In the 6th letter of 2019, the U.S. Department of Labor (DOL) issued Opinion Letter FLSA2019-6, which analyzes whether a worker is an employee or independent contractor. While opinion letters are specific to the employer that has sought the letter, they provide useful insight for all employers. In this opinion letter, the DOL states that it interprets whether someone is an “employee” based on whether the individual, “as a matter of economic reality, follows the usual path of an employee and is dependent upon the business to which he or she renders service.” In short, the DOL notes the “touchstone” of the test is “economic dependence” and whether the worker can work on his or her own terms, freely, and without restriction (such as non-compete, non-solicitation agreements).

The DOL notes the six primary factors to be weighed in determining economic dependence (though it may look at other factors not listed):

  1. The nature and degree of the potential employer’s control;
  2. The permanency of the workers’ relationship with the potential employer;
  3. The amount of the workers’ investment in facilities, equipment, or helpers;
  4. The amount of skill, initiative, judgment, or foresight required for the worker’s services;
  5. The worker’s opportunities for profit or loss; and
  6. The extent of integration of the worker’s services into the potential employer’s business.

My favorite part of the entire opinion letter is thus, however:

In short, while the FLSA has a very broad scope of coverage, it is not so broad that all workers are caught within its reach – far from it….Recognizing this limitation on coverage protects the freedom of workers to operate as independent contractors and remain outside the FLSA’s scope.

This statement by the DOL recognizes that many individuals who desire to be an independent contractor (for whatever reason), and that the interpretation of the FLSA should be made in a fair way, and to allow individuals the freedom to chose to operate outside the employer-employee relationship. That being said, keep in mind that an individual/employer cannot contract around statutorily rights (minimum wage, overtime). Thus, if a person fails the above test, the employer is possibly on the hook for backwages (overtime, minimum wage), taxes, benefits and, if it was sued out, attorneys’ fees (both sides).

On April 1, 2019, the DOL issued a Notice of Proposed Rulemaking (NPRM), relating to whether two or more entities are “joint employers” for purposes of the Fair Labor Standards Act (FLSA).  This arrangement becomes significant when determining overtime for an individual who does not work overtime at either employer, but combined, does (and thus, would be owed overtime if it was a single employer).  As important as this is, the rule has not been amended since 1958 and was overdue.  The DOL is proposing a four-factor test at 29 C.F.R. § 791.2.  The “four factors are whether the other [employer]: (i) Hires or fires the employee; (ii) Supervises and controls the employee’s work schedule or conditions of employment; (iii) Determines the employee’s rate and method of payment; and (iv) Maintains the employment records.”

The saga continues!  Businesses required to file an EEO-1 must submit the usual Component 1 data to the U.S. Equal Employment Opportunity Commission (EEOC) by May 31, 2019. However, whether businesses with 100 or more employees must submit Component 2 pay data has been up in the air since 2016 (you can search my blog for the long convoluted history), when the EEOC first proposed revisions to the yearly report to require employers to report pay data in order to detect discriminatory pay practices. Long story short, on April 29, 2019, the EEOC released the following statement:

EEO-1 filers should begin preparing to submit Component 2 data for calendar year 2017, in addition to data for calendar year 2018, by September 30, 2019, in light of the court’s recent decision…The EEOC expects to begin collecting EEO-1 Component 2 data for calendar years 2017 and 2018 in mid-July, 2019, and will notify filers of the precise date the survey will open as soon as it is available…

While the U.S. Department of Justice appealed the D.C. Court’s decision, such appeal does not stay the Order. According, “Filers should continue to use the currently open EEO-1 portal to submit Component 1 data from 2018 by May 31, 2019”.

Who must file an EEO-1?

Generally, private employers with more than 100 employees, or a smaller company that is an affiliate of an enterprise with over 100 employees. Additionally, federal contractors/first-tier subcontractors subject to Executive Order 11246 (government contract over $10,000) with 50 or more employees, and a prime contract or first-tier subcontract of $50,000 or more. However, the Component 2 data must only be reported by private employers (including federal contractors and subcontractors) with 100 or more employees.

What is Component 1 and Component 2 data?

Component 1 data consists of demographic data of employees by job category, sex, ethnicity and race; this is unchanged. Component 2 data consists of hours worked data and W-2, Box 1 wages, each among twelve (12) pay bands for each job category by sex, ethnicity and race. As for reporting “hours worked”, non-exempt employees are straightforward – report actual hours worked during the calendar year. As for exempt employees, if employees track their time, employers may use actual hours or (for the rest) a 40 hour week for full-time employees, and 20 hour week for part-time employees, multiplied by the number of weeks actually worked in the calendar year.

Now what?

Employers who must file the EEO-1 should be sure to file the Component 1 data by May 31.  Those who also need to file Component 2 data should start gathering the required hours and wages information now (for 2017 and 2018), and begin to prepare to submit the data due in September. Sadly, it’s going to take more time than you think so start now!

On March 29, 2019, the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) under the Fair Labor Standards Act (FLSA).  The proposed rules will clarify for employers what types of compensation must be included when determining an employee’s “regular rate” in order to determine the overtime rate. This is a conversation I have with various employers weekly and will be welcome guidance.

Recall, overtime is time and one-half the “regular rate”. Currently, given the extremely outdated regulations and changes in payments to employees (i.e. more fringe benefits such as tuition reimbursement, etc.), employers are understandably confused whether certain payments for employee perks must be included into the employee’s regular rate calculation. For example, if an employee works 40 hours and makes $400 a week, the employee’s regular rate is $10/hr.  Easy enough.  However, if that employee is provided a $100 discretionary bonus that week because the company was doing well, the regular rate remains the same. Easy, if you don’t misidentify a non-discretionary bonus as a discretionary bonus. However, if the employee earns a $100 non-discretionary bonus (i.e. sales incentive plan or other bonus that the employee knows how to earn), the regular rate is $500/40 = $12.50/hr.  Thus, the overtime rate increases.

The proposed rule will clarify which payments, perks and other benefits must be included in the employee’s “regular rate”. As currently drafted, the following payments are proposed to be excluded from the definition of “regular rate”:

  • Costs of providing wellness programs, onsite specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services.
  • Payments for foregoing holidays or paid leave (including sick pay, holiday, vacation, etc).  For example, if an employee is paid to work on a holiday and also receives holiday pay (like those not working) – the holiday pay may be excluded from overtime.
  • Payments for bona fide meal periods.  Unless there is an agreement to pay for such time as hours worked, paid meal periods would be excluded.
  • Reimbursed expenses (not just those “solely” for the employer’s benefit).
  • Reimbursed travel expenses that do not exceed the maximum travel reimbursement permitted under the Federal Travel Regulation System regulations and which meet other regulatory requirements (ensuring that it is “reasonable”).
  • Certain overtime premiums under FLSA Section 7(e)(5) and (6) even without a prior formal contract with employees to exclude such time.
  • Pay for time that wouldn’t qualify as “hours worked”, such as bona fide meal periods (unless agreement or established practice shows that the parties have treated the time as as hours worked).
  • Certain discretionary bonuses.
  • Certain tuition programs (such as reimbursement or repayment of educational debt) so long as not tied to hours worked and optional.
  • “Call-back”, “show-up” etc. pay that is not prearranged and that is not the pay for the actual hours worked.
  • Employee discounts on retail goods or services (as long as not tied to an employee’s hours worked or services provided).

In short, the more compensation an employee earns, the greater their “regular rate”. The greater the regular rate, the greater the overtime. Thus, clarity in this regard will assist employers (and make it easy to show employees) in properly excluding additional non-work payments from the employee’s regular rate.

 

The U.S. Department of Labor has issued yet another opinion letter sorting out when an employee need not be paid while volunteering.  DOL Opinion Letter FLSA2019-2 was one of three letters issued on March 12, 2019. In this case, an employer inquired whether an employee’s time spent in its optional volunteer program was compensable as “hours worked” under the Fair Labor Standards Act (FLSA). In short, this employer tracks employee’s hours volunteering and awards a bonus to certain participating employees. The volunteering is purely optional. While employees are paid to volunteer during working hours, or for work required to be performed on the employer’s premises, they are not paid to volunteer outside normal working hours.

The DOL thus clarified that compensating employees while participating in volunteer activities during normal working hours does not jeopardize their status as volunteers when they participate outside of normal working hours.  The DOL also clarified that an employer may use volunteer time as a factor in considering whether to pay the employee a bonus, and need not count that time as hours worked, “so long as: (1) volunteering is optional, (2) not volunteering will have no adverse effect on the employee’s working conditions or employment prospects, and (3) the employee is not guaranteed a bonus for volunteering.” That being said, employers should keep in mind that this opinion letter is fact specific. The debate with an employee will be the degree to which they believe that volunteering was not in fact “purely optional” as an employer states, but was expected, favored, implied, or coerced.

On March 14, 2019, the U.S. Department of Labor (DOL) issued Opinion Letter FMLA2019-1-A. While most opinion letters do not come a surprise to me, this one I cannot say the same…more like a deer-in-the-headlights type of moment (I knew some of you were wondering what in the heck a deer had to do with the DOL). Indeed, the DOL clarified its position that while an employer may require an employee to use PTO while on FMLA leave (this is not a surprise), neither the employer nor the employee may extend FMLA by using PTO (surprise). Come again?! Let’s break this down.

An employer has 5 days to provide an employee a written designation notice (Form WH-382) after the employer has enough information to determine whether leave (including PTO) is being taken for a FMLA-qualifying reason. We know this. Employee says, I am going to have a baby, employer provides the WH-382 form. But what about the employee that wants to use PTO for say, a medical procedure, but not FMLA – and frankly, HR is happy to not have to go through the FMLA process. Not okay, says the DOL.

Once an eligible employee communicates a need to take leave for a FMLA-qualifying reason, neither the employee nor the employer may decline FMLA protection for that leave.  See 29 C.F.R. 825.701(a).

Thus, the DOL opines that as soon as an employer determines that a leave (even “just PTO”) is FMLA-protected, it must be counted towards the employee’s FMLA leave entitlement, and the employee must be notified within 5 days. No matter how badly the employee wants to “just use PTO” the employee cannot make that determination. I suppose it is based on the same premise as the FMLA – that an employee cannot contract around his or her rights (i.e. agree to less than minimum wage or agree to no overtime).

An employer is also prohibited from designating more than 12 weeks of leave (or 26 weeks of military caregiver leave) as FMLA leave.

That right – an employer cannot actually allow an employee more than 12 (or 26) weeks of FMLA leave – “providing such additional leave outside of the FMLA cannot expand the employee’s 12-week (or 26-week) entitlement under the FMLA.” I guess the concept here is the law is, what the law is. FMLA provides for 12 (or 26) weeks of FMLA, and neither the employer nor the employee can change that law.

What should employers do? Keep your ears open for the reasons behind PTO requests (make sure that supervisors are communicating to HR actual reasons if they don’t go through HR directly). Finally, don’t forget that one FMLA qualifying leave may not be the same as another. So, you may have intermittent leave for one medical issue, but a set time for a second medical issue – those would be different leave entitlements (and designation notices), but accrue for the same 12/26 week period.

On March 14, 2019, the U.S. Department of Labor (DOL) issued Opinion Letter FLSA2019-1. In this situation, an employer asked whether the FLSA applies when its employees (live-in superintendents and residential janitors) are exempt from state law overtime. The DOL confirmed what I’ve posted about several times:

When a federal, state, or local minimum wage or overtime law differs from the FLSA, the employer must comply with both laws and meet the standard of whichever law gives the employee the greatest protection.

Thus, just because an employer does not need to pay overtime under state law, it may need to under federal law, and vice versa. In Minnesota, this is where employers often get confused regarding whether they must pay overtime after 40 or 48 hours. The DOL Wage and Hour Division (WHD) also opined that not knowing which law applies, does not excuse an employer from a willful violation in its opinion (though acknowledging it is up to the courts on a case-by-case basis):

WHD does not believe that relying on a state law exemption from state law minimum wage and overtime requirements is a good faith defense to noncompliance with the FLSA, but a court retains discretion to make that determination of a case-by-case basis.  See 29 U.S.C. 260.

What does that mean exactly? Well, typically, there is a 2 year statute of limitations on wage claims. However, if an employer “willfully” violates the FLSA, the employee may go back 3 years for compensation. In short, be sure you are familiar with both Minnesota (state and local ordinances) and federal law (FLSA) with regards to overtime and minimum wage.

On April 3, 2019, the EEOC represented to the U.S. District Court for the District of Columbia that it would require Component 2 data (hours and pay by race, ethnicity and sex) for the EEO-1 report by September 30, 2019.  This is in addition to the May 31, 2019 deadline for the EEO-1 Component 1 data (the regular data that was not contested in litigation recently). The EEOC has not made any formal public announcement, and its website is devoid of any such notice. Accordingly, if you are required to file an EEO-1, you should continue to monitor this issue and importantly – prepare now for the data collection so you are not left scrambling at the last minute.

The day has arrived!  The US Department of Labor’s (DOL) Notice of Proposed Rulemaking, revising the Fair Labor Standards Act (FLSA), has been published in the Federal Register. Thus, the public comment period is open for 60 days (to May 21, 2019). For a short overview of the changes, you can read my previous post here. While I recognize most of you reading this will not make a public comment, that date is more important to know when the period will end, so that we have an idea of when it may be finalized into a final rule.

So, what should employers do with this information? Well, if you are about to do performance reviews/raises, and your salaried employees are making less than $35,308, you may want to consider an additional increase to at least that amount to starve off future issues concerning the exempt status. Similarly, you can budget for it now if need be. Once the proposed rule becomes a final rule, employers may raise salary levels or, if that is not possible, reorganize workloads, adjust work schedules, or spread work hours in order to avoid paying overtime (by having employees not work more than 40 hours per workweek). If, when you are reviewing your workforce, you determine an employee may be misclassified based on the duties test (and who is making less than $35,308), the new rule may be the perfect reason if you want to err on the cautious side and bring the employee back to a non-exempt status. If that is the case, don’t feel bad. The DOL estimates approximately $2M employees will likely fall under that umbrella. Thus, the DOL cautions that those employees will have a better position for a violation of the FLSA, as they will not meet either the duties test or the salary test. Lesson here – if you haven’t performed a self-audit in the past few years, it is time.

Employers required to file an EEO-1 (hopefully you know who you are…certain federal contractors/subcontractors), must do so between March 18, 2019 and May 31, 2019 via the EEO-1 website. Importantly, on March 4, 2019, the U.S. District Court for the District of Columbia held that the Office of Management and Budget’s stay of the revised EEO-1 (which sought workforce pay data) was improper. Thus, the DOL may require employers to report employee pay data. If you want more information on how this works, you can read my previous posts (type “EEO-1” in the search bar above). That being said, it is not entirely clear whether the DOL will actually do so this reporting year or delay it a year given the timing. More information is expected to come out in the near future, so I’ll keep you posted (pun intended).