Category Archives: Wage and Hour Laws

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.

Register Now! Managing Employee Medical Issues in the Workplace Webinar – September 12th

Register

Webinar-TemplateJoin Rebecca Dobbs Bush and Joe Trevino, on September 12 at noon CT as they share valuable insight and best practices to help business owners and human resource professionals navigate the quagmire of managing employee medical issues in the workplace. 

Managing employee medical issues has become more challenging due to increasingly complex regulations. In order to minimize risk, employers must learn to effectively handle requests for accommodations, paid and unpaid leaves of absence, employee benefits, and wage and hour issues; areas that are ripe for abuse.

When employee medical issues are handled on a fair and consistent basis and abuses are prevented, a positive workplace culture is fostered, and employee morale, retention and productivity are improved.

Register

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.

 

Considerations for Utilizing the DOL’s Pilot “PAID” Program

Contributed by Sara Zorich and Michael Hughes, April 16, 2018

In April 2018, the US Department of Labor (DOL) Wage and Hour Division, launched  the six-month pilot Payroll Audit Independent Determination (PAID) program which provides a voluntary framework for employers to self-report potential FLSA overtime and minimum wage violations to the DOL and to resolve those violations without incurring additional penalties or liquidated damages. There are important benefits (and potential risks) to consider before signing up for PAID:

  • Wage Hour

    Dollar bills with clock in background

    The benefit of the program is that if an employer self-reports, the DOL will only require the employer to pay back wages owed to current and former employees, but not liquidated damages (double the back wages) or civil money penalties. The employer can obtain a release from the employees under the FLSA, thereby fully resolving the violation without paying attorney’s fees or engaging in a class action lawsuit.

  • One risk of the PAID program for employers is that the company is exposing itself to potential liability. The DOL has indicated the process will be fast (estimated 90 days start to finish), and the company will be required to pay 100% of the back wages due based on the audit on the next pay period after the DOL’s determination. But the biggest risk is that not all employees will accept the payment though the PAID program and instead will choose to file an individual or class-action lawsuit. The employer itself may have laid the groundwork for the employee to collect liquidated damages and attorney’s fees in federal court. Moreover, the PAID program will not provide a release for state wage and hour claims, even if employees cash their back wage check.
  • Additionally, the DOL has discretion to accept or decline any company from the PAID program; however the DOL has stated (in a webinar on April 10, 2018) if the company is declined, that declination will not be used to start a DOL audit.

PAID might be the right avenue for a company to address wage and hour compliance issues, but companies should speak with their labor and employment counsel to fully understand the risks and benefits of the PAID program prior to voluntary submission.