a sea change in wage and hour law
TRANSCRIPT
A Sea Change in Wage and Hour Law American Payroll Association - Wisconsin Statewide Conference September 18, 2015
Christopher L. [email protected](414) 277-5519Quarles & Brady LLP
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• Department of Labor (“DOL”) proposed salary increases to overtime exemptions.
• DOL’s New Interpretation Of Independent Contractor Classification.
• DOL Home Health Care Rule Revived
• Supreme Court Case Update – “Compensable Time”
• Wisconsin Law Changes
– 2015 Wisconsin Act 55
– Prevailing Wage Laws
– Local Living Wage Laws
– One Day of Rest in Seven Law
A Sea Change in Wage and Hour Law
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• Applies to “white collar” exempt employees only --
– Executive, administrative, professional and computer employees.
– White collar exempt employees must perform certain types of work as their primary job duties (the “duties test”) and generally be paid a minimum salary that is not subject to reduction because of variations and the quality or quantity of work performed (the “salary basis” test).
• Significant increases to the minimum salary required for these “white collar” employee to be considered exempt.
• No proposed revisions to the “duties” tests, although may see changes in a final rule.
DOL Proposes Compensation Increases for Overtime Exemption Tests
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• Salary level was last amended in 2004 -- The current minimum salary is $455 per week ($23,660.00 per year).
• Purposed increase to $970 per week ($50,440.00 per year) in 2016.– Proposed increased salary equates to 40th percentile of earnings for
full-time American salaried workers.
– DOL also proposing automatic annual updates to minimum salary.
• “Highly compensated employees” -- Proposed increased from $100,000 in total annual compensation to $123,000 in 2016 annual compensation.– Equates to 90th percentile and also subject to automatic annual
updates.
DOL’s Proposed Compensation Increases
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• Sixty day comment period closed September 4, 2015.
• DOL received nearly 200,000 comments underscoring a sharp divide in opinion.
• Major concerns include: – Salary level does not account for market differences.
– Decreased moral for employees who are reclassified as non-exempt – i.e., perceived change from exempt salaried status to non-exempt hourly status as diminishing the value of their work.
– Requires increased employer monitoring of hours worked to control overtime costs.
• Center for American Progress: Nearly 5 million more millennials could become eligible for overtime.• Millennials comprise 35.2% of the workers who would benefit from the
higher salary threshold.
Impact Of DOL’s Proposed Compensation Increases
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• Under further consideration: Whether bonuses may count towards salary.
• Changes to the duties test still possible -- DOL considering whether to include quantitative analysis of exempt vs. non-exempt work.
• Timing on possible implementation.
– Awaiting DOL final rule, after which changes will take affect.
– Actual implementation may be delayed if businesses or trade groups file suit to block.
Still More Changes?
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• Proactively access current wage and hour practices to determine operational and financial impact of increased salaries.
• Consider changes to staffing or salary levels.
• Analyze staffing patterns to maximize efficiency and eliminate unnecessary hours.
• Prepare financial forecasting/budgeting models to account for increased overtime expenditures.
• Revise policies or more closely monitor and manage hours worked to minimize overtime exposure.
• Higher additional workers to minimize overtime expenses.
What Employers Should Do To Prepare
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• Government Accountability Office: The number of independent contractor’s in the U.S. workforce has increased significantly.
• DOL’s position: – “Most workers are employees under the FLSA”.
– Independent contractor classification is overused and improper in most cases.
• DOL’s “administrative interpretation” does not have the force of law, but is strong indication of DOL’s enforcement position.
DOL’s New Interpretation Of Independent Contractor Classification
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• Businesses not required to withhold taxes, make Social Security and Medicare contributions, pay unemployment taxes or provide coverage for workers’ compensation insurance.
• Not required to pay independent contractor minimum wage or overtime.
• Employee benefit plans only cover employees, not independent contractors.
• Federal labor laws do not afford independent contractors the right to be represented by a labor union.
• Businesses can more easily expand or contract their workforce to accommodate workload fluctuations.
• Custom and practice in the industry.
• Workers who have specialized talents or technical expertise might want to be considered independent contractors.
Economic And Business Advantages To Using Independent Contractors
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• Capture lost tax revenues because of failure to withhold taxes on the compensation paid to workers misclassified as independent contractors or paid in cash;
• Ensure that workers who should be properly classified as employees are protected by the full array of laws intended to safeguard them;
• Foster fair competition so that companies who “play by the rules” are not disadvantaged by those who are misclassifying employees as independent contractors.
Reasons Why Government Agencies Are Cracking Down On Independent Contractor Misclassification
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• Automotive
• Banking
• Car Services/Limousinesand Taxis
• Cleaning and Janitorial Services
• Educational Services
• Computer Programming
• Construction
• Cosmetic/Beauty Products
• Courier Services
• Direct Selling
• Food and Beverage
• Health Care
• Heavy Industry/Manufacturing
• Landscaping
• Marketing
• Security
• Trucking and Transportation
Industries Most Likely To Be Targeted Because of Independent Contractor Misclassification
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• Confusing array of federal and state tests.
– Each agency has its own test (i.e., taxing authorities, unemployment insurance authorities, Department of Labor).
– Each state has its own set of authorities with differing tests.
• Highly unlikely that federal and state legislatures will provide any “standardized” test for independent contractor status.
• Overriding consistent factor in most tests: Whether a business has the right to control the manner and means by which a worker accomplishes the end product of his or her services.
Whether A Worker Is An Independent Contractor Or Employee
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• Issued July 15, 2015.
• Focuses on whether the worker is “economically dependent” on the employer (and thus an employee) versus a workers who is “in business for him or herself” (and thus an independent contractor).
• Labels used by the employer and the worker are not determinative of the economic realities of the working relationship.
DOL’s “Economic Realities” Test
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1. The extent to which the work performed in integral to the employer’s business.
2. Whether the worker’s managerial skills affect his or her opportunity for profit or loss.
3. The relative investment in facilities/equipment by the worker and the employer.
4. The worker’s skill and initiative.
5. The permanency of the worker’s relationship with the employer.
6. The nature and degree of control exercised by the employer.
DOL’s “Economic Realities” Test – Six Factors
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• Unpaid Federal, State and Local income tax withholdings and Social Security and Medicare contributions.
• Unpaid unemployment insurance taxes, both to the Federal government and to State governments.
• Unpaid worker’s compensation premiums.
• Unpaid overtime compensation and/or minimum wages.
• Unpaid work related expenses.
• Unpaid sick and vacation pay.
• Coverage under employee benefit plans.
Consequences of Independent Contractor Misclassification
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• DOL has embarked on a multi-faceted enforcement approach –– Hiring more investigators to “detect and deter” violations.
– More aggressive prosecution.
– Grants to State workforce agencies so that they might identify misclassification and recover unpaid employment taxes.
– Federal-State partnerships to coordinate enforcement efforts and share information about non-compliant companies.
– Bridge to Justice program.
• Employers should review their relationship with workers classified as independent contractors for risk under the DOL’s re-defined test.
Enforcement By DOL And State Agencies
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• Traditionally, employees performing home health care such as certified nursing assistances, home health aides and personal care aides were excluded from the FLSA’s minimum wage and overtime pay.
• October 2013 -- DOL creates the Home Health Care Rule and declares that third-party employers of Home Health Care workers can no longer claim the overtime and minimum wage exemption.
– Early 2015 -- Federal District Court strikes down the Rule
– August 2015 -- Federal Appellate Court revives the Rule.
• Unless the U.S. Supreme Court overrules or Congress intervenes, the Home Health Care Rule will become effective in the near future although the date remains unclear.
• It is estimated that the Home Care Rule will entitle 90% of home care employees to minimum wage and overtime pay.
• Employers in the home care industry should evaluate their workforce and payroll practices to ensure they are able to comply when the Home Care Rule comes into effect.
DOL Home Health Care Rule Revived
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• Employees of a staffing company working at an Amazon warehouse who underwent security screening before leaving the warehouse at the end of each day.
• Employees alleged they were entitled to compensation under the FLSA for time spent waiting to undergo the security screenings, which amounted to roughly 25 minutes each day.
• Employees alleged that the screenings were conducted to prevent employee theft and thus occurred solely for the benefit of the employer and its customers.
Supreme Court Case Update – “Compensable Time”
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• Principal work activities are compensable; activities that are preliminary to or postliminary to a principal activity of work (typically at the beginning and end of the work day) are not compensable.
• Principle work activities include all activities that are “integral and indispensable” to the performance of the job.
• Supreme Court looked at these terms pragmatically noting an activity is not integral and indispensable to an employee’s principal activities unless it is an intrinsic element of those activities and one with which the employee cannot dispense if he is to perform those activities.
Supreme Court Case Update – “Compensable Time”
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• Examples of integral and indispensable duties include –
– Meat packing employees who sharpen knifes because dull knifes will slow down production.
– Battery plant employees who spend time showering and changing clothes because the chemicals in the plant were toxic to human beings.
• Supreme Court concluded that security screenings were not integral and indispensable to the warehouse operations.
– Staffing company did not employ workers to undergo security screenings, but rather to retrieve products from warehouse shelves and package those products for shipment to Amazon customers.
– Staffing company could have eliminated the security screenings all together without impairing the employee’s ability to complete their work.
Supreme Court Case Update – “Compensable Time”
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• 2015 Wisconsin Act 55– Prevailing Wage Laws
– Local Living Wage Laws
– One Day of Rest in Seven Law
Wisconsin Law Changes
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• Prevailing wage laws require employers working on public works projects to pay employees minimum wages related to the project’s location.
• In July 2015, Wisconsin repealed much of its current prevailing wage laws.
• Effective January 1, 2017:− The prevailing wage law is repealed for “local government units”:
• Villages, towns, cities, school districts, and sewerage districts
• Local governments are prevented from creating their own prevailing wage laws.
− Prevailing wage law will apply only to state agency and state highway projects if:
• $48,000 or more for a single trade; or
• $100,000 or more for multi-trade.
Prevailing Wage Laws
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• Effective January 1, 2017 (cont.):
– Prevailing wage will be determined by the U.S. Department of Labor and not the Department of Workforce Development.
– Liquidated damages and debarment for violations are eliminated.
• New rule does not apply to:
– Requests for Bids issued before January 1, 2017 on a project subject to bidding; or
– Contract entered before January 1, 2017 on a project not subject to bidding.
• Current prevailing wage law will apply to existing contracts that extend beyond January 1, 2017 through the life of the project.
Prevailing Wage Laws
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• Living wage laws are established by cities or counties and raise the minimum wage for public employees and businesses that receive contracts or subsidies from local governments.
– City of Madison’s local living wage is set at 110% of the poverty level.
• Under former law, employees could petition to the Department of Workforce Development to claim that the state’s minimum wage of $7.25 per hour was not a living wage.
• Under new State law:
– “Living wage” is eliminated from state laws and replaced with “minimum wage.”
– Employee cannot appeal for a living wage.
– In short, “minimum wage” is considered “living wage” in Wisconsin.
Living Wage Laws
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• Before, employers were required to provide employees at least 24 consecutive hours of rest for every seven-day period. – Any waivers expired automatically after six months.
• Now, employees can voluntarily agree to work seven days a week without a day off. To be in effective:– The employee must agree in writing;
– The employee must state to the effect of “voluntarily chooses to work without at least 24 consecutive hours of rest in seven consecutive days.”
– It must be voluntary without coercion or threat of discipline; and
• For employees covered by collective bargaining agreements, this rule become effective the date the CBA expires, or is modified, extended, or renewed.
One Day of Rest in Seven Law
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• Federal– Currently $7.25/hr for private employees
– $10.10/hr for workers on Federal construction and service contracts (Executive Order 13658).
• States– States with recent or upcoming increases are: Alaska; Arkansas;
California; Connecticut; D.C.; Hawaii; Maryland; Massachusetts; Michigan; Minnesota; Nebraska; New York; Rhode Island; Vermont; West Virginia
– California - $10.00/hr effective January 1, 2016
– D.C. - $10.50/hr effective July 1, 2015 and $11.50 effective July 1, 2016
– Mass. – $10:00/hr effective January 1, 2016 and $11.00/hr by January 1, 2017
Minimum Wage Increases
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• Local – Fight for $15
– The following are just some examples of municipalities with upcoming minimum wage increases• Berkeley, CA - $12.52/hr by 2016
• Chicago, IL - $13.00/hr by 2018
• San Francisco, CA - $15.00/hr by 2018
• Seattle, WA - $15.00/hr by 2018
• Emeryville, CA - $16.00/hr by 2019
• Los Angeles, CA - $15.00/hr by 2020
• New York City - $15.00/hr by 2019
• Washington, D.C. - $15.00/hr by 2020
Minimum Wage Increases
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• Executive: Primary duties must consist of:
– Management of the enterprise or of a recognized department or subdivision thereof
– Direct the work of two or more other employees or their full-time equivalents
– Authority to hire or fire or offer valued suggestions as to hiring, firing, advancement, promotion or any other change of status
White Collar Exemptions: A Primer
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• Primary duties must include:
– Performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
– Exercise of discretion and independent judgment with respect to matters of significance.
White Collar Exemptions: Administrative
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• Includes persons employed as
– Computer systems analysts
– Computer programmers
– Software engineers and other similarly skilled workers in the computer field.
• Does not include:
– Employees engaged in the manufacture or repair of computer hardware and related equipment;
– Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs;
– Individuals who work in a “help desk” capacity who perform installation or troubleshoot computer or network issues.
Computer Employee Exemption
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Questions?
A Sea Change in Wage and Hour Law American Payroll Association - Wisconsin Statewide Conference September 18, 2015
Christopher L. [email protected](414) 277-5519Quarles & Brady LLP