Category Archives: department of labor

US DOL Issues Final Rule on Salary Threshold for Exempt Status

Contributed by Sara Zorich, September 24, 2019

In a follow up to our recent post, the US Department of Labor (DOL) has now issued its final rule regarding the salary thresholds for exempt status. The final rule will go into effect on January 1, 2020 and establishes the following rules:

  1. Salary exempt employees must earn at least $684/week (equivalent to $35,568 per year for a full-year worker) (which is slightly more than was proposed in March 2019 due to inflation/updated data but less than was proposed during the Obama Era);
  2. Employers can use non-discretionary bonuses and incentive payments that are paid at least annually to satisfy up to 10% of the salary basis for the white collar exemptions (if this is utilized the minimum salary paid can be no less than $615.60/week) (however, it should be noted that (1) if the employee does not earn the bonus the employer will need to pay the amount anyway no later than one week from the end of the 52 week period or the salary basis will not be met and (2) if the employee leaves employment before the bonus is paid/earned the employer will have to pay the pro-rata share of the bonus at termination to ensure the minimum salary threshold was met);
  3. In order to qualify for the “highly compensated exemption” employees must earn at least $107,432/year (formerly $100,000/year) and must be paid at least $684/week (however, Illinois employers should note this is not applicable in Illinois because Illinois did not adopt the highly compensated exemption); and
  4. Revises the special salary level for the motion picture industry and US territories.

We anticipate the new rule will receive legal challenge. However, litigation is unpredictable, so employers should begin preparing now to ensure they are ready for January 1, 2020.

Gig Workers: An Evolving Trend or a Class Action Waiting to Happen?

Contributed by Rebecca Dobbs Bush, June 4, 2019

The workplace is changing: Millennials, Generation Z-ers, and Baby Boomers looking to supplement their retirement income. These individuals are more interested in autonomy and avoiding bad managers, office politics and lengthy, non-productive staff meetings. Plus, the tax-savvy individual knows the economic advantage of having access to traditional business deductions through a Schedule C, rather than being limited to the standard deduction or itemizing as a W-2 employee would be.

Business concept. Isolated on white

More and more businesses also seem to be interested in the advantages of a gig workforce, also called freelancers, subcontractors, contingent workforce, and more. After all, it allows a business to gain access to skills and talent without having to commit to hiring an individual as a full-time employee. According to Deloitte’s 2018 Global Human Capital Trends study, more than 40% of workers in the U.S. are employed in “alternative work arrangements.” These arrangements include contingent, part-time, or gig work.

So, is it a win-win for all involved? The problem is that current employment laws are simply not evolving at the pace required to keep up with this modern-day independent contractor. With this, a minefield is created for the unwary business. 

Under the Obama administration, the DOL had issued broad guidance suggesting that gig workers were likely to be considered “employees.” That guidance was rescinded with the change in administration. Then, on April 29, 2019, the DOL issued an atypical, 10-page opinion letter on the subject. The opinion letter lays out a detailed analysis of all the relevant factors for independent contractor status and then comes to the conclusion that the gig workers at issue are not employees.

For now, if your business is participating in the trend of the gig worker, you want to make sure the relevant factors are met. Those factors and the analysis change depending on which law the issue is being examined under. Some of the more common factors are: control, permanency of the relationship, integrality to business operations, ability to sustain a profit or loss, accountability for operating expenses, etc. In other words, is the individual truly operating as a stand-alone business? 

If you choose to engage gig workers, make sure to avoid these common mistakes:

  • Do not treat the individuals as employees. Do not even use the word “hire.” Instead, you are “engaging” their services, or “contracting” with them. And, commit to the arrangement in writing.
  • Do not be tempted to offer them benefits. Putting them in your health plan or letting them participate in a 401(k) will jeopardize any argument that they are not otherwise an employee. If it walks like a duck, quacks like a duck….
  • Do not make them sign a non-compete agreement. A critical factor in most cases is whether the individual is free to take on work from others or whether they are completely dependent on your business for work. If the individual is subject to a non-compete agreement and effectively being prevented from working for others, you will not win on this factor.

Because of the amount of exposure involved with a misclassification lawsuit, it is worthwhile to have competent employment counsel review your situation and any independent contractor agreement or contracts that you are using to help you make sure it’s being handled in the best possible manner to strengthen the individual’s status as an independent contractor.

Will We See New Federal Overtime Rules in March?

Contributed by Carlos Arévalo, March 4, 2019

Last Fall, the Department of Labor (DOL) announced that it intended to issue a Notice of Proposed Rulemaking (NPRM) in March 2019 regarding the salary levels applicable to the executive, administrative and professional exemptions that exclude certain employees from the coverage of the Fair Labor Standards Act’s minimum wage and overtime provisions. The DOL has been reviewing the regulations at 29 CFR 541, which implement the exemptions, and is expected to seek public comment on the salary level before issuing a final rule.

Of course, we all recall the most recent final rule on the subject. The Obama administration’s final rule, announced on May 23, 2016, would have increased the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). This rule was challenged in the latter part of 2016 in the Eastern District of Texas. U.S. District Judge Amos Mazzant blocked the rule’s December 1, 2016, implementation when he issued a preliminary injunction in favor of the plaintiffs (21 states and over 50 business organizations). In his ruling, Judge Mazzant noted that the DOL exceeded “its delegated authority and ignore[d] Congress’ intent by raising the minimum salary level such that it supplants the duties test.” He also added that the Supreme Court routinely strikes down “agency interpretations that clearly exceed a permissible interpretation based on the plain language of the statute, particularly if they have a great economic or political significance.” The appeal of Judge Mazzant’s ruling was dismissed in September 2017.

Based on current Secretary of Labor Alexander Acosta’s comments that the jump to $47,476 was excessive, it has been expected that the DOL’s NPRM would propose an updated salary level test of somewhere between $30,000 and $35,000. 

At this time, there is nothing employers need to do. And while it could be months, perhaps even longer, before a new final rule is issued, we expect that the current salary level will be increased. At this rate, though, the salary levels may once again become an issue in the next presidential election. Whatever happens, stay tuned – we will keep an eye on any action by the DOL and will keep you updated!

After Decade of Silence, DOL on Opinion Letter Spree

Contributed by Noah A. Frank, January 8, 2019

We previously reported that in 2018, the U.S. Department of Labor (DOL) began issuing opinion letters again after nearly a decade of silence. While the legislature makes laws, the consequences of presidential elections flow into the executive agencies charged with administering and enforcing the laws. 

As of the close of 2018, the DOL had issued more than 30 new opinion letters involving the Family and Medical Leave Act (FMLA) or Fair Labor Standards Act (FLSA), and those letters addressed a variety of topics including minimum wage and overtime for employees paid varying rates, the compensability of frequent rest breaks required as a reasonable accommodation for a disability, and travel time. The DOL’s opinion letters represent the agency’s official interpretation of how it would enforce the statutes under its jurisdiction. Employers, especially those operating close to the margins of the law, should pay careful attention to these opinions and adjust their practices accordingly. 

Companies with questions or concerns relating to FMLA and FLSA practices may also wish to seek their own opinions letters—which may be submitted anonymously, through counsel—for clarity regarding complicated compliance matters. Additionally, given the substantial risks and liabilities that may arise from medical leave and wage & hour administration, companies should also err on the side of caution by seeking the advice of knowledgeable employment counsel, and regularly undertaking audits of FMLA and FLSA-related policies and practices.

Should Employers Be Grieving the Impending Death of the DOL’s Fiduciary Rule?

Contributed by Rebecca Dobbs Bush, May 31, 2018

Every employer offering a 401(k) plan is faced with decisions about what investment options to make available to participants. Investment options carry different risks as well as different costs. In designing available investment options, most plan sponsors rely on a third-party advisor. Industry estimates indicate that approximately 90% of these financial advisors are brokers, i.e., commissioned-based sales consultants.

Third-party financial advisors may or may not maintain fiduciary status in regards to the 401(k) plan (this depends on the specific terms of each individual plan). Where an advisor does not maintain fiduciary status, an employer is ultimately the party responsible for selection and monitoring of available investment options.

Employer

Person sitting at desk with a sign that says “Employer”

The final rule, issued back on April 8, 2016, increased the level of responsibility for every third-party advisor to a 401(k) plan from a weaker “suitability” standard to a “best interests” standard, meaning they must only offer advice in the best interests of plan participants and beneficiaries and must disclose any potential conflicts of interest. Understandably this is an incredibly difficult standard for a broker/financial advisor to meet and the financial industry has protested the rule vigorously. In March of 2018, the Fifth Circuit Court of Appeals vacated the Department of Labor (DOL) rule and the DOL has indicated they won’t be challenging that decision. On May 7, 2018, the DOL went a step further and issued Field Assistance Bulletin No. 2018-02 announcing a temporary non-enforcement policy.

Should employers be grieving the death of the fiduciary rule? Perhaps, but not necessarily. Ultimately no one will work for free and third-party advisors are no different. If broker/financial advisors can’t collect adequate compensation through commissions, they will likely change their fee structure to charge more direct service fees. At the end of the day, the costs to the plan and its participants would arguably be equivalent. That said, employers relying on third-parties for financial advice in designing and maintaining their plans need to keep this in mind. Blind trust is not an option when there is an inherent conflict of interest due to commission-based compensation. Employers are fiduciaries regardless of the death of the DOL’s fiduciary rule and need to be diligent in ensuring they understand their plan and are protecting the participants.

 

DOL Says Goodbye to Six-Factor Unpaid Internship Test

Contributed by JT Charron, January 10, 2018

On Friday, the Department of Labor abandoned its six-part test for determining whether an intern must be paid, and replaced with the more employer-friendly “primary beneficiary test.” This announcement came less than a month after the Ninth Circuit became the fourth federal appellate court to expressly reject the DOL’s six-factor test in favor of the primary beneficiary test.

Background

Under the Fair Labor Standards Act (FLSA) employers must generally pay employees minimum wage for all hours worked, and overtime for all hours worked over 40 in a week. The FLSA, however, exempts certain individuals from these requirements, including bona fide interns. To determine whether an intern was bona fide, the DOL introduced a six-factor test in 2010, which required that:

  1. The internship was similar to training that would be offered in an education environment;
  2. The internship experience was for the benefit of the intern;
  3. The internship was not displacing a regular employee;
  4. The training provide by the employer to the intern may have impeded the employer’s operations;
  5. The intern was not expecting a permanent position at the conclusion of the internship; and
  6. Both the employer and the intern understand that there was no compensation.

    56243229 - interns wanted internship training trainee concept

    “interns wanted” sign

According to the DOL, if even one of these factors did not apply, the individual was an employee — not an intern — and was required to be paid minimum wage and overtime.

The Primary Beneficiary Test

First articulated in 2015 by the Second Circuit Court of Appeals, the primary beneficiary test is a case-by-case approach that gives consideration to the following seven factors:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee — and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Importantly, no single factor is dispositive, and the employee/intern distinction will be based on the unique circumstances of each case.

Bottom Line

While the primary beneficiary test will provide more flexibility for businesses preparing for the 2018 internship season, employers must still be careful in designing internship programs. As the above factors indicate, the primary beneficiary of any program must still be the intern — not the employer.

House Republicans Try to Remedy Patchwork of Paid Sick Leave

Contributed by Beverly Alfon, November 10, 2017

Eight states, the District of Columbia, and more than 30 municipalities have enacted laws mandating differing paid leave requirements. Localities such as New York and San Francisco, have enacted some of the most aggressive sick leave requirements in the country. Employers doing business within the City of Chicago have also been left to deal with a trifecta of sick leave laws in 2017:  the IL Employee Sick Leave Act, the Cook County Paid Sick Leave ordinance, and the City of Chicago paid sick leave ordinance. All of this has resulted in an administrative nightmare for employers dealing with more than one set of sick leave requirements.

sick leave 2

On November 2, 2017, three Republicans in the U.S. House of Representatives, Reps. Mimi Walters (R-CA), Elise Stefanik (R-NY) and Cathy McMorris Rodgers (R-WA), introduced a bill, The Workflex in the 21st Century Act (H.R. 4219). Supporters of the bill tout that the legislation gives employees job flexibility, while also giving employers more certainty and predictability over their leave practices. The bill provides for a voluntary program that is comprised of a combination of guaranteed paid leave and increased workplace flexibility options to employees. The amount of paid leave required (ranging from 12 days up to 20 days) would depend on an employee’s tenure and the employer’s size.  At least one type of workflex option would also be made available to employees, which may include a compressed work schedule, biweekly work program, telecommuting program, job-sharing program, flexible scheduling or a predictable schedule.  The incentive for an employer is that participation in the program would shield it from the mish-mosh of paid leave obligations stemming from state and local laws currently in effect.

The bill would not require employees to use the workflex option in order to take advantage of the paid days off. Also, to be eligible for a workflex arrangement, an employee would have to be employed for at least 12 months by the employer and would have to have worked at least 1,000 hours during the previous 12 months. More details regarding the bill can be found here.

Bottom line: Where this bill will end up obviously remains to be seen, but it has strong support from the Society for Human Resource Management (SHRM), the U.S. Chamber of Commerce, National Association of Manufacturers, National Association of Women Business Owners and other employer groups. Until there is a solution to the administrative hopscotch required of employers whose employees work in different cities, counties and states, employers must do their best to stay on top of the applicable paid sick leave requirements and related rules and regulations, and adjust their policies and procedures accordingly.