Tag Archives: department of labor

DOL Proposes Changes to the Fluctuating Work Week Overtime Method

Contributed by Sara Zorich, November 19, 2019

Payroll time sheet for human resources, sepia tone

Employee time sheets on table with coffee and calculator 

The US Department of Labor (DOL) has issued a proposed amendment to the regulation governing the fluctuating workweek (29 CFR 778.114). The fluctuating workweek can be used to calculate overtime for an employee whose hours fluctuate from week to week based on the nature of the job. The DOL’s proposed amendment is to clarify that there is no issue with paying a bonus, shift premium, or additional pay to someone who is being paid via the fluctuating workweek method, but such extra payment will increase the regular rate of pay for calculating overtime unless the additional pay meets an exclusion from the Fair Labor Standards Act. This is a change in position since in 2011, during the Obama administration, the preamble to 29 CFR 778.114 added language that any additional pay other than the salary was inconsistent with the fluctuating workweek.

The fluctuating workweek method allows an employer to pay a non-exempt employee a salary and then pay overtime at a 0.5 multiplier. This method is only applicable if the following conditions are met: (1) the employee works hours that fluctuate from week to week; (2) the employee receives a fixed salary that does not vary with the number of hours worked in the workweek, whether few or many; (3) the amount of employee’s fixed salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours the employee works is greatest; (4) the employee and the employer have a clear and mutual understanding that the fixed salary is compensation (apart from overtime premiums) for the total hours worked each workweek regardless of the number of hours; and (5) the employee receives overtime compensation at a rate of not less than one-half the employee’s regular rate of pay for that workweek.

The fluctuating workweek method is permissible under the FLSA and under some state laws (including IL, IN, WI and MO). However, employers should review state law for compliance since not all states (including CA) have adopted this method of overtime payment.

The proposed rule will be available for comment for 30 days from November 5, 2019.  After the comment period is over, the DOL will review the comments and determine if any changes to the rule will be made.  Thereafter, the DOL will issue a final rule.  We have seen the DOL acting more swiftly in rulemaking this year but based on the timing of the comment period, we do not anticipate this rule going into effect until sometime in 2020.




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.

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.


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.

It’s Internship Time!

Contributed by Carlos Arévalo, April 27, 2017

56243229 - interns wanted internship training trainee concept

Interns sitting next to a sign that says “Interns Wanted”

It’s that time of the year when college students will come knocking looking for a job or an internship. Depending on the nature of an organization’s business, an unpaid intern might be a great idea. But before organizations start engaging summer intern help, they need to make sure that they are complying with the Department of Labor (DOL) requirements, which include the following six factor test:

  • The internship is similar to training that would be offered in an education environment;
  • The internship experience is for the benefit of the intern;
  • The internship is not displacing a regular employee;
  • The training provided by the employer to the intern may impede employer’s operations;
  • The intern is not expecting a permanent position at the conclusion of the internship; and
  • Both the employer and intern understand that there is no compensation.

Assuming all of these apply, the Fair Labor Standards Act (FLSA) is not triggered and the intern need not be paid minimum wage or overtime. While there are limited exceptions applicable to local government agencies or those who volunteer their time without anticipation of compensation for religious, charitable, civic, or humanitarian purposes to non-profit organizations, the six-factor test is generally applicable to most organizations.

In 2015, however, the federal second circuit court issued a decision in a case involving an unpaid intern for the award winning movie Black Swan. There, the court established a more employer-friendly test heavily focused on training, integration of coursework and receipt of academic credit, accommodation to the intern’s academic calendar and the duration of the program as it related to beneficial learning. The court also emphasized that a clear understanding must exists that there is no expectation of compensation. This test was subsequently adopted by the eleventh circuit in August 2016. To date, the DOL has not amended the six-factor test.

Thus, as organizations develop internship programs, special care must be taken to ensure that it is the intern who is drawing the benefit from the program as opposed to the company. In other words, the focus should be on the intern attaining valuable and useful skills and experience in his chosen discipline instead of the company aiming to receive “free labor.” To avoid slipups, interns should not be engaged in menial tasks that can be performed by clerks or other administrative personnel already on board. Such tasks might include making copies, fetching coffee, delivering mail or running errands. Rather, interns should be assigned to career related tasks – for instance an IT intern might assist staff in performing backup and maintenance functions or update user and technical documentation.

Congress has made it clear that its intent is not to discourage volunteerism or to prevent willing individuals from attaining skills and training by serving as unpaid interns. Nevertheless, managers in charge of internship program development should be mindful of the DOL requirements and consult experienced counsel to ensure compliance and design internship programs that truly benefit participants.

Persuader Rule Is Unlawful Federal Judge Concludes

Contributed by Suzanne Newcomb, November 16, 2016

A Texas federal judge today, November 16, 2016, struck down the U.S. Department of Labor’s controversial “Persuader Rule” finding it unlawful. The decision made permanent, and gave nationwide effect to, the court’s earlier temporary injunction blocking enforcement of the Rule. As we reported back in March and again in June, the Persuader Rule would have essentially gutted the “Advice Exception” to the federal Labor Management Reporting and Disclosure Act by requiring employers and labor relations consultants, including attorneys, to submit detailed reports including the type of consulting or legal services provided and any fees paid. While the injunction issued today is “permanent,” the decision is appealable. Whether the DOL will seek to appeal the decision remains to be seen (and might be unlikely in light of the new administration).

The DOL Issues An Administrator’s Interpretation On Joint Employment Under The FLSA And MSPA

Contributed by Julie Proscia

The Department of Labor’s Wage & Hour Division (“WHD”) issued an Administrator’s Interpretation today that establishes new standards for determining joint employment under the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”) and the Fair Labor Standards Act (“FLSA”). The issue of joint employment and who is the employer, for purposes of liability, is one that has become increasingly more contested and is part of the DOL’s crackdown on issues ranging from independent contractor status to the proposed rules regarding exempt/non-exempt status.

Labor LawA finding of joint employment has significant ramifications on a number of areas of policy and procedure, none more so than to wage and hour practices. The purpose of the Administrator’s Interpretation is to expand the statutory coverage of the FLSA to small businesses and collect back wages from larger businesses. As such, the Administrator’s Interpretation states that “the concept of joint employment, like employment generally, should be defined expansively under the FLSA and MSPA.” While the Administrator’s Interpretation is impactful on all industries, it specifically identifies the construction (workers who work for a sub-contractor and possibly a general contractor), staffing, agricultural, janitorial, warehouse and logistics, and hospitality industries.

So what is joint employment and when is it found? Joint employment exists when an employee is employed by two (or more) employers such that the employers are responsible, both individually and jointly, for compliance with a statute.

While this definition is not new, the DOL interpretation presents two specific categories or routes for joint employment — vertical and horizontal. A vertical joint employment relationship focuses on the employee’s relationship with the employer and another intermediary entity, while the horizontal joint employment is defined as a relationship between or amongst two or more employers that “are sufficiently associated or related with respect to the employee such that they jointly employ the employee.”

Vertical Joint Employment

The most striking announcement occurred in the Vertical Joint Employment arena where the Administrator’s Interpretation adopted the “economic realities” test in lieu of the current evaluation. The crux of the economic realities test is an examination as to who the employee is economically dependent on. There is no hard line rule as to this test but rather multiple factors that can be examined. The MSPA regulations have seven economic reality factors that are examined in this determination. These factors include:

1. Directing, Controlling, or Supervising the Work Performed

Who exercises the direction, control and or supervision of the employee, whether directly or indirectly?

2. Controlling Employment Conditions

Who controls the employees terms and conditions of employment? This factor looks at which entity or entities have the ability to do such things as set wages, discipline, hire or fire the employee.

3. Permanency and Duration of Relationship

How long has the employee worked at the entity? Again, although there is no bright line date for the formation of joint employment a longstanding or permanent, full-time relationship suggests economic dependence.

4. Repetitive and Rote Nature of Work

What is the nature of the work? Positions that are viewed as repetitive and require little or no training are more likely to tip in the favor of economically dependent.

5. Integral to Business

How important is the work to the business? Conversely, if the employee’s work is deemed an integral part of the employer’s business then the employee may be deemed economically dependent on the potential joint employer.

6. Work Performed on Premises

Where is the work performed? Work performed on the potential joint employer’s premises is more likely to be viewed as employment that is economically dependent.

7. Performing Administrative Functions Commonly Performed by Employers

Are the functions administrative or creative? Administrative functions like processing payroll, workers’ compensation insurance or facilities and transportation are areas that are potentially viewed as dependent and thus could be deemed as joint employment.

As in all factor tests, there is a balance and just because the employee meets one factor does not necessarily mean a finding of economic dependence, and thus joint employment, under the vertical analysis. Rather, the factors will need to be examined as a whole.

Horizontal Joint Employment

The horizontal joint employment analysis did not substantially change, rather the DOL will continue to utilize the current joint employment regulations and examine the following non-inclusive factors:

  • who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners)?
  • do the potential joint employers have any overlapping officers, directors, executives, or managers?
  • do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs)?
  • are the potential joint employers’ operations inter-mingled? (for example, is there one administrative operation for each employer, or does the same person schedule and pay the employees regardless of which employer they work for?)
  • does one potential joint employer supervise the work of the other?
  • do the potential joint employers share supervisory authority for the employee?
  • do the potential joint employers treat the employees as a pool of employees available to both of them?
  • do the potential joint employers share clients or customers?
  • are there any agreements between the potential joint employers?

The announcement of the Administrative Interpretation is a continuation of the administration’s expansion of the joint employer definition. This expansion is not exclusive to the DOL and was most notably seen in the 2015 Browning-Ferris decision, where The National Labor Relations Board, through its General Counsel, filed multiple lawsuits against a franchisor for alleged unfair labor practices committed by its franchisees, and by doing so took the broadest possible interpretation of joint employment.

Whether or not joint employment exists is an issue that is fact and position intensive, and one that is not diminishing in the near future. Employers should work with counsel to assess their relationships, employees, and contracts to ascertain potential areas of weakness and diminish liability. It is never a good thing to be on the hook for someone else’s misdeeds.


Urgent Alert: U.S. DOL Proposes Major Changes to Exempt Salary Status

Contributed by Jeff Risch and Sara Zorich

Today, the U.S. Department of Labor (“DOL”) has announced that they are issuing a proposed rule to increase the minimum salary requirements under the Fair Labor Standards Act for exempt employees. A draft version can be found at: http://www.dol.gov/whd/overtime/NPRM2015/OT-NPRM.pdf. The final proposed rule will be issued in the Federal Register and will provide a comment period for the public.

The proposed rule sets forth guidance and requests comment on the following proposed changes:

  1. Set the minimum salary level to qualify for the white collar exemptions at 40% of the national weekly earnings for full-time salaried employees ($921 per week or $47,892 annually but expected to increase to $970 a week and $50,440 annually in 2016);
  2. Increase the minimum salary for Highly Compensated Employees to 90% of the national weekly earnings of full-time salaried workers ($122,148 annually);
  3. Establish a mechanism for automatically updating the minimum salary to meet the exemption on a yearly basis. While the proposed rule sets forth different types of mechanisms for calculating the automatic update (using a fixed percentile of wage earnings or using the CPI-U (an economic indicator for measuring inflation)) they do not identify which mechanism will be utilized;
  4. Increase the minimum salary level for exempt employees in American Samoa to $774 per week; and
  5. Change 29 CFR 541.709 to increase the current base rate for employees in the motion picture industry from $695 to $1,404 per week.

As stated, this is a proposed rule that is subject to a required comment period. The rule will not go into effect until the comment period has ended. However, employers MUST be cognizant of the proposed salary increases and begin contemplating how this is going to affect your current workforce.

Further, while not proposing any current rulemaking on the issues identified below, the proposed rule requests public comment on the following:

  1. Whether to allow non-discretionary, incentive bonuses and/or commissions to satisfy 10% of the standard salary requirement for the white collar exemptions and if such are allowed how often these bonuses/commissions must be paid (monthly or more frequently);
  2. Whether changesshould be made to the duties test for thewhite collar exemptions including:
    1. Whether employees should be required to spend a minimum amount of time performing work that is their primary duty for qualifying for the exemption and what that minimum amount should be, if any?
    2. Should the DOL follow the California state model and require 50% of an employee’s time be spent performing the employee’s exempt primary duty?
    3. Does the current duties test appropriately distinguish between exempt and non-exempt employees? Should the long/short tests be brought back?
    4. Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and non-exempt duties concurrently) working or should there be a limit on the amount of non-exempt work?
  3. Whether the Department should add examples of additional occupations to provide guidance for employers in administering the exemptions?
  4. Examples from employers in the computer and technology industries as to what additional occupational titles or categories should be included in the examples along with duties that would generally meet or fail the exemption.

These additional inquiries are indications that the DOL is looking to potentially make further revisions to the exemptions.

In Light of the Proposed Regulations, Employers Should Analyze the Following:

  1. How many of your current employees will be affected by this new rule?
  2. Is a salary increase for those who do not currently meet the salary requirement a plausible financial decision to the required increases?
  3. 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?
  4. Tightening up policies regarding working overtime and working with management to limit the number of overtime hours worked for non-exempt employees.
  5. Reviewing handbooks and policies regarding exempt and non-exempt status.
  6. 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 Regarding these Proposed DOL Changes:

  1. Increase the employee’s salary to that proposed in the new regulations so they continue to meet the exemption;
  2. Keep the salary the same and pay the required overtime payments based on the employee’s regular rate of pay;
  3. 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;
  4. Eliminate the employee working any overtime hours; or
  5. Some combination of the above options.

The attorneys at SmithAmundsen are here to assist employers in navigating these business changes.

Summary Plan Description Posted on Company Intranet Does Not Satisfy ERISA Electronic Disclosure Rules

Contributed by Kelly Haab-Tallitsch

A recent court decision from the Eastern District of New York found that posting a summary plan description (SPD) on a company Intranet, without additional notice to participants, does not satisfy the electronic disclosure rules for employee benefit plans under ERISA.

In Thomas v. CIGNA Group Ins, an employee was participating in her employer’s life insurance plan at the time she became disabled. She stopped working and ceased paying the insurance premiums. The life insurance plan included a waiver of premium provision under which a disabled employee could request that life insurance coverage continue without payment of premiums. However, the employee never requested the waiver of premium and her life insurance coverage lapsed.

After her death, her beneficiary filed for life insurance benefits. The insurer denied the beneficiary’s claim arguing that the employee did not request a premium waiver, as required by the plan, and therefore was not covered by the plan at the time of her death. The beneficiary sued the plan saying that the premium waiver requirement had not been communicated to the employee.

The employer argued that the employee should have known about the premium waiver requirements because they were included in the plan’s SPD. The SPD was posted on the employer’s Intranet site, but was not specifically forwarded to participants. The employer argued that the employee was notified that she could access the Intranet in her initial employment confirmation letter, two years prior to her disability.

The court found in favor of the beneficiary and ruled that the employee’s estate was entitled to the death benefit. The court noted that simply posting the SPD on the company Intranet was considered insufficient delivery for ERISA plans under Department of Labor electronic disclosure rules. Those rules require the employer to provide notice to employees directing them to the website where the SPD is located, notification of the SPD’s significance, and notice of the right to request a paper copy. The rules also require notice each time a new electronic document is furnished.

Employers need to be aware of the rules regarding distribution of notices electronically and should review their distribution practices. While posting an SPD on a company Intranet is permissible, it alone does not satisfy the Department of Labor’s electronic distribution rules.

When distributing an SPD by making it available on a company Intranet, employers must also provide notice to participants informing them of the availability of the SPD and how to access it, the significance of the SPD, and the participant’s right to request a paper copy.

Supreme Court Holds that Mortgage Loan Officers are Eligible for Overtime

Contributed by Michael Wong

On March 9, 2015, the U.S. Supreme Court issued a ruling in Perez v. Mortgage Bankers Association that should put all employers on notice.  In this decision, the Court held that federal agencies, specifically the Department of Labor (DOL), do not need to go through the same rulemaking procedure of providing notice to the public and soliciting input before issuing their own interpretive guidance, even if it contradicts the agency’s prior guidance.

In Perez, the DOL issued opinion letters that stated mortgage loan officers were not eligible for overtime under the administrative exemption of the Fair Labor Standards Act (FLSA). Subsequently, at the request of the Mortgage Bankers Association (MBA), the DOL issued another opinion letter reaffirming that mortgage loan officers were exempt from overtime under the administrative exemption of the FLSA. However, several years later the DOL flip flopped and reversed its prior opinion letters stating that mortgage loan officers did not fall under any of the FLSA exemptions and thus were entitled to overtime.

At issue in Perez was whether the DOL’s 2010 interpretation was procedurally invalid under the Administrative Procedure Act’s (APA) and doctrine set forth in Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997).  Under the Paralyzed Veterans doctrine and APA, when a federal agency was issuing an interpretation that significantly revised its prior interpretation, the federal agency had to comply with the APA notice-and-comment procedures.   The APA’s notice-and-comment procedures required that federal agencies publish a notice of the proposed rulemaking in the federal registry and allow interested persons to provide input on the proposal. Then, in finalizing the rule, the federal agency was required to take all comments into consideration and any amendments or changes would be subject to the same notice-and-comment requirements.

In Perez, the Supreme Court reversed the lower court’s decision applying the Paralyzed Veterans doctrine and held that the Paralyzed Veterans doctrine was contrary to the text of the APA and exceeded the scope of judicial review authorized by Congress.

The first takeaway for employers from the Supreme Court’s decision in Perez is that under the DOL’s opinion letter, mortgage loan officers are not exempt from overtime under the FLSA administrative exemption.  As such, mortgage loan officers must be paid overtime, unless you can show that they fit under another FLSA exemption. Additionally, it creates significant questions for employers in how much credence they should give to interpretations, opinion letters and guidance issued by federal agencies, as the agencies may be able to issue contradictory opinions or interpretations without having to go through the notice and comment procedures set by the APA.

OSHA Inspection Guide: In Preparation for Increased OSHA Enforcement in 2015

Contributed by Jonathon Hoag and Matthew Horn

Numerous employers can verify first hand that OSHA is actively fulfilling the promise it made a few years ago, “to get back in the enforcement business.”  In recent years, we have seen increased enforcement activity, including a significant increase in OSHA site inspections.  There is no indication OSHA’s ramped up inspection activity will slow down any time soon.  In fact, last month, the Department of Labor (DOL) announced its current rulemaking activity and OSHA topped the list with the most rulemaking activity within the DOL.  This, coupled with OSHA’s new reporting requirements for 2015, requiring that employers report to OSHA all incidents requiring in-patient treatment for just one employee, signals that 2015 will likely be OSHA’s busiest year to date.

Understanding the OSHA inspection process and having a plan for when the OSHA inspector arrives on your doorstep is critical.  Now is the time to arm your workforce with the tools necessary to effectively respond to OSHA, as we are certain the number of OSHA site inspections in 2015 will only increase.  The enclosed step by step guide was created to be used as an aid in training your workforce and to consult as a reference guide when faced with an actual inspection.  Click here for your copy.