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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.

On March 7, 2019, HR 2274 was introduced in the Minnesota House of Representatives that would very simply change the state overtime requirement from 48 hours to 40 – matching the federal FLSA. This bill would simply strike “48” from Minn. Stat. 177.25, and replace it with “40”.  It has been referred to the Labor Committee. Not much else to report at this time. However, given how many employers are under the purview of the federal FLSA, I do not foresee this change impacting the majority of employers in Minnesota.

Today the Minnesota Department of Labor and Industry (MNDOLI) issued employers yet another reminder not to engage in “wage theft” from employees, and encouraged subscribers to share the message. So, I’ll do my civic duty and share. In short, MNDOLI reminds employers of the following (with my comments below each point):

  • Pay your employees the applicable state minimum wage. Minnesota’s 2019 minimum-wage rates are $9.86 an hour for large employers and $8.04 an hour for small employers. For additional details about the state’s minimum-wage rates, visit www.dli.mn.gov/business/employment-practices/minimum-wage-minnesota. New rates take effect Jan. 1 each year. Employers operating in Minneapolis or St. Paul should understand the requirements of the minimum-wage ordinances in those cities.
    • There are some exceptions to the minimum wage rates such as training wages and youth wages (under 17).
    • Since Minnesota’s minimum wage rates are currently greater than the federal minimum wage rates, Minnesota’s rates apply to Minnesota employers (as they are more favorable to employees).
  • Pay your employees for all hours worked. Employees must be paid for employer-required training and for time needed to prepare to perform work, such as restocking supplies and performing safety checks. If you require employees to meet at a centralized location before driving to a worksite, pay the employee for the drive-time from the location to the worksite. Employers cannot require employees to remain at work and “punch in” only when it gets busy, “punching out” when business gets slow.
    • If you have a Collective Bargaining Agreement, be sure to review those bargained-for terms as well.
    • Tip: have employees drive directly to the jobsite in the morning.  If they have no ride, or need a ride, make it voluntary and be sure they do not do any work before the trip – they are a passenger only.
  • Pay your hourly employees for overtime. Federal law requires most hourly employees to receive overtime after working 40 hours in a workweek. Some employees are exempt from this requirement, but still need to be paid overtime after 48 hours in a workweek under Minnesota law.
    • I wrote about this in an earlier post – just because an employee may be exempt from overtime under federal law does not necessarily mean they are exempt under Minnesota law.
    • There is a bill pending (HF 2274) in the Minnesota legislature that would change overtime from 48 hours to 40 hours – stay tuned.
    • If an employee is not authorized to work overtime but does it anyway, they must be paid for those hours worked but can be disciplined for not following workplace rules.
    • Tip: remember private employers (almost everyone reading this) cannot use “comp” time from week to week – it must be paid out, unlike those employees in the public sector.
    • Employers do not need to pay higher rates in Minnesota (unlike some states) for working on Saturdays, Sundays, or holidays.
  • Pay your employees at least every 31 days, on a regularly scheduled payday that they are notified of in advance.
    • Tip: don’t forget if you terminate an employee they may request their final paycheck be paid within 24 hours. Since this is sometimes difficult, if possible, it is best to just have the final check ready to hand to the employee upon termination.
  • Do not misclassify employees as independent contractors. Such misclassification not only adversely impacts employees, it also creates a competitive disadvantage for employers that comply with state laws related to workers’ compensation, unemployment insurance and tax withholding.
    • Similarly, be careful not to misclassify an employee as exempt from overtime – and keep reviewing this blog for updates on the pending DOL rule to change the salary threshold.  If you missed my post, the update is here.
  • Do not take unlawful deductions from your employees’ paychecks. Deductions that generally cannot be made include:  property loss or damage; cash shortages; and tool or uniform expenses.
    • Tip: you can ask the employee to agree to pay it back after the fact – but it has to be in writing, and deductions cannot take the employee below minimum wage (it’s a bit more complicated than that with taxes, other deductions, etc.).  If the employee refuses, you can discipline the employee for whatever caused the loss.
  • Do not require your employees to pool or share tips.
    • Again, in Minnesota, employers cannot take a tip credit against minimum wage (like many states).
    • Employees may voluntarily agree to share tips, but employers should stay out of it.

And final tip – don’t forget to keep the records of wages, time cards, deductions, etc. for at least three years after their termination.

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

Employers are often surprised to learn that employees may be terminated while on (or after) Family Medical Leave Act (FMLA) or other type of protected leave. The key, however, is that there needs to be some sort of unrelated intervening event such as in the case of Naguib v. Trimark Hotel Corp. On September 12, 2018, the Eighth Circuit Court of Appeals upheld the U.S. District Court for the District of Minnesota’s decision in Trimark, that an employee was not wrongfully terminated while on Family Medical Leave Act (FMLA) protected leave.

In this case, the plaintiff, Isis Naguib, was a long-time (1977-2014) Executive Housekeeper at Millennium Hotel, a Trimark brand hotel. During the past three years of her employment, Naguib essentially testified against the company in an unrelated case, her son filed a discrimination complaint against the hotel, and she took FMLA leave for hypertension. While the FMLA request was approved, she was suspended and terminated soon after her return, as a result of an internal investigation.

While Naguib was on FMLA leave, the fill-in Head of Housekeeping personally observed timekeeping irregularities, and notified management. Notably, it was determined that Naguib told housekeepers to round down their time and not record all overtime hours and Naguib altered time records without the proper company form. In addition, one housekeeper regularly sewed hotel linens at home off the clock. This practice resulted in lower payroll costs, and thus, a bonus for Naguib. Ultimately, Millennium compensated the employees for the docked overtime, disciplined three other managers (who did similar practices on a smaller scale), and terminated Naguib just twelve days after her return from FMLA. The 8th Circuit Court of Appeals agreed with the District of Minnesota (the Honorable Judge Joan N. Ericksen) in its ruling that there were no specific links between her termination any any sort of discrimination, and that the investigation was only conducted as a result of irregularities found in her absence. Thus, the termination proper despite the other recent events.

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.

On August 28, 2018, in FLSA2018-20, the US Department of Labor (DOL) issued another opinion letter stating that the Fair Labor Standards Act (FLSA) does not require that employers pay employees to attend voluntary wellness activities, biometric screenings, and benefits fairs held during (or outside of) work hours – if some conditions are met. First, they must be voluntary. Second, it must not be related to the employee’s job. Third, they must not be a part of new employee orientation and open to all employees. Fourth, the employer must not receive direct financial benefit as a result of employee participation.  And Lastly, they must be outside of normal work breaks.  In short, the activities must be “predominantly for the benefit of the employee”.

In this instance, “wellness activities” are offered by the employer as a way for employees to potentially decrease monthly insurance premiums through health education classes, gym classes, phone health coaching, participating in Weight Watchers, and engaging in voluntary fitness activities. The biometric screenings measures things such as cholesterol, blood pressure, and nicotine usage. The benefits fairs allow employees to learn about financial planning, college opportunities, and employer benefits.

The DOL concluded that the FLSA does not require payment for such time, as it is “off duty” time per 29 C.F.R. § 785.16. One footnote (literally in the opinion) – this analysis is based on such events taking more than a standard 20 minute break time.  For example, if these events are offered during a break of up to 20 minutes, then they would be compensable (paid) under 29 C.F.R. 785.18, because so long as an employer provides a paid break, it does not matter how the employee spends that time for his or her own benefit.