Category Archives: Wage and Hour Laws

US DOL Changes to Exempt Salary Status on the Horizon – Are you ready?

Contributed by Sara Zorich, September 17, 2019

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

The United States Department of Labor (DOL) is expected to implement its proposal to amend the minimum salary requirements for exempt employees under the Fair Labor Standards Act (FLSA) no later than the end of 2019. As you may recall, a similar proposal was set for 2016 but was not implemented due to a court injunction. Under the FLSA, the current minimum salary threshold for exempt employees is $455/week ($23,660 annually) which is anticipated to increase under the DOL’s proposal to $679/week ($35,308 annually). Note, state law requirements may be more generous than the FLSA and employers must follow the law that is most beneficial to the employee.

While you may be having déjà vu from 2016 and think “been there, done that,” it is still important to review your current exempt employee pay mechanisms in light of the potential changes and analyze the following:

  • How many of your current employees will be impacted by this new rule?
  • Is a salary increase for those who do not currently meet the salary requirement a plausible financial decision to the required increases?
  • Are there job positions that should now be reclassified as non-exempt and the employees will now be entitled to overtime if they work over 40 hours?
  • Tightening up policies regarding working overtime and working with management to limit the number of overtime hours worked for non-exempt employees.
  • Reviewing job descriptions.
  • Reviewing handbooks and policies regarding exempt and non-exempt status.
  • Reviewing benefits applicable to exempt and non-exempt employees and how a change in status may impact the benefits to your employees.

Employers have options:

  • Increase the employee’s salary to that proposed in the new regulations so they continue to meet the exemption;
  • Keep the salary the same and pay the required overtime payments based on the employee’s regular rate of pay;
  • Reduce the employee’s salary or change the employee to hourly at a lower rate so the total earnings do not change after overtime is paid;
  • Eliminate the employee working any overtime hours; or
  • Some combination of the above options.

Employers should begin analyzing their exempt workforce now so they are prepared when the DOL changes are implemented. 

Common FLSA Violations: Mistakes can be Costly

Contributed by Debra Mastrian, August 20, 2019

Clock with money on white background

Under the Fair Labor Standards Act (FLSA), employees must be properly classified as either exempt or nonexempt, and nonexempt employees must be paid overtime (1½ times their regular rate of pay for all hours worked over 40 hours in a workweek). All compensation, including commissions and non-discretionary bonuses, must be included in the regular rate of pay for purposes of calculating overtime, unless the compensation is one of eight specified types of payment (e.g., holiday gift, birthday gift, discretionary bonus, and certain profit sharing payments).

Employees may be classified as exempt if they satisfy one of the specified statutory exemptions, the most common of which are the administrative, executive, and professional exemptions. To satisfy these exemptions, an employee has to meet both a salary basis test (be paid at least the minimum required amount of salary each workweek)and job duties test (have certain job responsibilities).

The title of the position is not relevant. The work that the employee is actually performing on a daily basis is the main inquiry.

Two of the most common mistakes made by employers involve misclassification of employees (exempt versus nonexempt) or improper calculation of overtime (did not include all hours worked and/or did not use the correct regular rate of pay).  Lawsuits under the FLSA, involving these types of mistakes, have been on the rise the past few years.

Earlier this year, an Indiana automotive service business agreed to pay over $1 million in overtime back wages and liquidated damages after an audit by the Wage and Hour Division  (WHD) of the U.S. Department of Labor found that the company failed to include bonuses, commissions, incentive pay and shift differentials in the regular rate of pay overtime calculations.

On July 1, the WHD issued an opinion letter on the proper calculation of overtime for non-discretionary bonuses (quarterly and annual). A non-discretionary bonus paid, based on the number of straight time hours worked, required the employer to recalculate the regular rate of pay for any period the bonus covered and pay additional overtime. A quarterly bonus paid as a percentage of straight and overtime compensation did not require recalculation of overtime, because the bonus necessarily included all overtime as a matter of arithmetic.

FLSA lawsuits have been on the rise, in part, because employers face “strict liability” for violations, meaning no defense for honest or unintentional mistakes. Good faith can be a defense to avoid certain penalties, such as liquidated damages, but it is not a defense to the underlying wage, back pay and attorneys’ fees awarded under the statute.

A self-initiated, internal wage and hour audit is an important risk management tool that can identify potential issues and resolve compliance concerns before they result in wage claims. The audit should be done in conjunction with legal counsel.

In addition to reviewing the company’s written pay policies, the company should examine whether employees are properly classified as exempt or nonexempt. The company must first decide whether to review all positions or certain job categories of concern. Such an audit would necessarily include monitoring and assessing the employees’ actual job duties, reviewing the job descriptions, making sure that the job descriptions are updated and accurately reflect what the employees are doing, and then determining on a case-by-by case basis whether the employees are properly classified.

In examining pay practices, the company would assess how it calculates and pays wages. For example, are nonexempt employees being paid minimum wage and overtime in compliance with federal and/or state law? Are all applicable payments being included in calculating the regular rate and overtime pay? Are the deductions being made proper?

The company also needs to determine whether all hours worked are being recorded and paid. Questions to ask include:

·         Does the company’s timekeeping system provide for accurate recording of hours worked?

·         Do nonexempt employees record all hours worked, including time reviewing and responding to emails/calls outside of regular working hours, travel time, meeting time, time worked during unpaid lunch and break times?

·         Do the company’s rounding practices comply with applicable law?

Misclassification of employees and miscalculation of overtime can lead to expensive lawsuits or enforcement actions. Taking care to identify and resolve potential FLSA compliance issues before they occur can help to avoid costly mistakes.

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.

Critical Illinois Prevailing Wage Law Change Impacting Contractors

Contributed by Jeffrey A. Risch, February 26, 2019

www.illinoisprevailingwage.com

You may not remember… in 2013, then Governor Quinn signed into law an amendment to Illinois’ Prevailing Wage Act (IPWA) which sort of redefined what the PREVAILING WAGE RATE meant by adding one little word.  Effective January 1, 2014, the IPWA defined “general prevailing rate of hourly wages” as hourly cash wages plus ANNUALIZED fringe benefits.  By inserting the word ANNUALIZED, the law arguably changed. 

For years, many contractors paid the prevailing wage fringe benefits as cash sums added to the employee paycheck based on prevailing wage hours only. Some contractors established bona fide defined contribution plans that provide 100% immediate vesting of the prevailing wage fringe benefit (in whole or in part); usually in the form of health/welfare or retirement savings. The advantages for the worker are obvious. The money is solely and exclusively in the control of the worker to do with it however they deem appropriate. In exchange for such a rich and rewarding benefit, some plans specifically limit the contribution to only those hours actually worked on “public works projects” (aka prevailing wage projects).

Well… in 2013, Big Labor went to the Illinois Legislature and successfully lobbied for the addition of the term “annualized”. Therefore, effective for all work performed on January 1, 2014 and thereafter, the Illinois Department of Labor can audit fringe benefit contributions made under a defined contribution plan, or declared by a contractor in its certified transcripts of payroll, and will calculate those contributions over all hours worked in a given period of time.

To establish the proper hourly calculation for allowable fringe benefits, contractors are expected to divide the total amount they contribute to a bona fide fringe benefit plan by the total of all hours worked (including non-prevailing wage projects). According to the Illinois Department of Labor, a contractor cannot exclusively take the hours worked and contributions made on public works/prevailing wage jobs to comply with the hourly fringe benefit component.  An example used by the Illinois Department of Labor includes: If a contractor contributes $520 per month for single insurance coverage, and the employee works 2080 hours (40 x 52 weeks), then the effective annual contribution rate is determined by dividing $6,240 ($520 x 12) by 2080 which equals $3.00 per hour. If the health and welfare portion of the prevailing wage is $5.05 per hour, the contractor can take a credit of $3.00 per hour and must pay $2.05 ($5.05-$3.00) additional on the hourly base wage.  The same formula will be applied to Pension, Annuity, 401(k) plans, Training, and Vacation in some localities that are funded by the contractor.

What’s remarkable is that the annualization of fringe benefits has been part of the federal prevailing wage law under Davis-Bacon & Related Acts (DBRA) for years. However, the United States Department of Labor has always allowed contractors to pay the fringe benefit component based on prevailing wage hours worked only provided the monies went directly and immediately to the worker. The Illinois Department of Labor could adopt a similar approach. However, Big Labor will certainly do everything it can to ensure that does not happen. 

What does this actually mean?

The IPWA allows for certain fringe benefits (Health and Welfare, Pension/Annuity, US DOL Training, and Vacation in some localities) to be considered in establishing a prevailing wage rate.  The prevailing wage rate includes an HOURLY base portion and a FRINGE BENEFIT portion. Contractors may choose to pay the entire prevailing wage rate in the base hourly rate component (and not take a credit for fringe benefits paid), or they may choose to take credit for certain allowed fringe benefits.  If a contractor does not pay any allowable fringe benefit or just a portion of it, then according to the Illinois Department of Labor, the difference must be made up in the hourly base wage rate in order to comply with this ANNUALIZATION component to the law. Alternatively, all fringe benefit contributions must be determined by dividing the TOTAL fringe benefit payout with ALL HOURS worked. Therefore, the fringe benefit contribution would be diluted in proportion to the non-prevailing wage hours worked by the employee.

So… while this is yesterday’s news, the Illinois Department of Labor under Governor Rauner was not extraordinarily aggressive on this annualization issue.  However, under new leadership, contractors should recognize that the Illinois Department of Labor is actively enforcing the annualization component of the law.  And, with a 5 year statute of limitations period, bad habits established or just plain ignorance of the law that may have went unchecked under the Rauner administration will cost you if you are not fully and completely in compliance with Illinois’ annualization obligation. 

BOTTOM LINE:  If you are performing public work in Illinois, you need to intimately understand Illinois’ prevailing wage law and the many pitfalls that exist under it. The stakes for not knowing or understanding how the Illinois Department of Labor views certain issues are just too high. 

ON THE HORIZON: Increase in Illinois Minimum Wage and Damages – a Death Knell for Illinois Employers?

Contributed by Mike Wong and Sara Zorich, February 12, 2019

The changes anticipated after the Illinois elections are steadily moving forward. On Thursday, February 8, 2019, the Senate passed Senate Bill 0001 (SB0001).  SB0001 has now moved on to the House of Representatives and been assigned to the Labor & Commerce Committee. The word is that the House of Representatives is looking to vote on this within the next week and if passed move it on to the Governor for signature within the next two weeks.  With the change in administrations, it is safe to say that it is only a matter of time before SB0001, or another bill increasing the minimum wage, is passed and signed into law. The only questions left will be how fast minimum wage will be increased and what additional changes will the legislation include.

SB0001 provides for the following steady increase in the state minimum wage:

  • January 1, 2020 – Increase from $8.25 to $9.25 (increase of $1.00)

Six months later

  • July 1, 2020 – Increase from $9.25 to $10.00 (Increase of $0.75)

Six months later

  • January 1, 2021 – Increase from $10.00 to $11.00 (Increase of $1.00)

One year later…

  • January 1, 2022 – Increase from $11.00 to $12.00 (Increase of $1.00)

One year later…

  • January 1, 2023 – Increase from $12.00 to $13.00 (Increase of $1.00)

One year later…

  • January 1, 2024 – Increase from $13.00 to $14.00 (Increase of $1.00)

One year later…

  • January 1, 2025 – Increase from $14.00 to $15.00 (Increase of $1.00)
MINIMUM WAGE CONCEPT

While this is anticipated, the changes that SB0001 proposes with respect to damages under the Illinois Minimum Wage Law (IMWL) were not expected and are extremely punitive in nature.

First and foremost, it increases the damages available to employees.  Currently, the IMWL provides that that an employee is entitled to (1) the underpayment or unpaid wages, (2) 2% of the underpayment for each month following the date wages should have been paid, and (3) reasonable attorney’s fees and costs.

Under the SB0001, it is proposed that when an employer violates the IMWL, an employee will be entitled to THREE TIMES (3X) the amount of the underpayment and 5% of the underpayments for each month following the date it should have been paid (an increase of 3%), as well as their reasonable attorney’s fees and costs.

Additionally, SB0001 provides for two additional penalties payable to the Illinois Department of Labor’s Wage Theft Enforcement Fund. The first is a $1,500 penalty for a violation of the IMWL and the second is a $100 penalty for each employee that an employer fails to keep “true and accurate” payroll records for.  

These changes are incredibly punitive measures that are sure to be the end of some businesses if they are put into law, as employers will be held strictly liable and subject to these punishments, even if the underpayment is the result of an honest mistake or good faith legal argument (i.e. misclassification of an independent contractor).

The following is an example of the potential damages if an employer underpaid 100 employees $10 each month for 3 years. Even if the underpayment is the result of a completely unintentional and inadvertent error (i.e. employee fails to report working time that equals $10 or there is an inadvertent and accidental payroll error), an employer would be subject to the same damages as an employer who intentionally and willfully refused to pay an employee their earned wages, which are as follows: 

  • SB0001 Proposed IMWL Damages:
    • Treble damages ($10 per month x 12 months x 3 years = $360 unpaid multiplied by 3) = $1,080 per employee or $108,000 for all 100 employees
    • 5% of underpayments for each month following the date it should have been paid would equal $315.00 per employee or $31,500 for all 100 employees (e.g.  underpayments started January 2018 through December 2021 and were paid in December 2021)(NOTE: the 5% interest continues to accrue until there is a judgment in the matter which could take additional months or years depending on the length of the litigation)
    • Total Cost to Employer under proposed IMWL:
      • $1,395.00 for just one employee for a $360 underpayment; or $139,500.00 for 100 employees for a $36,000 underpayment; plus
      • Employees’ attorney’s fees and costs; plus
      • Additional penalties from IL-DOL (including $100 per employee for failing to keep true and accurate time records, $1,500 fine per violation and up to 20% of the total underpayment when violation was willful, repeated or with reckless disregard to the IMWL)

What may not have been considered by the legislature though, is the potential impact with the damages available under the Illinois Wage Payment and Collection Act (IWPCA) and federal Fair Labor Standard Act (FLSA) damages. Under the FLSA, an employee can argue for liquidated damages equal to the amount of the underpayment.  Employers typically argue that employees are not entitled to both the liquidated damages under the FLSA and interest under the IMWL, as the FLSA provides that the liquidated damages covers any interest that could be owed.  However, with proposed damages under the IMWL, we anticipate plaintiffs will argue that an employee is entitled to not just treble damages and interest under the IMWL, but also the liquidated damages under the FLSA increasing the proposed damages an employee could recover from not just the underpayment, but FOUR times the amount of the underpayment, plus 5% of underpayments for each month following the date it should have been paid and attorney’s fees and costs.

So using the example above, if the employee was able to also recover the FLSA liquidated damages in addition to those purposed by the amended IMWL, the employer could be subject to a total cost of:

  • FLSA and SB0001 proposed IMWL damages:
    • $1,755.00 for just one employee for a $360 underpayment; or $175,500.00 for 100 employees for a $36,000 underpayment; plus
    • Employees’ attorney’s fees and costs; plus
    • Additional penalties from IL-DOL (including $100 per employee for failing to keep true and accurate time records, $1,500 fine per violation and up to 20% of the total underpayment when violation was willful, repeated or with reckless disregard to the IMWL)

Additionally, due to the increased interest and attorney’s fees and costs, it is anticipated that plaintiffs and plaintiff attorneys will be less inclined to try and amicably resolve these types of cases resulting in more lawsuits and longer lawsuits. Indeed, it is not unusual for a lawsuit to take 3 to 5 years from the beginning through trial, meaning that interest alone could balloon from $315 to $963 after 3 years or $1,395 after five years under the above example raising the potential total damages as follows:

These figures do not include the attorney’s fees and costs sought by a plaintiff, which after 3-5 years of litigation would likely easily be a six figure number in addition to the damages identified in the chart above for an unintentional and inadvertent error in which an employee(s) was underpaid by $360.00 over a three year period.

As you can see, there are serious changes and consequences under the current proposed changes to the Illinois Minimum Wage Law that go a lot deeper than simply increasing the minimum wage.  Make sure you are aware of these changes and your pay practices are in compliance as the cost of a wage and hour lawsuit are about to get drastically worse.  Furthermore, if you are facing a wage and hour lawsuit or claim, make sure that you consult with experienced labor and employment law counsel who are aware of these changes as these changes will directly impact your defenses and strategies in addressing wage and hour lawsuits and claims.

Must Employees Be Paid For Extreme Weather & Emergency Closings?

Contributed by Noah A. Frank, January 28, 2019

Bad weather caution sign

In light of the current winter storm pounding the U.S. with snow and extreme subzero temperatures, this is a short reminder of when employees must be paid for emergency closures due to inclement weather.

Nonexempt Employees – Generally, hourly workers must only be paid for time they actually work.  They do not need to be paid when the business is closed or closes early due to a weather emergency.  As a side note, when paying a nonexempt employee on a salary basis, state laws may suggest treating compensation more like that paid to a salary exempt employee.

Exempt Employees – When the business is closed and salary exempt employees are willing and able to work, they must still be paid their full salary for the week if they perform any work during the week.  However, if the business is open (or employees can work remotely), and employees choose not to work, they do not need to be paid for full-day absences, and the business may require use of vacation/PTO benefits.  Salary may not, however, be reduced for partial day absences.

There Are Always Exceptions in Employment Law

Handbooks may provide for paid leave in the face of extreme weather.  In particular, “cookie cutter” handbooks may contain hidden traps (which is our reminder that businesses should have their handbooks reviewed by employment counsel!).  Similarly, union collective bargaining agreements or other inclement weather policies might create a requirement to pay for missed time.

In a developing national trend, even when the employer is open for business, state and local paid sick leave ordinances may require that employees be permitted to use available paid sick leave with little notice when, for example, a child’s school is closed due to a weather emergency.  Employers should be sensitive to this issue, especially if they have not previously implemented written policies or complied with the requirements of these local ordinances.

Some state and local laws also require reporting pay when employees either report to work and are sent home before working their full shift, or when their schedule is changed or cancelled with insufficient notice.  Such laws may apply to weather closures.

Finally, employee morale and goodwill might dictate that an employer err on the side of paying for missed time. 

Employers should review their employment policies in light of these developing laws and trends to make the determination of whether employees should be paid for a business closure or other weather-related absence.  Experienced employment counsel should also be consulted to make sure the business is operating in a way that avoids needless wage and hour exposure.

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.