciting! No, really, it is! As you know, under the Fair Labor Standards Act (FLSA), the employee of one company can be found to be a “joint employee” of another, making both jointly and severally liable for that employee’s wages (and thus, overtime). Historically, whether two companies were “joint employers” was been subject to various balancing tests created by the courts as the Department of Labor (DOL) had not issued a rule on the subject for over 60 years.

However, here’s the fun part! In a final rule issued on January 16, 2020, the DOL articulated a comparatively simple four-part test, effective March 16, 2020.  The new test considers whether the claimed joint employer:

  • Hires or fires the employee;
  • Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  • Determines the employee’s rate and method of payment; and
  • Maintains the employee’s employment records.

While no one factor is dispositive of the issue, and the weight to be given each factor can vary from one case to the next depending on its facts, the rule clarifies that a joint employer must actually exercise at least one of the four types of control identified by the four factors, and that merely reserving the right to exercise such control, without more, does not suffice. Additionally, the rule explicitly states that a franchisor-franchisee relationship does not impact the joint employer analysis, and lays out a number of examples to assist employers in applying the rule. Cheers to clarity!

So probably not super exciting or applicable for many employers,  but, as I blog all things wage and hour, here you go! On January 7, 2020, the Department of Labor (DOL) released Opinion Letter FLSA2020-2, opining as to whether educational assistants paid on a per-project basis can meet either the “salary basis” or “fee basis” requirement for exemption from overtime pay under the Fair Labor Standards Act (FLSA). Two scenarios were posed – in the first, an educational consultant was placed on a 20-week project and paid $80,000 in bi-weekly installments ($4,000 per pay period). In the second, the same consultant was concurrently added to a second project to last eight weeks, receiving an additional $6,000 in four biweekly payments ($1,500 per pay period).

The DOL opined that the salary basis requirement were satisfied by both arrangements. The $80,000 payment qualified as a salary, and the additional $6,000 qualified as “extra” compensation under 29 C.F.R. § 541.604(a), which permits an employer to offer additional compensation to an employee without losing the overtime exemption or violating the salary basis requirement. This is true even though the employer acknowledged that the projects were subject to change, which could result in the employee receiving more or less compensation—so long as the total compensation stayed above the threshold, and the changes weren’t so frequent that the salary would become “the functional equivalent of an hourly wage.”

On January 7, 2020, the U.S. Department of Labor issued its first Opinion Letter of the new year –  FLSA2020-1.  In this instance an employer pays employees a non-discretionary lump sum bonus of $3,000 who complete a 10 week training program and agree to continue training for another 8 weeks. However, the employee will receive the bonus if they complete the 10 weeks and sign up for the 8 week program, but only complete a week. During the 10 weeks, an employee works 40 hours most weeks,  but 47 and 48 hours during two of the weeks. The question posed to the DOL was what method should be used to calculate the additional overtime payments due.

29 C.F.R. 778.209(b) allows two methods to compute overtime pay for bonuses that cannot be identified with a particular workweek. In the situation above, the DOL confirmed that since the bonus was for completing a 10 week program, it is appropriate for the employer to allocate the $3,000 lump sum to each of the 10 weeks. Thus, $300 is added to each week, and during the workweeks where the employee worked 7 and 9 hours of overtime, the $300 is added to each weekly wages to determine the new (higher) regular rate, from which the increased overtime rate is then calculated and the additional half-time monies due.

Clear as mud? Let’s break it down and assume the employee makes $10/hr ($5/OT):

Week 1 – 47 hours.  40 x $10 = $400 (straight time pay) + 7 x $15 = $105 (overtime pay).  After bonus regular rate becomes ($400+$300)/47 = $14.89.  Overtime rate is now $7.45/hr.  Employee is owed $7.45-$5 = $2.45/hr x 7 = $17.15 extra.

Week 2 – 49 hours.  Paid $400 straight time hours and $135 for OT hours.  After bonus regular rate becomes ($400+$300)/49 = $14.29.  Overtime rate is now $7.15/hr.  Employee is owed $7.15-$5 = $2.15/hr x 9 = $19.35 extra.

In short, it’s nothing earth shattering, but the DOL has stated that it is updating its Field Operations Handbook at 32c03(c) to reflect this as an appropriate method for determining earnings that cannot be identified with a particular workweek.

On December 30, 2019, the Office of Federal Contract Compliance (OFCCP) issued a Notice of Proposed Rulemaking that aims to clarify the process for its two formal notices – the Predetermination Notice (PDN) and Notice of Violation (NOV). In addition, the new regulations will allow contractors in violation to enter into a conciliation agreement prior to a PDN or NOV being issued. The new procedure will be called the Expedited Conciliation Option (ECO).

Why an Expedited Conciliation Option?

Contractors who have been through an OFCCP compliance audit know that it can be a long a tedious process. This new ECO allows a contractor who has been preliminary found to have either a discrimination violation(s) or material violation(s) to bypass the PDN and NOV process and resolve the matter sooner than later. It’s akin to the decision to tearing off a band-aid and getting it over with when the findings are not worth disputing. Federal contractors with multi-establishments have had the unwritten option for early resolution in the past, but this rule would codify the procedure for all.

What Evidence the OFCCP Must Find to Support a Violation is Clarified

Further – and much needed – the proposed rule clarifies exactly what the OFCCP must find before issuing a PDN or NOV. Historically, the OFCCP has been tight-lipped with respect to how it came up with the decision that there is a statistically significant disparity caused by an employment action. Gone will be the days where the OFCCP can refuse to provide its methodology and share its calculations. Specifically, the OFCCP has proposed the following definitions:

Nonstatistical evidence may include testimony about biased statements, remarks, attitudes, or acts based upon membership in a protected class; differential treatment through review of comparators, cohorts, or summary data reflecting differential selections, compensation and/or qualifications; testimony about individuals denied or given misleading or contradictory information about employment or compensation practices; testimony about the extent of discretion or subjectivity involved in making employment decision; or other anecdotal or supporting evidence.”

Statistical evidence means hypothesis testing, controlling for the major, measurable parameters and variables used by employers (including, as appropriate, other demographic variables, test scores, geographic variables, performance evaluations, years of experience, quality of experience, years of service, quality and reputation of previous employers, years of education, years of training, quality and reputation of credentialing institutions, etc.), related to the probability of outcomes occurring by change and/or analyses reflecting statements concluding that a difference in employment selection rates or compensation decisions is statistically significant by reference to any one of these statements:

(1) The disparity is two or more times larger than its standard error (i.e. a standard deviation of two or more);

(2) The Z statistic has a value greater than two; or

(3) The probability value is less than 0.05″

For those contractors who have already been involved in an OFCCP compliance audit, you can appreciate the above. For those that have not yet been audited, this information will be useful both now and later. For example, when you are making compensation decisions, you can see from the above what the OFCCP will look at. Be sure that there is no nonstatistical or statistical evidence that would support a violation of your affirmative action obligation as a federal contractor. Finally, OFCCP has updated its Federal Contract Compliance Manual, which you can view here.

As I have blogged about previously, the City of Minneapolis’ Wage Theft Prevention Ordinance went into effect January 1, 2020. While Minneapolis adopted some of the State of Minnesota’s Wage Theft Act, it also added additional requirements, summarized below compliments of the City of Minneapolis:

Under the ordinance, employers must:

  • Provide employees with written pre-hire notices of certain employment terms. It must be signed by employees. (Download at minneapolismn.gov/laborenforcement.) (This example may be used to comply with both city and state wage theft laws.)
  • Follow a regularly scheduled payday.
  • Provide earnings statements at the end of each pay period.
  • Provide sick and safe time accrual and use balances on all earnings statements.
  • Distribute a Minneapolis labor poster to all new hires. (Download at minneapolismn.gov/laborenforcement).

Resources for businesses:

Example pre-hire notices, FAQs, and Minneapolis labor posters downloadable now at minneapolismn.gov/laborenforcement.

I greatly suspect that everyone reading my blog is aware by now that Minnesota’s minimum wage increased January 1, 2020 ($10 for large employers; $8.15 small employers). However, for those employers who use minimum wage for certain activities (i.e. travel time) –  be sure to change that rate in your payroll system as well! Also, if you have a minimum wage guarantee for salespersons, same concept – be sure you have updated those records as well. Remember, with the passage of the Minnesota Wage Theft Law, this is not something you want to let slip through the proverbial cracks!

Also, keep in mind that both Minneapolis and St. Paul have higher minimum wage rates then the State wage, so if you are conducting business in those cities, be aware of those wages as well. Minneapolis’ minimum wage increases every July 1, while St. Paul increases its minimum wage every July 1 (with the exception of macro businesses – 10,000+ employees went up January 1, 2020).

On December 16, 2019, the U.S. Department of Labor published a Final Rule clarifying whether certain benefits and other payments must be included in the “regular rate” for purposes of overtime pay. I’ve posted about this numerous times (one recently). Recall, a “discretionary bonus” must truly be discretionary in order for an employer to not have to include that pay as a part of the employee’s regular rate (which the increases amount due for overtime). If you’ve heard of the company that recently gave its employees a cut of a $10 million holiday bonus – THAT is a discretionary bonus (did you seek the surprised look on their faces?!).

However, there are other types of pay and bonuses and perks that the DOL has clarified do not need to be included into the “regular rate,” similar to a discretionary bonus:

  • Parking benefits, wellness programs, onsite specialist treatment, gym and fitness access/classes, employee discounts on goods and services, tuition benefits and adoption assistance.
  • Payments for unused paid leave such as PTO, vacation, sick & safe time.
  • Payments for certain penalties under state and local scheduling laws.
  • Reimbursed expenses such as cell phones, exam fees, membership dues.
  • Sign-on bonuses and longevity bonuses.
  • Office coffee and snacks to employees as gifts.
  • Discretionary bonus (which is not new), but clarifies that the label given a bonus does not determine whether its discretionary (which I know you already know because you’ve been reading my blog!).
  • Contributions to benefit plans for accident, unemployment legal services or other events that could cause future financial hardship or expenses.
  • Call-back pay no longer needs to be “infrequent and sporadic” to be excluded (but yet can’t be prearranged and regular).

Of course, this is just a summary, and there are always exceptions to the rule (and exceptions to the exceptions), and nuances. The actual Final Rule provides many examples. Accordingly, before attempting to exclude pay from the regular rate, you should always check the law first! Happy Holidays!

On December 16, 2019, the Minnesota Department of Labor & Industry certified the prevailing wage rates for all 87 Minnesota counties. These rates are effective December 16, 2019 and can be found here. Non-union contractors should be reminded that these rates are set by the responses received to the annual voluntary survey sent out by MNDOLI. If you don’t respond, your wage rates will not be included and thus what is “prevailing” may be a lot higher (union rates). What does this mean? Until they are amended, new state prevailing wage projects will use these hourly wage rates and fringes.

And I’m not talking Minnesota ice! 2019 was unquestionably a busy year for the Department of Homeland Security Immigration and Customs Enforcement (“ICE”). No doubt you heard on the news about one of Homeland Security Investigations’ workplace warrants over the past year. Less newsworthy, the I-9 audits spiked as well, with no signs of slowing down.  For example, in FY2017, there were 1,360 I-9 audits, in FY2018, there were 5,981 – a 340% increase. What does this have to do with wage and hour laws? Admittedly, it is a stretch, however, I write this article for our firm’s Employer Advisor, so I figured I might as well reprint it here as well. It’s like a Wednesday bonus blog!

So What? 

It is easy think that of all the employers in the United States “only” 5,981 I-9 audits took place – thus, your overall chance of being audited are low, right? Perhaps, but like anything else, if you are audited (and we have had several employers in the past year that were), there is about a 75% chance that you do in fact have Form I-9 violations, all of which are avoidable.  In fact, when we assist employers with internal audits, we spot audit about every 10th Form I-9. Of those, we find a technical violation on almost every form, which the employer can proactively correct. As detailed below, the potential penalties, for what seems like a simple form, can be staggering.  The largest fine that has been levied against an employer to date is $95 million.

Potential Penalties

If your business is audited, here is what you are looking at for possible penalties:

  • Monetary civil fines
    • Knowingly hire and continue to employ violations of $573-$4,586 per violation for first time violators (up to $22,972 for repeat offenders).
    • Substantive and uncorrected technical violations, or failure to produce an I-9, ranges from $230-$2,292 per violation. For example, if you have 100 I-9s and 75 of those are in error, you are looking at fines from $17,250-$171,900.
    • Fines may be enhanced up to 25% based on business size, good faith, seriousness, unauthorized aliens and history. This puts the above example at $21,562-$214,875.
  • Monitoring, suspension or debarment from government contracts.
  • Criminal arrest of employers.
  • Administrative arrest of unauthorized workers.

How to Best Avoid Potential Penalties

A few steps now can save a lot of headache (and fines) later:

  • Conduct an internal audit now – work with an attorney to do so, as you can actually create technical violations by improperly correcting I-9s or revivifying employees.
    • Ensure proper document retention for each terminated employee.
    • Be able to produce all I-9 records within 3 days (i.e. system of binders/files in one spot).
    • Make sure the most recent form is used (it is still the one with a 2017 expiration date).
  • Use E-Verify.
  • If you do get a Notice of Inspection (“NOI”), other audit documentation, or a raid, contact an attorney right away.
  • Make sure your business has a designated person for any ICE audit or raid and they know what attorney to call immediately.
  • Properly correct Form I-9s before you need to turn over documents to ICE.
  • Train managers (anyone who is going to fill it out on behalf of the employer and sign) on the proper completion of the I-9.

Employers with exempt (salaried) employees – do not forget that the Fair Labor Standards Act’s (FLSA) salary threshold increases January 1, 2020 to $684 per week ($35,568). This means, that if you have a salaried exempt employee making LESS than $684 per week, effective January 1, 2020, they will need to be reclassified as non-exempt and will be eligible for overtime pay. If you need more details about the revised so-called white collar regulations, you can view my earlier post here. Also, don’t forget that the rule changes do not change the duties tests. Just because someone meets the salary threshold does not necessarily mean they meet the duties test!