The long-awaited new overtime regulations took a big step forward this week when the Department of Labor submitted the proposed final regulations to the White House Office of Management and Budget for final review and approval. This last step in the review process is anticipated to take up to 90 days, with the final regulations anticipated sometime during Q2.
As we noted in our post on June 30, 2015, the proposed regulations more than double the minimum salary requirement for the “white collar” overtime exemptions (administrative, professional and executive) from $455/week ($23,660/year) to approximately $970/week ($50,440/year), with annual increases thereafter based on a to-be-determined index. The proposed regulations also increase the minimum salary for the Highly Compensated Employee exemption from $100,000/year to more than $122,000/year (though it is important to note that this exemption does not apply under some states’ overtime laws). Finally, while the proposed regulations did not change the job duties tests, they did suggest that the final rules may impact the job duties tests in addition to the minimum salary requirement.
There are various strategies available to businesses to minimize the financial, operational and employee-relations impact of the new regulations, but it is important to act quickly to consider available options for impacted employees. Companies should also consider whether other changes to exempt status classifications make sense, as the regulatory change is a good opportunity to improve compliance across the board.
The U.S. Department of Labor (DOL) has issued guidelines for when companies will be considered joint employers for purposes of the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). This guidance was issued in the wake of the National Labor Relations Board’s crucial Browning-Ferris ruling this past summer, drastically expanding who may be considered a joint employer under the National Labor Relations Act (NLRA).
The DOL guidelines discuss in detail a wide variety of employment relationships, including shared employees, subcontracted employees, staffing agencies, third-party management companies, and others. According to the DOL, the “possibility of joint employment should be regularly considered in FLSA and MSPA cases, particularly where (1) the employee works for two employers who are associated or related in some way with respect to the employee [i.e. horizontal joint-employment]; or (2) the employee’s employer is an intermediary or otherwise provides labor to another employer [i.e. vertical joint employment].” Although not new, the guidelines set forth in detail various factors to be used in determining joint employer status.
As with the Browning-Ferris decision, the DOL guidance is particularly important for companies that work with subcontractors or staffing firms, or are themselves contractors or staffing firms. These companies, as well as others in similar relationships, should carefully review the guidelines, weigh the benefits of control against the risk of being deemed to be a joint employer, and reflect their desired balance in their contracts, practices and procedures.
Two recent developments are a good reminder that companies who have independent contractors are under increased scrutiny and face a high bar in establishing that independent contractors are properly classified as such — and not employees.
On July 15th, the Department of Labor issued a guidance saying that most workers qualify as employees under the Fair Labor Standards Act (FLSA) regardless of what the worker and the company may have agreed to. The guidance doesn’t announce a new test for independent contractor status. Instead, it starts with the “economic realities” test for independent contrator status that courts regularly use and a reads it together with a broad view of the FLSA’s definition of employ to reach a conclusion that most independent contractors are misclassified and should, instead, be treated as employees.
The DOL’s guidance was close on the heels of a decision by the Seventh Circuit Court of Appeals, which reversed the lower court and ruled that FedEx delivery drivers are employees under Kansas state law, not independent contractors. In making its decision, the 7th Circuit certified the question of whether the drivers were employees under the Kansas Wage Payment Act to the Kansas Supreme Court. The Kansas Supreme Court, applying a 20-factor test, found that the drivers were employees because FedEx, among other things, assigns drivers their routes; requires them to check in with FedEx managers at the start of their day; regulates their appearance; and decides whether to hire a driver after the driver submits resumes and references like any other employee.
So what are the consequences of misclassification? Companies that misclassify employees as independent contractors face penalties for failing to pay employment taxes, for failing to withhold taxes from pay, for failing to comply with wage and hour requirements (such as overtime), for failing to contribute to unemployment compensation, and for failing to comply with other employment-related laws. In addition, the Affordable Care Act opens companies that misclassify workers to significant penalties — both based on failure to offer coverage to the required portion of the workforce and where a misclassified worker obtains coverage on an exchange.
In light of these developments, we strongly recommend that any company that has independent contractors work with counsel to determine if these workers are properly classified. A thorough review now could save you lots of money, time, and aggravation later.
This morning the Department of Labor announced that it is seeking to increase the number of employees eligible for overtime pay by increasing the minimum salary required if an employee is to be considered exempt under the administrative, executive and professional exemptions. The proposed increase would take the minimum annualized salary from $23,660 to $50,440. In addition, under the proposed rule the threshold for the FLSA’s Highly Compensated Employee exemption would rise from $100,000 to $122,148. Both the minimum salary and the Highly Compensated Employee threshold would be indexed for inflation. The DOL also suggested that it may seek other changes to limit the available overtime exemptions. If this change becomes a final rule, we would expect it to become effective in 2016.
Note that even if employees meet the higher minimum salary requirement, they still must meet the other requirements for exempt status — being paid on a salary basis and satisfying one of the duties tests — to qualify as exempt from overtime requirements.
No action is necessary at the moment as the proposed rule is not final. We will keep you updated on future developments.
The U.S. Department of Labor (DOL) has released its spring 2015 regulatory agenda, which provides a window into what we can expect from the agency over the coming months. The agenda provides updates on 70 rulemaking measures and suggests that — with President Obama’s term approaching its end — the DOL is putting its rule-making into high gear.
Here are some highlights from the agenda:
The DOL indicates that we should see the proposed rule redefining the white-collar exemption under the Fair Labor Standards Act (FLSA) in June. As we reported last year, President Obama has directed Labor Secretary Thomas Perez to “modernize and streamline” the regulations defining this exemption for executive, administrative, professional, outside sales, and computer employees. We expect that the proposed rule will narrow the white-collar exemptions, resulting in fewer employees qualifying as exempt from overtime requirements.
Use of Technology during Non-Working Hours
Also on the agenda is information seeking – in the pre-rule stage – on “the use of technology, including portable electronic devices, by employees away from the workplace and outside of scheduled work hours.” It appears that the DOL is seeking this information with an eye toward proposing a rule clarifying how this type of 21st Century off-the-clock work is compensated (likely to the benefit of employees). The request for information is expected in August.
Reporting under the Labor-Management Reporting and Disclosure Act
Lastly, the DOL agenda also indicates that we should expect a controversial final rule on the narrowing of the “advice” exception under the Labor-Management Reporting and Disclosure Act (LMRDA) in December. The LMRDA requires employers and labor relations consultants (or other similar individuals) to report any agreement or arrangement they have to engage in activities to persuade employees concerning the right to organize or bargain collectively. The LMRDA contains an exception for “advice,” stating that no employer or consultant has to file a report concerning services of a consultant if that consultant just gives “advice” to the employer. The proposed rule would limit the definition of “advice” to “oral or written recommendations,” so that any other activity would need to be reported. This proposed rule has been on the books for a number of years and continues to face serious opposition from many groups — including the American Bar Association — because it raises critical concerns about attorney-client privilege. We expect lengthy legal challenges to this rule.
It should be a busy second-half of the year for the DOL. We will keep you updated on any new developments.