Presentation for Arts Services Initiative of Western New York

Surviving the DOL Vice Grip: Practical Insight for Managing the Flood of New Employer Regulations

Tough Time To Be An Employer

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The DOL Vice Grip: Topics to CoverUSDOL•Proposed Fair Labor Standards Act (FLSA) White-Collar Regulations •Independent Contractor “Misclassification” Guidance

NYSDOL•Proposed “Wage Payment” Regulations•Industry-specific Minimum Wage Increases

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Why all the Change?A “dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain that if you work hard, you have a chance to get ahead” . . . is the defining challenge of our time.”

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President Obama

December 4, 2013

USDOL Proposed FLSA White-Collar

Regulations

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FLSA: The Basics

FLSA has two fundamental requirements:

1.Minimum Wage; and

2.Overtime for Hours > 40/week

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FLSA Overtime Exemptions

•Overtime need not be paid if the employee meets one of several statutory exemptions

•Most common are the “white-collar” exemptions:oExecutiveoAdministrativeoProfessional

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Qualifying For The White-Collar Exemptions•Three Tests:

1. Salary Basis2. Salary Level3. Duties Test

•A “short-cut” test also applies to “highly compensated” executive, administrative or professional employees

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Nonprofit FLSA Coverage

•Per USDOL, most employees of nonprofits are entitled to MW and OT protection under FLSA

•Two bases for employees to be covered:o Enterprise coverageo Individual coverage

•Municipal agencies, hospitals, residential care facilities, and preschools/schools/colleges are also generally subject to FLSA

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Enterprise Coverage

•Generally, a covered “enterprise” is one with ≥ $500,000 in annual business or sales revenue

•Nonprofits are not covered unless they engage in “ordinary commercial activities” that meet $500,000 threshold

•Only employees engaged in commercial activities are covered by FLSAo Employers engaged in charitable activities are not

covered on enterprise basis

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Individual Coverage

•Employees may still be covered on “individual basis” if they engage in interstate commerceoMake out-of-state phone calls (e.g., fundraising)oMail/conduct business by U.S. mailoOrder/receive goods from out-of-stateoHandle credit card activitieso Perform bookkeeping for above activities

Note: USDOL says that it will not assert individual coverage if covered work is for insubstantial amount of time

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Proposed FLSA Regulations

•3/13/14 – Obama directs USDOL to “modernize and streamline” white-collar exemptions

•7/6/15 – USDOL publishes proposed rule •9/4/15 – Public comment period closed (nearly

250,000 comments)•?/16 – Final rule to be published•?/16 – Final rule to take effect

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Reasons for Changing the Exemption Regulations• “Overtime is a pretty simple idea. If you have to

work more, you should get paid more.” President Obama (March 13, 2014)

•USDOL shall “… simplify the regulations to make them easier for both workers and businesses to understand and apply.”

President Obama (March 13, 2014)

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Simplify? Really?

•2004: USDOL last revised white-collar exemptions to make compliance easieroDuties test for administrative employees

required that individuals exercise independent judgment and discretion over “matters of significance”

oResulted in substantial litigation over meaning of the phrase “matters of significance”

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Since 2004: Explosion of FLSA Actions•More FLSA actions filed in 2014 than any prior

year•Frequency of FLSA class and collective actions

continues to trend upward•Overwhelming number of FLSA claims concern

whether employee(s) satisfy the duties test

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USDOL’s Response …

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Proposed Changes to Salary Level

•Current Salary Level:o $455 per week ($23,660 per year)o $100,00 per year (highly compensated)

Note: NY’s current salary level is $656.25/week and is scheduled to increase to $675/week on 12/31/15

•Proposed Salary Level:o $970 per week ($50,440 per year)o $122,148 per year (highly compensated)

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Proposed Annual Indexing or Automatic Increases•Current salary level is fixed•USDOL proposes either:o Automatic annual updating based on 40th percentile of

weekly earnings for full-time salaried workers), oro Pegging to consumer price index

•Proposed regulations would require annual adjustments by employer to ensure exempt status of workers

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Non-Discretionary Bonuses

•Currently, non-discretionary bonuses (e.g., production, attendance, referral, etc.) cannot be counted towards salary level

•USDOL’s proposal sought comments on whether to allow non-discretionary bonuses to satisfy a portion of the salary level test

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So What About the Duties Test???

•USDOL states that it views salary level test as the “initial bright line test” for the white-collar exemptions

•However, it also recognizes that salary level works “in tandem” with the duties test

•No change to duties test proposed …

But…

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Duties Test

•USDOL requested comments so it could assess whether changes to the duties test might be appropriate

•For instance:o Possible adoption of a “California-style” duties testo Possible modification of the “concurrent duties”

standard for executive employees

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Proactive Risk Management

Step 1: Self Audit•Review salary levels and dutieso Examine job descriptions, evaluations, etc.

•Identify and evaluate part-time “exempt” employees•Document reclassification decisions•Consider benefits of attorney-client privilege

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Proactive Risk Management

Step 2: Roll-Out Changes•Determine timing of re-classification decision•Develop action plan and employee communications•Educate supervisors•Be prepared to answer questions and address complaints

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Proactive Risk Management

Step 3: Training & Compliance•RecordkeepingoRequirements of exempt vs. non-exemptoWTPA

•Meal periods (NYLL)•Restrictions on working outside of normal work hours•Overtime restrictions

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If keeping exempt:•Must satisfy new salary levelo Budget issues (revisit on annual basis)o Pay compressionoMorale problems

•Must satisfy whatever duties test existso Significant misclassification problems will be caused

by a “California-style” test or change to the concurrent duties standard

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Making The Classification Decision

If exempt non-exempt:•Must set the new pay rate (including overtime)•Must enforce record-keeping policies•Must take steps to avoid unauthorized overtime and “off-the-clock” work•Must be prepared for morale problems

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Making The Classification Decision

USDOL: New Independent

Contractor “Misclassification”

Guidance27

FLSA & Independent Contractors

•7/15/15 – USDOL recently issued new “Administrator’s Interpretation” addressing “problematic trend” of independent contactor “misclassification”

•Problems with misclassification:oEmployees denied workplace protections

(minimum wage/OT, UI, WC, non-discrimination, etc.)

oLoss of tax revenueoUnfair competition

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FLSA & Independent Contractors

USDOL Position •“Most workers are employees” under the FLSA•Scope of “employment” under FLSA is very broad•Must use multi-factor “economic realities” test to determine if worker is employee or IC: oNo one factor determinativeo Should not be “mechanically” appliedo Liberally construed to provide expansive coverage of

FLSA

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USDOL “Economic Realities” Test

1. Is work an integral part of employer’s business?2. Does worker’s opportunity for profit or loss depend

on his or her managerial skill?3. What is worker’s investment compared to

employer’s?4. Does work performed require special business skills,

judgment, and initiative?5. Is relationship permanent or indefinite?6. How much control is exercised by putative employer

over the worker?

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USDOL “Economic Realities” Test

•Fundamental Question per the USDOL:

Is the worker “economically dependent” on the business? Or is the worker “in business” for herself/himself?

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Some “Actual Realities” About the USDOL’s Interpretation…•USDOL:

opredisposed to find employment relationship

ohas extreme discretion to weigh certain factors (and marginalize others)

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Recommendations•Consider “independence” of contingent

workers

● separate business ● performance for others● advertisements ● right to refuse work● investment ● own insurance (WC, UI,● profitability/risk of loss liability, etc.)

•Importance of an “independent contractor” agreement

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NYSDOL:New Proposed

Wage Payment Regulations

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Proposed Wage Payment Regulations: The Basics•11/27/15 – Comment period on proposed

regulations closed•Under proposed regulations, employer may pay

wages to employees by:oCashoCheckoDirect Deposito Payroll Debit Card majority of changes

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Payment By Payroll Debit Card & Direct Deposit•Proposed regulations establish very specific

requirements for:o Employee consento Employer notice obligationsoDocument retentionoOther technical requirements (e.g., employee access

to funds, fees, ATM locations)

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NYSDOL:Industry-specific

Minimum Wage Increases

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Fast Food Industry

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•General minimum wage increase: o $9.00 (eff. 12/31/15)

•Fast food industry:o $9.75/$10.50 (eff. 12/31/15)o Scheduled to increase to $15 (by July 2021/January 2019)

•Governor Cuomo pushing for state-wide minimum wage of $15

Questions?

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Presentation for Arts Services Initiative of Western New York

Surviving the DOL Vice Grip: Practical Insight for Effectively Managing the Flood of New Employer Regulations

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