Category Archives: Salary and Wage

Avoiding the Impact of Illinois Wage and Hour Damages

Contributed by Steven Jados, April 17, 2019

Scale weighing money and time. financial concept. illustration in flat design on blue background

As we previously noted in our February 12, 2019 blog, increases to the minimum wage in Illinois are on their way. And as we also noted, drastic increases in the damages for which Illinois employers may be liable in cases of minimum wage and overtime violations are now in effect. 

That said, there are a number of steps employers can take to minimize the risks of wage and hour lawsuits and liability, and they include the following:

  • Train front line supervisors not to allow any off-the-clock work. Along with this training, employers must also make clear to all employees that they cannot work off the clock—and that if their paychecks do not include all hours worked, employees must contact human resources (or whatever level of management handles payroll).
  • Do not automatically deduct for meal breaks…or any other breaks. Instead, have employees clock-in and clock-out for all breaks (meal or otherwise), and if employees submit written time sheets, have them write down the exact times when meal breaks begin and end each workday. (The same procedure should also be followed for start and end-times each day, no matter what an employee’s “scheduled” hours are.) And keep in mind that breaks should only be unpaid if they are for 30 uninterrupted minutes or more.
  • Do not withhold or make deductions from pay pending the return of uniforms, tools, cell phones, laptops or any other employer owned equipment. Do not make deductions from pay for tools, equipment, cash advances, cash register shortages or damage to employer’s equipment or property, unless the employee signs an express written agreement allowing the deduction at the time the deduction is made. State laws may vary on this.
  • Do not discipline employees by refusing to compensate them for hours they actually worked. If employees are late, penalizing them through pay deductions is unlawful. If discipline is necessary, it should come in the form of warnings, suspension, terminations, and the like.
  • If your time clock or payroll systems rounds employee work time, make sure the rounding is done in small increments—5 or 6 minutes, as opposed to 15—as that will help reduce liability in the event of a finding that the rounding was improper. Also, rounding should not be manipulated such that the rounding always benefits the employer.
  • Finally, employers should implement—and seriously enforce—policies that notify employees that they must properly record all hours worked, and notify management when paychecks do not include compensation for all hours worked.  These policies should be included in employee handbooks, and posted near the time-clock, on written employee time-sheets, and as a notification that pops-up whenever employees enter their work time by computer or app. And the employer must take these policies seriously, by undertaking investigations when employees raise concerns, and issuing corrected paychecks when circumstances warrant doing so.

Implementing policies and procedures that address these issues will help guard against potential wage and hour litigation, and help to minimize liability in the event litigation ensues.  For assistance in implementing these policies or questions regarding these issues, we recommend securing advice from experienced employment law counsel.

Illinois Mandatory Retirement Program Enrollment Deadlines Coming Later this Year

Contributed by Kelly Haab-Tallitsch, March 27, 2019

money plant growing

Illinois employers that have 25 or more employees and have been in business at least two years will be required to participate in the state-run retirement savings program or offer another qualifying retirement plan later this year.

The status of the Illinois Secure Choice Program was uncertain last fall following an amendatory veto issued by former Governor Bruce Rauner making the program optional, instead of mandatory, as discussed in a previous blog post. The Illinois legislature generally opposed making the program optional, and chose not to act on the amendment, effectively overriding the veto. As a result, the Secure Choice Program remains mandatory for covered employers that do not offer another retirement program. 

Employers with 100 – 499 employees must register for the Illinois Secure Choice Savings Program by July 1, 2019 and employers with 25 – 99 employees must register by November 1, 2019 (employers with 500+ employees were required to register in late 2018). The Illinois State Treasurer’s office will notify employers directly (by mail or email) when they are required to register. Employers will receive two notifications – an early registration notice 120 days prior to the required registration date and a second notice 30 days prior to the registration date. 

During the registration process, employers will provide basic information for the state to determine if the employer must participate in the Secure Choice Program (e.g., number of employees, and whether another retirement plan is offered). Participating employers will be required to automatically enroll employees in the savings program, withhold five percent of an employee’s compensation (up to an annual IRS maximum), and remit employees’ contributions to the state-run savings program, unless the employee elects a different amount or opts out of the program. Employer contributions to the plan are not permitted.

After registration, employers will be given instructions on how to enroll employees and remit payroll contributions, and provided enrollment forms and communication materials to give to employees. Employees will have 30 days to opt out or make adjustments to their savings rate or investment choices. At the end of this 30 day period, the employer must record employees’ elections in an online employer portal. Payroll deductions must begin within the following 30 days. Employers can remit employee contributions to the Secure Choice Program by ACH, wire transfer or check.

Employee contributions will be deposited into Roth Individual Retirement Accounts (IRAs) for each participant and invested at the participant’s direction among a menu of investment alternatives.

An Illinois employer that offers another qualifying retirement plan is exempt from the Secure Choice Program. This includes a 401(k) plan, 403(b) tax-sheltered annuity plan, 403(a) qualified annuity plan, Simplified Employee Pension plan, SIMPLE IRA plan, governmental 457(b) plan, or any other plan qualified under Internal Revenue Code section 401(a) (payroll deduction IRAs are not included). As such, employers required to participate in the Secure Choice Program should examine the options available to determine whether implementing a qualified retirement plan may be a better alternative. 

Employers can find additional information on the Illinois Secure Choice website.

Supreme Court May Decide Whether the Equal Pay Act Allows Employers to Consider Prior Salary in Setting Current Salary

Contributed by Allison P. Sues, January 14, 2019  

wage gap concept with blue figure symbolizing men and red pawn women

The Supreme Court may soon answer a question that divides federal courts: may an employer consider an employee’s salary history when setting pay without violating the Equal Pay Act (EPA)? The EPA prohibits employers from paying wages to employees of one sex less than employees of the other sex for equal work. The EPA holds employers strictly liable for differential pay, regardless of whether the employer had a discriminatory intent, unless the employer can show the difference in pay is based on a seniority system, merit system, quality or quantity of production measurements, or a fourth catchall factor.  Federal courts question whether the fourth catchall factor – “a differential based on any other factor other than sex” – allows an employer to set pay based on an employee’s salary history.

The Supreme Court recently announced it will, for the third time, consider a petition for review of the Ninth Circuit’s decision in Rizo v. Yovino, which signals that the Court may take up the case.  In Rizo, the Ninth Circuit held that an employer cannot consider prior salary in setting an employee’s current salary without running afoul of the EPA. Referring to the gender pay gap as an “embarrassing reality of our economy,” the Court noted that allowing employers to refer to prior salaries enabled the marketplace to perpetuate the gender-based wage differential that fueled the enactment of the EPA in the first place. The Court then clarified the meaning of the fourth catchall exception in the EPA, holding that “‘any other factor other than sex’ is limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.” 

Should the Supreme Court agree to hear the Rizo appeal, the Court’s ruling would offer some much-needed clarity for the various and conflicting opinions of the federal appeals courts on this issue.  For example, while the Eleventh Circuit has held, similar to the Ninth Circuit, that the catchall exception is limited to “job-related factors,” the Second Circuit has held that this same provision applies to an arguably broader category identified as “business-related reasons.” Taking still another approach, the Seventh Circuit has held that employers may consider prior salary history in setting current pay.  In Wernsing v. Department of Human Services, the Seventh Circuit rejected the argument that basing current salaries on prior salaries inherently perpetuates discrimination. While the court conceded that, empirically, women are paid less than men, the court held that it cannot be assumed that a pay differential is the result of discrimination. Instead, plaintiffs must prove the disparity is based on sex for the specific market at issue. 

While courts grapple with whether the EPA prohibits considering prior salaries, many legislatures are addressing the issue from another angle.  Several states (including California, Massachusetts, Delaware, and Oregon) and cities (including New York City, Philadelphia, and New Orleans) have enacted legislation prohibiting employers from asking employees about their prior salaries in an attempt to ameliorate the gender pay gap. Should the Supreme Court review and affirm Rizo, all employers would be well-advised to follow the lead of these states and cities, and refrain from collecting applicants’ salary histories. Stay tuned as we will continue to provide updates as new information on this area of the law emerges.

The Holidays are coming… Make sure you have addressed your wage and hour compliance

Contributed by Sara Zorich, December 20, 2018

Around the holiday season, many employees take time off and businesses close down. Additionally, some businesses pay out bonuses to employees around the holiday season. All of these scenarios can impact overtime pay for non-exempt employees.

CLOSURE OF BUSINESS

Non-Exempt Employees

Non-exempt employees generally (exceptions follow) only need to be paid for hours they actually work – and not for holidays or weather-related office closings and are entitled to overtime for hours worked over 40 in a workweek. For example:

  1. Non-exempt employees do not need to be paid for New Year’s Day if they are given the day off.
  2. If the business is closed during inclement weather (e.g., snow days, burst pipes), non-exempt employees do not need to be paid when the business is closed and they are not working.
  3. If employees report to work and are sent home early (e.g., due to imminent ice storm), then non-exempt employees only need to be paid for the hours they worked, and not for the time that they were sent home early and are not working.

Where non-exempt employees perform work on a holiday (federal, state, etc.), they only need to be paid overtime (time-and-a-half) if they have worked over 40 hours in the workweek (or 8 hours in a day in some states):  For example: An employee who works New Year’s Eve and New Year’s Day does not receive a shift premium (sometimes referred to as “overtime”) merely by virtue of working a holiday, unless the employee has actually worked more than 40 hours – in which case, overtime is paid only for those hours worked over 40 in the week.

Exceptions: Various state wage laws, employer policies (e.g., employee handbooks) and other contracts may obligate an employer to pay employees for certain holidays or business closings, and even pay shift premiums for working on holidays. Further, an employer policy may state that the holiday is counted as “hours worked” for overtime purposes. Make sure to review your policies carefully when administering payroll for holidays and closure.

Exempt Employees

Exempt employees are those who are not covered by the FLSA’s overtime requirements. When paid on a salary basis, these employees’ salaries may not be reduced in any week in which they work, except for limited circumstances (e.g., the employee’s personal absence not for sickness or disability, first/last week of employment). These exceptions do not permit an employer to reduce a salaried, exempt employee’s wages for holiday or inclement weather closures. Thus, these employees must be paid their regular, full salary, even though the business is closed for a holiday or due to weather (assuming the weather closure was for less than a week).

BONUSES

Employers must be careful when paying out bonuses at the end of the year to non-exempt employees. As with other bonuses, a holiday bonus must be included in overtime calculations for nonexempt employees unless it is completely discretionary or is a gift. If a bonus is promised or expected or is dependent on the quality, quantity or efficiency of production or hours worked, it must be included in the regular rate used for determining overtime pay. This becomes even more complicated at the end of the year. For example, if on January 1, the company promised a bonus if the production department made 10,000 widgets by December 15, 2018. If the production department achieved this goal and each non-exempt employee was paid a $100 bonus, that bonus would have to be allocated over the applicable period (50 weeks from 1/1 – 12/15). Then each non-exempt employee would become entitled to additional overtime for each week they worked overtime during that entire 50 week period based on the fact that the$100 bonus payment increased their regular rate and therefore the applicable overtime rate. 

Bottom Line: Employers need to be cognizant of how holiday closures and bonuses may impact their overtime requirements for non-exempt employees.

Changes in the Air – Employers Considering Prior Salary When Setting Wages Need to Know the Applicable Laws

Contributed by Michael Wong, April 18, 2018

The Equal Pay Act can create significant exposure for employers, if not considered when setting female employees’ wages – especially if you are relying upon a female applicant’s prior salary history and there is a difference in the pay of similar male employees.

33186296 - wage gap concept with blue figure symbolizing men and red pawn women

Wage gap concept with blue figure symbolizing men and red symbolizing women

The Equal Pay Act is dangerous for employers because plaintiffs are not required to prove discriminatory intent by the employer. All a plaintiff must show is that there is a wage disparity for equal work requiring the same skill, effort and responsibility, which is performed under similar working conditions. Once a plaintiff establishes that, the burden shifts to an employer to establish that the difference is based on one of the following four statutory exceptions:

  • a seniority system;
  • a merit system;
  • a system which measures earnings by quantity or quality of production; or
  • a differential based on any other factor other than sex.

Historically, the Equal Employment Opportunity Commission (EEOC) and the federal Appellate Courts for the Second (Connecticut, New York and Vermont), Eighth (Arkansas, Iowa, Minnesota, Missouri, Nebraska, South Dakota and North Dakota), Tenth (Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming) and Eleventh (Alabama, Florida, and Georgia) Circuits have taken the position that employers may consider prior salary as a mix of factors to set female employee wages without violating the Equal Pay Act – but prior salary cannot be the sole factor for any wage differential with a male employee in a similar role. On the other hand, the Seventh Circuit (Illinois, Indiana and Wisconsin) has held that using prior salary alone is a basis other than sex for wage differential that does not violate the Equal Pay Act.

Recently, the U.S. Court of Appeals for the Ninth Circuit (California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon and Washington) took its prior decisions a step farther by finding that prior salary does not fit within the exception of a factor other than sex because it is not a legitimate measure of work experience, ability, performance, or any other job-related quality. In doing so, the Ninth Circuit held that allowing employers to consider prior salary would simply continue the gender-based assumptions and discrimination that the Equal Pay Act was intended to stop.

This recent decision falls in line with the increasing number of state and local laws being passed that prohibit employers from asking applicants for prior salary information. States and cities/municipalities that currently have laws prohibiting employers from requesting/considering prior salary information include the following:

  • California (all employers)
  • Massachusetts (all employers)
  • Oregon (all employers)
  • Delaware (all employers)
  • New York (state employers)
  • New Jersey (public employers)
  • Puerto Rico (all employers)
  • San Francisco (all employers)
  • New Orleans (city positions)
  • New York City (all employers)
  • Albany County, New York (all employers)
  • Philadelphia (all employers – currently subject to legal challenge)
  • Pittsburgh (city positions).

With these changes you need to be aware of the laws impacting your operations and if you want to request and/or consider prior salary history when setting wages. If you are not sure, seek legal counsel in reviewing your employment practices.

 

Breaking News! Illinois Senate Refuses to Override Governor’s Veto

Inquiry into Illinois Applicant’s Salary Inquiry Remains Lawful – For Now.

Contributed by Noah A. Frank, November 9, 2017

gavelWe previously reported that Governor Rauner’s August 25, 2017 veto of HB 2462 amending the Illinois Equal Pay Act related to applicant salary history inquiries was subject to be overridden by the General Assembly.  On October 25, 2017, as predicted, the Illinois House voted to override the veto by a vote of 80-33 (less than the initial vote of 91-24 to pass the bill).  On November 9, 2017, the Illinois Senate voted against overriding the veto.  While 29 senators favored overriding the veto, they were seven short of the 36 required to override the veto (and still less than the original 35 to vote to pass the bill).

The battle is not over. 

In his veto, Governor Rauner suggested that the General Assembly adopt legislation similar to another state’s law.  As such, employers should expect legislation in 2018 in line with this new national trend, and prepare to revise job applications and interview questions accordingly.  We will keep you abreast of future Illinois and national developments.

UPDATED: California Bans Applicant Salary History Inquiries

Contributed by Noah A. Frank, November 8, 2017

Add salary history to the growing list of topics that may be off limits on employment applications and during interviews, depending on where your business operates.

32420632 - law gavel on a stack of american moneyCalifornia joins a growing list of jurisdictions banning salary history inquiries. On October 12, 2017, California Governor Brown signed Assembly Bill 168, which prohibits employers from seeking or relying upon applicants’ salary history and using such information as the basis for establishing compensation. The new law takes effect on January 1, 2018.

Like ban-the-box legislation (banning inquiries into criminal conviction history) and sick leave ordinances, this is likely the start of a national trend enacted on a jurisdiction-by-jurisdiction piecemeal basis.  California joins Massachusetts, Oregon, and Delaware, along with several municipalities, such as New York City, Philadelphia, Pittsburgh, and U.S. territory Puerto Rico, to enact such legislation in an emerging national trend.  Indeed, since we reported on Illinois’s forestalled HB1462 amending the Equal Pay Act in September, the Illinois House has overridden the governor’s veto, and the bill is on its way to the Illinois Senate for similar consideration.

The Basics

Like the other jurisdictions’ laws, California’s legislation is meant to remedy past gender-based compensation discrimination.  However, given the broad language, this bill will apply to all protected classes such as (and not limited to) race, religion, military status. Under AB-168, all employers in the state of California:

  1. May not inquire directly or indirectly into an applicant’s compensation and benefits (unless publicly available as provided by other laws).
  2. May not rely on salary history as a factor in determining whether to offer employment to an applicant or what salary to offer an applicant.
  3. Must provide the pay scale for the position to an applicant applying for employment “upon reasonable request.”  Note that this is a fairly unique provision in California’s law (at least for now).
  4. May not allow prior salary alone to justify any disparity in compensation.

Notably, if an applicant “voluntarily and without prompting discloses” compensation history, the employer may then consider it as a factor in determining the salary to offer an applicant.

Compliance Made Easy

In light of these trends in the workplace, employers must ensure that they are compliant with new and emerging laws as enacted, and to also perform routine audits – including employment forms, handbooks, policies, and templates.  As it relates to these salary inquiry laws, employers should (1) ensure job applications are compliant and do not include salary/wage inquiries, and (2) review interview questions, especially “scripts” used by management, and ensure that those conducting interviews are aware of the new unlawful inquiry.

What’s the Bottom Line on Salary History Inquiry Bans? Don’t Ask.

You may not ask applicants “how much do you currently make?” But you may ask: “how much would you like to earn in this position?” or “What are your compensation expectations?” or other similar future-oriented inquiries.