Fair Labor Standards Act

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The day we’ve all been waiting for has arrived! Perhaps not quite that exciting, but the U.S. Department of Labor has finally issued its Notice of Proposed Rulemaking, its second attempt at updating the Fair Labor Standard’s Act’s (FLSA) so-called “white collar” exemptions for executive, administrative, professional, outside sales, and computer employees. As I’m sure you know (or you can read ad nauseum on my blog), in order to qualify to be exempt from the overtime regulations, an employee must meet both the salary basis test, salary level test, and the duties test.

Currently, the salary threshold is $455 per week ($23,660 annually). The proposed rule would increase that threshold to $679 per week ($35,308/year) using the same methodology as how the DOL set the 2004 salary level. This is significantly lower than the 2016 Final Rule (that was enjoined), which attempted to increase the salary threshold to $913/wk or $47,476/year. Similarly, and perhaps more significantly, the salary threshold for highly compensated employees (HCEs) will increase from the current $100,000, to $147,414 per year. This is not the same method as used in 2004, but rather was set using the method in the 2016 Final Rule.

What else is new? Well, the DOL will commit to review and update the salary threshold periodically, but importantly, where the 2016 DOL Final Rule went wrong, any new salary threshold will be updated via a notice-and-comment rulemaking – it will not be automatic. Also, similar, but slightly different than 2016, employers may use non-discretionary bonuses and incentive payments (such as commissions) that are paid at least annually to satisfy up to 10% of the salary threshold. However, if not enough is actually earned, the employer must make a catch-up payment the following year. Thus, an inside sales person making $34,000 in base salary plus $10,000 commission will meet the salary threshold.  There were no proposals to the job duties test. Overall, the changes are estimated to affect $1.3 million exempt employees.

What’s next? The public has 60 days to comment on the proposed regulation from the date it is published in the Federal Register (which has not happened yet). The rulemaking docket is RIN 1235-AA20, and will be able to be found at www.regulations.gov, or more specifically here. Once the comment period closes, we wait for any changes and the published final rule, which will provide the effective date.

Admittedly, I’m a little late blogging about this one…not sure how it escaped me. It is slightly old news, but important for home health care providers or other employers who use varying average hourly rates. The Department of Labor (DOL) issued an opinion letter on December 21, 2018 regarding the determination of minimum wage and overtime compliance with the Fair Labor Standards Act (FLSA) for employees with varying average hourly rates. Specifically, the letter concerns an employer who provides in-home health care services. The FLSA mandates employers provided all covered, nonexempt employees at least the federal minimum wage for all hours worked and overtime compensation for all hours worked in excess of 40 hours per week.

Home health care workers may be required to travel between clients’ homes during the workday. In this case, the employer calculated employees’ weekly pay by multiplying the employee’s time with clients by his or her hourly rate, and then dividing the total by the employee’s total hours worked (including time with the client and travel time). The employer compared the resulting number to federal and state minimum wage rate requirements to confirm compliance.

The DOL has previously opined an employer complies with the FLSA “[i]f the employee’s total wages for the workweek divided by compensable hours equal or exceed the applicable minimum wage.” Thus, even though the employees’ hourly rates varied each week, because the employer ensured that the average hourly pay rate always exceeded the FLSA’s minimum wage requirements for all hours worked, the DOL found the employer’s compensation plan complied with the FLSA’s minimum wage requirements.

However, the DOL remarked that the employer’s compensation plan might not comply with the FLSA’s overtime requirements. Under the FLSA, nonexempt employees must receive overtime compensation, at a minimum of one and one-half times their regular rate of pay, for all hours worked over 40 hours per week. The employer in this situation assumed a regular rate of pay of $10 per hour when calculating overtime. The DOL opined that this may violate the overtime requirements for employees whose actually regular rate of pay is greater than $10 per hour because, “neither an employer nor an employee may arbitrarily choose the regular rate of pay; it is an ‘actual fact’ based on ‘mathematical computation’.” However, if the employees’ actual regular rate of pay were less than $10 per hour the compensation plan would not violate the FLSA’s overtime requirements because an employer has the discretion to pay overtime in excess of the FLSA’s requirements. As with all opinion letters it is important to remember that they are fact specific to an individual employer. However, they serve as a general guidance for all employers in similar situations.

As 2018 comes to a close, it is a great time for employers to address lingering issues that have been on the back burner and start “fresh” in the new year. A new year is a great time to roll out changes for both administration purposes and for employees; new year, new policies. Here are some items you may want to consider auditing internally and bringing up to current if need be for a January 1, 2019 revision date:

  • Wage disparities (male/female/minority)
  • Job classification (exempt, non-exempt, independent contractor)
  • Job descriptions (should reflect what the employee actually does – jobs morph over time)
  • Incentive compensation / bonus plans (the far majority I review need significant modification as they are written by sales folks and not HR/legal and thus leave out at-will language, deductions, prepayments, “earned” versus “accrued” and payout terms with absences, discipline, termination, etc.)
  • Minimum wage increases (State, Minneapolis, St. Paul)
  • Safe and Sick Leave Act ordinances (Minneapolis, St. Paul, Duluth)
  • Changing paid time off methods / calculations (from up front to accrual, etc. – and in compliance with any applicable ordinance)
  • Overtime (calculated weekly, all hours paid, no flex time between workweeks) – also, the new federal overtime rule is expected to be published in March 2019 – stay tuned on that (I would only be guessing as to how the DOL is going to roll it out).
  • Recordkeeping (best practices being followed; exempt/salaried employees can be made to record their time – which is very good to have if their classification is challenged in the future)
  • Wage deduction / loans / tuition reimbursement policies

With Thanksgiving tomorrow and Christmas right around the corner, employees start to question holiday time off and pay (or lack thereof). In Minnesota, there is no requirement that employers provide certain days off, with or without pay. Accordingly, employers just need to follow their policy (best practices – have it written), whatever it is. If employees must work on a holiday, employers must pay them for that time worked, but may also chose to pay an additional half-time or double time and/or additional PTO to be taken another day. Those hours worked count towards overtime. In addition, the additional pay will change the regular rate for overtime purposes and thus, the hourly overtime rate will increase. For employers who provide time off without pay, or time off with pay, those hours are not “hours worked” and thus, do not count towards overtime. Key here is that your policy is written in a way that allows you flexibility as business needs arise. If your policy is not always followed, it is time to dust it off and revise it to be consistent with actual business practices.

On November 8, 2018, the DOL issued Opinion Letter FLSA2018-24, addressing the question of when additional payments to an exempt employee based on an hourly, daily or shift basis defeats the professional exemption. In short, an exempt employee may have a “guaranteed salary”, but then also receive additional compensation on an hourly, daily, or shift basis, so long as there is a “reasonable relationship” between the guaranteed amount and actual wages earned. Generally, I tell employers not to ever pay a salaried employee based on hours worked; this is the exception to that rule – so long as it is properly done.

Usual earnings between 1 to 1.5 times the guaranteed salary will typically satisfy this test. (i.e. the employee is guaranteed $500 a week and typically earns $600 to $750 a week). The Court did not address earnings between 1.5 times and 1.8 times the guaranteed salary.  The Court noted that earnings more than that (i.e. 1.8 times or double) may not have a “reasonable relationship,” and thus, may defeat the exemption (and thus, minimum wage and overtime applies). Yet, no bright-line rule exists, and the DOL will look at it on an employee-specific basis (not as a group). Keep in mind that this test does not apply to other payments made to an exempt employee such as bonuses, commissions, etc., which do not have the “reasonable relationship” requirement.

On November 14, 2018, the Eighth Circuit Court of Appeals held in Baouch v. Werner Enterprises, Inc. that per diem travel payments made to truck drivers driving away from home at night as reimbursement for travel expenses are “wages,” even though not taxed as part of an “accountable plan” under Treas. Reg. §1.62-2(c)(2). To qualify as an “accountable plan” a payment plan has to meet the IRS’ business connection, substantiation and return of excess expenses requirements. The Court held that the payments under the accountable plan were part of the drivers’ “regular rate,” as they were made as remuneration for work performed under the FLSA. The Court held that representations made by the employer to the IRS were not inconsistent with the FLSA’s governing the calculation of regular rates for the purposes of minimum wages. As the payments were made based on miles driven, and thus, hours worked, the payments were correctly included in the regular rate calculation, even though the primary effect of the payments were to cause participating drivers to take home more pay due to the non-payment of taxes on the payments.  The Court concluded that “per diem payments that vary with the amount of work performed are part of the regular rate.”

So, what does this mean?  Well, an employer who has an “accountable plan” for the payment of mileage reimbursement may be able to include that payment as “wages” for establishing the “regular rate” under the FLSA for purposes of meeting minimum wage.  However – you can’t have your cake and eat it too.  More often an employer argues that per diem is not part of the regular rate (as that increases overtime). Accordingly, employers should be careful that if per diem payments under an accountable plan are tied to hours worked, they may indeed be included in the regular rate for purposes of overtime. Finally, the Court noted such an analysis should be reviewed on a case-by-case basis, and look at factors such as whether the payments were unrestricted (employees need not report expenses or provide receipts and could spend the money as they liked) and the purpose and intent of the payments.

The U.S. Department of Labor (DOL) was extremely busy with its announcements on August 28, 2018. Along with issuing 6 opinion letters, a directive, and launching a new web page (all of which I previously wrote about), it also announced the creation of not one, but two new websites, as well as the new Office of Compliance Initiatives. The new websites, worker.gov and employer.gov provide one location for information for federal worker protections (worker.gov) and information for employers about their responsibilities for federal worker protections (employer.gov).

The employer.gov website provides information regarding pay and benefits; workplace safety and health; small business resources; required posters; nondiscrimination; federal contractor requirements; and veteran and service member employment. It has frequently asked employer questions as well. In theory, the Office of Compliance Initiatives will work to promote greater understanding of federal labor laws and regulations, and will work with enforcement agencies to ensure compliance with the law.

What does that mean for the average employer? I have no idea. It seems to me to be yet another pair of government websites designed to provide consolidated information and links. But as always, nothing is as easy as it seems, and thus, it’s just one more set of data to review. In any event, Minnesota employers should also keep in mind that our laws cannot be ignored and so just because something is allowed under federal law, does not necessarily mean it is under state law. Thus, while this may be handy from a federal perspective, don’t forget about the Minnesota Department of Labor and Industry agency regulations and our Minnesota state wage and hour laws.

On July 13, 2018, the Department of Labor Wage and Hour Division (WHD) released Field Assistance Bulletin No. 2018-4 providing guidance on when caregiver registries are an “employer” of caregivers under the Fair Labor Standards Act (FLSA). Rather than providing in home care services directly, registries provide individuals, such as seniors and those with disabilities, support for finding in-home care by offering referrals of qualified pre-screened caregivers from their database. This may be nurses, home health aids, personal care attendants, or home care workers, however titled. For the past four decades, the WHD’s position has been that generally a registry, even one that performs payroll services, is not an employer under the FLSA; however, if the registry directs and controls the caregivers work and sets the rate of pay, it is an employer. However, regulation changes and requests for additional guidance promoted the WHD to pen the bulletin.

To determine whether a registry is an employer, the WHD engages in a fact-specific assessment of the relationship between the registry and the caregiver, known as the “economic reality” test. Field Assistance Bulletin 2018-4 identifies common practices of registry business practices and operations that the WHD may analyze when determining if an employment relationship exists. While the individual factors identified in the Field Assistance Bulletin are not dispositive, the factors are helpful for employers to identify business practices that may establish an employment relationship, therefore triggering obligations under the FLSA:

  • Conducting Background and Reference Checks
  • Hiring and Firing
  • Scheduling and Assigning Work
  • Controlling the Caregiver’s Work
  • Setting the Pay Rate
  • Receiving Payments of Caregiver Services
  • Paying Wages
  • Tracking Caregiver Hours
  • Purchasing Equipment and Supplies
  • Receiving EINs or 1099s

Notably, the WHD does not focus on a single factor, but rather looks at the “totality of the circumstances,” including the control and influence the registry has on the caregiver’s terms and conditions of employment.

When a local movie theater started serving food during the movie, I was quite excited (until I realized how loud it would be while watching the movie). Yet, not once did I think about whether my server fell under the “motion picture theater” (movie theater) exemption to the Fair Labor Standards Act (FLSA)…nor had I heard of such a thing, frankly. On August 28, 2018, the U.S. Department of Labor (DOL) addressed the question of what constitutes an “establishment” for purposes of the overtime exemption in opinion letter FLSA2018-23. While the question was asked in the context of a restaurant within a movie theater, the DOL’s opinion provides insight to all employers.

When determining what constitutes an “establishment” for purposes of the FLSA, the DOL looks at the nature of the business, not the work performed by the employee. The DOL also notes that an “establishment” is a “distinct physical place of business” not “an entire business or enterprise”. Thus, so long as business units or portions of a business located on the same premises share bookeeping, records, taxes, invoices, banks, and employees, etc. they are one “establishment” for the exemption. Thus, in this case, the DOL opined that the movie theater and restaurant constituted one “establishment” for purposes of the motion picture theater exemption, and thus employees who work both in theater as an usher, and in the theater’s full-service restaurant as a server are not entitled to overtime. However, don’t forget – just because the FLSA does not apply, does not mean that state law does not (overtime after 48 hours per workweek).

I’m a big fan of volunteering, and am highly involved in several community groups.  In one of them that I’m involved in, we frequently joke about being “voluntold” to do something (go ahead and suggest a good idea…dare you!). Yet, when is volunteering truly volunteering and not compensable work? In another of the U.S. Department of Labor’s (DOL) August 28, 2018 opinion letters, the DOL clarified when a volunteer need not be paid in FLSA2018-22. While this particular opinion letter talks about professional exam graders for a nonprofit organization, the opinion can help other employers who provide volunteer opportunities for employees. In the facts presented, these graders (typically high-level multi-national executives) used to get a fee for taking a week or two to travel overseas to grade professional exams. It was considered an honor to be asked and they are at the top of their profession. The nonprofit wanted to clarify if they could be classified as “volunteers,” even though their travel, room and board, etc. was paid for. The DOL said, “yes”.

The DOL noted that the FLSA does not require payment to an employee who “volunteers without contemplation or receipt of compensation”, as the FLSA, “recognizes the generosity and public benefits of volunteering and allows people to freely volunteer time to religious, charitable, civic, humanitarian, or similar nonprofit organizations as a public service.” However, the volunteer service must be “freely without coercion or undue pressure” (direct or implied). In other words, employees cannot “volunteer” to perform their job, and cannot be pressured to do so (i.e. everyone is expected to volunteer). Seems simple enough, but of course there is always grey – for example, the opinion notes that this is related to a nonprofit. But what about employees that “volunteer” to run or organize a fundraising campaign through work? What if the company has a relationship with the nonprofit and benefits from it (i.e. employee morale, jeans days, etc.). That is where hairs start getting split and the facts should be carefully considered.