With summer starting and with it the rise of seasonal workers, I thought it would be a good time to review the fluctuating work week method (FWM) that can be used to determine overtime pay under the Fair Labor Standards Act for employees who are paid on a salary basis and whose hours fluctuate week to week.  While this can be a very useful method of paying overtime to seasonal or other employees whose overtime fluctuates with certain times of the year, it also brings with it confusion.  Many times the confusion surrounding the calculation and application of the FWM exposes employers to potential liability under the Fair Labor Standards Act for failure to pay overtime wages.

What is the Fluctuating Work Week Method?

Under the Fair Labor Standards Act (FLSA), employers are required to pay employees time and a half (150%) of the “regular rate” for all hours over 40 hours per workweek. The U.S. Department of Labor (DOL), the agency that enforces and interprets the FLSA, allows employers to pay employees who receive a fixed salary and work fluctuating hours, overtime at half (50%) the employee’s regular rate.

Which employers use the FWM calculation?

Generally, seasonal employers use the FWM to provide employees a predictable set salary regardless of the amount of hours they work each week (e.g. workers whose hours are influenced by the weather).

When can an employer use the FWM calculation?

In order to use the FWM calculation for overtime, the following conditions must be met:

  1. The employee’s salary must be sufficient to compensate him/her at a rate not less than minimum wage, regardless of how many hours worked, whether few or many.
  2. The employee receives a fixed salary – this does not change even if they work less than 40 hours a week (exception for unpaid leave of absence for entire day or more due to illness).
  3. The employee’s hours fluctuate from week to week.
  4. The employer and employee have a clear mutual understanding that the employee will be paid a salary and overtime at half his/her regular rate, regardless of how many hours worked.
  5. The employee received overtime equal to at least half his/her regular rate of pay for all hours worked over 40 hours.

How to calculate an employee’s regular rate

To calculate an employee’s regular rate of pay, divide the employee’s weekly salary by the total number of hours worked that week.  Overtime is then paid at 0.5 times that regular rate, since the 1.0 of the 1.5x has already been paid via the salary.  The more hours the employee works per week, the less the overtime rate (because it is spread over more hours).

Alternatively, the DOL allows an employer to calculate an employee’s regular rate based on a 40-hour workweek. Thus, an employer may divide the employee’s weekly salary by 40 hours, regardless of how many hours the employee worked that week. The DOL permits this calculation since the regular rate at 40 hours will always be higher than if the employer were to use the employee’s actual hours when the employee has worked overtime.

Should I use the FWM?

With a clear understanding of the conditions and calculations, the FWM can be a great tool for employers to save on costs, and provide year-round salary predictability for non-exempt employees.

Small businesses (100 or fewer employees) have less than one month left until the first phase of the Minneapolis Minimum Wage Ordinance goes into effect. The Minneapolis Minimum Wage Ordinance went into effect for large business (more than 100 employees) on January 1, 2018, when the minimum wage increased to $10.00. However, as I mentioned here, the ordinance differentiates based on employer size. Thus, on July 1, 2018, small employers are facing their first minimum wage increase under the ordinance, while large employers are on their second minimum wage increase.  Starting July 1, small Minneapolis employers must pay employees a minimum wage of $10.25 per hour, while large employers must pay $11.25 per hour.

We are less than a month away from the 1-year anniversary of when the Minneapolis and Saint Paul sick and safe time ordinances went into effect. Both cities have recently released a tracking spreadsheet available to employers to compute and track accrual and use of sick and safe time hours. Minneapolis employers can use this link and St. Paul employers can use this link to access the spreadsheets.  Minneapolis also updated their notice poster to include the minimum wage increase schedule. Employers should make sure to update their handbooks and workplace posters with the current version (found here).

For those of you keeping track of the Minneapolis ordinance, as I discussed most recently here, the Minneapolis ordinance has been the center of a legal dispute between business groups and the City of Minneapolis. However, we may finally have a resolution to the question I am most frequently asked, whether an employer must comply with the ordinance if they are not located in Minneapolis, or if they are located in Minneapolis, but do not have employees who work in Minneapolis. On May 9, 2018, the Minnesota District Court held that state law does not preempt the ordinance, but the amended ordinance still exceeds Minneapolis’ territorial authority due to the record keeping and administrative obligations placed on employers.

As a result of the court decision, businesses located outside of the geographic bounds of Minneapolis do not need to comply with the ordinance. If you are unsure of whether your company is located within the geographic bounds check the city ward map found at here.

It’s all over the internet, so it must be true!  Indeed, this time it is…on May 21, 2018, the U.S. Supreme Court held in Epic Systems Corp. v. Lewisthat employers may have arbitration clauses in employment contracts that prohibit class or collective actions (and it does not violate the National Labor Relations Act). Long story short, Epic Systems Corp. was a trio of consolidated cases, in which the employee in each case sought to litigate an employment dispute through a class or collective action in federal court. However, the employees had signed a contract providing for individual arbitration proceedings in the event of an employment dispute. In all three cases, the lower court or NLRB ruled in favor of the employees, holding that the individual agreements violated the employee’s right to concerted activities protected under the NLRA. The Supreme Court reversed the lower court decisions finding, “Congress has instructed that arbitration agreements like those before us must be enforced as written.” The Supreme Court decision in Epic Systems Corp reverts to the pre-2012 almost unanimous court and NLRB decisions upholding the legality of similar arbitration agreements. Accordingly, as long as the employee has consented to individuated proceedings for employment disputes, the employer may enforce such an agreement.

That being said…should employers do so? As with most things employment law, it depends on the employer and its specific facts and situation. For example, many employers may prefer to defend an alleged common wage violation in one litigation, versus multiple individual arbitration hearings. Further, arbitration is not necessarily going to save money because the employer typically must pay for the arbitrator(s) (unlike a judge). Thus, just because you can, doesn’t necessarily mean you should.

As expected, on May 29, 2018, the Duluth City Council voted to pass the Earned Sick and Safe Time Ordinance (“Ordinance”). The Ordinance currently mandates that employers (wherever located), with 5 or more employees, provide paid sick and safe leave to employees starting January 1, 2020. That being said, given the recent ruling on the Minneapolis Ordinance, I would not be surprised if Duluth’s Ordinance is challenged as well, and eventually limited to employers with a business in Duluth.

What Does the Duluth Earned Sick and Safe Time Ordinance Require?

Effective January 1, 2020 employers are required to provide employees with 1 hour of earned sick and safe time for every 50 hours worked, up to 64 hours per year. However, the Ordinance only allows employees to use up to 40 hours of accrued but unused sick and safe time each year. Alternatively, employers can comply with the Ordinance by front-loading at least 40 hours of earned sick and safe time following the initial 90 days of employment each year and again at the beginning of each subsequent year.

Accrual begins at the commencement of employment, or for current employees, January 1, 2020. If an employee has unused accrued sick and safe time at the end of the year, the employee may carry over 40 hours of accrued but unused sick and safe time into the next year. Employers are not required to payout the accrued but unused sick and safe time hours upon termination or other separation from employment (make sure your handbook is clear especially if you have different types of time off such as vacation, sick, etc.).

Employers must compensate employees at their standard hourly rate, or an equivalent rate for salaried employees. The Ordinance does not require compensation for lost tips or commissions.

Who Is An “Employer” and “Employee” Under the Ordinance?

All individuals, corporations, partnerships, associations, nonprofit organizations with 5 or more Employees (as defined below), are considered an “employer” under the Ordinance. The number of employees is calculated based on the average number of employees per week in the previous year. Temporary employees from a staffing agency are considered an employee of the staffing agency under the Ordinance. Notably, in an attempt to avoid challenges to the Ordinance similar to the ones that arose surrounding the Minneapolis Sick and Safe Time Ordinance, the Duluth Ordinance defines an “employee” as:

  1. A person working within the geographic boundaries of Duluth for more than 50% of the employee’s working time in a 12-month period, or
  2. “is based in the city of Duluth and spends a substantial part of his or her time working in the city and does not spend more than 50 percent of their work-time in a 12-month period in any other particular place.”

The Ordinance does not cover independent contractors, student interns, or seasonal employees.

Construction Company Opt-Out

Similar to the Minneapolis Ordinance, construction companies may opt to satisfy the requirements of the Ordinance by paying at least the prevailing wage rate (Minn. Stat. 177.42), or the rates set for in a registered apprenticeship agreement.

What If An Employer Already Offers Paid Time Off?

Continue Reading Duluth Passes Sick & Safe Time Ordinance

Contractors – today is the last day to fill out your annual prevailing wage survey! The Minnesota Department of Labor and Industry (MnDOLI) uses information collected from the survey to determine the prevailing wage rates on commercial, highway/heavy and residential construction projects in Minnesota. Thus, this is non-union contractors’ chance to have a say in setting the wages. To complete the survey log on to https://secure.doli.state.mn.us/lspwratesurvey/LoginVerify.aspx, with your personal identification number (PIN) and KEY. If you did not receive this information via mail, call the Minnesota Department of Labor and Industry at (651) 284-5091.

The Minnesota Department of Labor and Industry’s (MnDOLI) May 31, 2018 Wage and Hour Bulletin reminds employers of teen working limitations, as schools are ending for the summer. Although I wrote about this topic recently in this blog post, as the teens start to flood the summer marketplace, I thought it important to share (and heck, let’s be honest, this may be the quickest blog I’ve even “written”):

May 31, 2018

Keeping teens safe at work this summer

Summer break is nearly here for Minnesota teens and many may be looking for employment. Following are some important tips about child labor laws for employers to consider before hiring teens for summer work. Contact us if you have any questions.

The Minnesota Department of  Labor and Industry strives to help employers keep workplaces safe for teens through education and by enforcing the Minnesota Child Labor Standards Act.

Child labor restrictions specific to ages 14 and 15

Teens ages 14 and 15 cannot:

  • work before 7 a.m. or after 9 p.m.;
  • work more than eight hours in a 24-hour period; or
  • work more than 40 hours a week.

Sixteen- and 17-year-olds don’t have working-hours restrictions if school is not in session.

Examples of work teens cannot do

Those age 17 and under cannot:

  • work in construction;
  • work in the sale, serving, dispensing or handling of alcohol;
  • operate power-driven machinery, such as forklifts, saws or meat grinders; or
  • work in the operation, erection or dismantling of rides or machinery in an amusement park or traveling show, or loading or unloading passengers on rides.

Those age 15 and under cannot:

  • operate power-driven lawn and garden equipment;
  • operate power-driven machinery, such as drills, sanders, etc; or
  • work with laundry, rug cleaning or dry cleaning equipment.

For a complete list of prohibited occupations for minors, contact us or visit our webpage about prohibited work for youth.

Exemptions for types of work for teens

Following is a list of exemptions for the type of work a minor may perform, the age at which they can work and work-hour restrictions.

Minors under the age of 14 may be employed as:

  • an actor, actress or model;
  • a newspaper carrier if at least 11 years old;
  • a youth athletic program referee if at least 11 years old and with parental or guardian consent); and
  • an agricultural employee if at least 12 years old (this work is also exempt from work-hour restrictions).

Prohibited employment for minors under the age of 18 does not apply to a minor:

  • who is 17 and is a high-school graduate; or
  • who is working for a parental corporation owned solely by the minor’s parents or guardians.

Exemption permits for working minors

Labor Standards has the ability to exempt minors from work-hour restrictions and prohibited employment.

Employers may complete an exemption permit for the minor in question and submit it to us for review via mail, email or fax.

 

In Minnesota, it is still lawful to ask job applicants about their pay and benefit history.  However, a number of states and cities are moving toward banning such practice. Thus, Minnesota employers with other locations should be mindful of these changing laws. The idea is that by doing so, the gender and minority job gap will eventually be equalized. As of today, the following locations (that I am aware of) have banned private employers from asking a job applicant about certain compensation history:

  • California. Effective January 1, 2018, per Assembly Bill 168, employers cannot ask salary history information, including compensation and benefits; however, applicants may volunteer the information.  Also note – “An employer, upon reasonable request, shall provide the pay scale for a position to an applicant applying for employment.”
  • Delaware. Effective December 2017, per House Bill 1, employers cannot seek  compensation (wages and benefits) history from an applicant or former employer, except after an offer has been made, for the sole purpose of confirming the applicant’s compensation history.
  • Massachusetts. Effective July 1, 2018, per S.2119, employers cannot seek the wage or salary history of a prospective employee. Note, this act has a lot more employer restrictions with respect to pay equity.
  • New York City. Effective October 31, 2017, per NYC Law, employers cannot solicit questions about current or prior earnings or benefits, search public records to find that information, or rely on current or prior earnings or benefits to set compensation.
  • Oregon. Effective January 1, 2019, per House Bill 2005, employers cannot screen job applicants based on current or past compensation (wages, salary, bonuses, fringe benefits and equity-based compensation), or determine compensation for a position based on current or past compensation for a prospective employee (except in the case of an internal transfer).
  • Philadelphia. Effective May 23, 2017, Philadelphia Code 9-1131 prohibits employers from relying on an applicant’s salary history when setting salaries.  While the law attempted to make inquiries into wage history unlawful, when challenged, the U.S. District Court for the Eastern District of Pennsylvania ordered that while employers cannot be prohibited from asking an applicant’s wage history, they can still prohibit reliance on salary history.
  • Puerto Rico. Effective March 8, 2018, per Puerto Rico Act No. 16-2017, employers may not ask an applicant or former employer of the current salary or wage history of the applicant.
  • San Francisco. Effective July 1, 2018, per the Consideration of Salary History Ordinance (also known as the Parity in Pay Ordinance), employers cannot consider the current or past salary of an applicant in determining whether to hire an applicant, and at what salary.  In addition, employers must post a salary history poster at the workplace.
  • Vermont. Effective July 1, 2018, per H294, employers cannot inquire or seek information regarding a prospective employee’s current or past compensation.

Keep in mind the above is just a quick overview; if any one of these applies to your business, you should familiarize yourself with the actual applicable law (most linked above). I suspect that the equal pay laws above are the start of a growing trend, and that if no federal law is passed in the next few years, state and local laws will continue. Until then, employers with locations in multiple states need to be sure to keep current on pending legislation and ordinances.

On Wednesday, May 9, 2018, the Minnesota District Court (Hennepin County) upheld the status quo (remember the temporary injunction I wrote about earlier), finally determining that state law does not preempt the Minneapolis Sick & Safe Leave Ordinance, but the Ordinance cannot be enforced by Minneapolis outside the geographic boundaries of the City of Minneapolis.

In March 2018, in response to the temporary injunction, Minneapolis amended the Ordinance as follows to narrow its geographic reach: “employees accrue a minimum of one (1) hour of sick and safe time for every thirty (30) hours worked within the geographic boundaries of the city up to a maximum of forty-eight (48) hours in a calendar year…” Further, “an employer is only required to allow an employee to use sick and safe time that is accrued pursuant to this ordinance when the employee is scheduled to perform work within the geographic boundaries of the city…” The Court, however, decided that the revisions still exceed the City’s territorial authority.  As a result, the Ordinance only applies to employers located within the geographic bounds of Minneapolis. The City may appeal this decision to the Minnesota Court of Appeals, so until that deadline is over, we won’t know if this is a done deal (but it is the law for now).

Keep in mind, employers located within the city of Minneapolis must still comply with the Ordinance.  If you are a Minneapolis-based employer and haven’t done so already, be sure to check your handbook and paid time off policy to be sure it is compliant with the Ordinance’s accrual rates, carry-over rules, and employee notice requirements. Additionally, as I blogged about earlier, Duluth employers should be aware that Duluth may only be a month away from enacting its own Earned Sick and Safe Time Ordinance, which is expected to pass.

Duluth is one step closer to passing its own Earned Sick & Safe Time ordinance (ESST), to go into effect January 1, 2020. Following in the footsteps of Minneapolis and St. Paul, Duluth’s proposed ordinance would require employers to provide employees with 1 hour of time off for every 50 hours worked. Employees would also be able to bank up to 40 hours of earned sick time from one year to another.

For purposes of Duluth’s ESST, an “employee” is defined as a person working within the geographic boundaries of Duluth for more than 50% of the employee’s working time in a 12-month period, or is based in Duluth and spends a “substantial part” of work time in Duluth and not more than 50% of work time in a 12 month period in any other place. Notably, seasonal workers (those employed 120 days or less) would be exempt as would independent contractors, student interns, and those covered under the federal Railway Unemployment Insurance Act. An “employer” under the ESST is defined as having 5 or more employees in any location, whether or not they work in Duluth. A temporary employee supplied by a staffing company is considered an employee of the staffing company. The definition of “employer”, however seems problematic in light of the recent Court order regarding the Minneapolis Sick & Safe Leave Ordinance (more on that in my next blog), as it appears to govern non-Duluth based employers. Thus, I suspect a lawsuit will follow challenging the scope of the ordinance, if enacted as amended.

The original ordinance and amendments can be found here. The City Counsel meets again May 29, 2018, and is expected to vote on it, as amended. Stay tuned for a detailed blog should it pass.