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Don’t Miss This Unique Opportunity To CYA … I mean, Fix Salaried-Exempt Misclassifications

Don’t Miss This Unique Opportunity To CYA … I mean, Fix Salaried-Exempt Misclassifications

Looming Required Changes Can Help Disguise Past Problems

By: Bill Pilchak – 08/17/16

     The federal government has issued so many regulations that many (most?) companies cannot comply with them all. The Government Accountability Office reports that federal regulators issued 2,400 new rules during the 2014 “presidential year” (1/21/14-1/20/15). In our field of labor and employment law, employers must abide by statutes and corresponding regulations under the Affordable Care Act , OSHA, the Family and Medical Leave Act, the Fair Labor Standards Act, Title VII, the Americans with Disabilities Act, Sarbanes-Oxley, Department of Transportation driver regulations, the plant closing law (WARN), affirmative action, prevailing wages on government contracts, Fair Credit Reporting Act, HIPAA (health information), H1b + other immigration issues, ERISA pension, health and welfare plans, deemed export regulations, etc. (Whew!) The federal regulations under those statutes comprise more than 25000 pages plus innumerable safety standards, guidance memoranda and technical “assistance” manuals.

     Worse, in addition to the regulatory labyrinth of labor and employment laws, our clients must comply with regulations on customer credit and financial data, environmental issues, food safety, product safety, patents and trademarks, taxation and more.

     Inevitably, compliance slips through the cracks. Many new clients come to us only after some agency has levied fines or an attorney asserts claims under some regulation unknown to them.

     As it turns out, most businesses share one species of non-compliance that sits like a time bomb within them: treating employees as salary-exempt when the position does not meet the technical requirements to avoid overtime.  We have written before how plaintiff-side attorneys now find it profitable to delve into the FLSA regulations to ensnare non-compliant companies. (See: Aesop for Employers http://mi-worklaw.com/aesop-for-employers-the-hyenas-and-the-maze/)

     Employers assume that as long as somebody performs non-manual, white collar work that they may be paid a salary without overtime for hours worked over 40 in a week. Not true. To be exempt from overtime, technical requirements must be met. Some frequent examples of misclassifications are:

  • “Administrative” employees must exercise independent judgment and discretion on matters of significance to qualify as salaried-exempt. So, many administrative assistants (executive secretaries) do not qualify; Office managers often lack the requisite authority; Employees who simply match facts to criteria (e.g., credit scores to interest rates; driving records to insurance rates) may not qualify.
  • “Executive” employees must have as their primary duty managing an enterprise or department with at least two fulltime employees (or part time equivalents) with the right to hire and fire or at least make recommendations that are given weight. Working supervisors might not qualify.
  •  “Professional” employees must be in a position that requires advanced knowledge typically obtained in a prolonged course of study. A PhD doing a job that others perform with only a Bachelor’s degree will not qualify. Moreover, the Dept. of Labor is stingy about designating “engineers” as professionals unless they do top-level engineering work.

     Misclassifications are time-bombs because an employee can bring overtime claims for the past two or three years, often in the form of a class (collective) action either during employment or after separation. For each $45,000 per year employee working only 45 hours per week, the overtime due would be $32,445 to $48,667 plus attorney fees that can run into six figures. At 50 hours, the liability increases to $64,950 to $97,425. (hourly rate x 1.5 x 5 (or 10) hours per week x 50 weeks (2 wks vac.) x 2 years (or 3) x 2 double damages)

     The usual dilemma is that fixing the problem often alerts employees that they have been owed overtime all along, which then results in claims.

     For the next few months only, employees can fix misclassifications with less chance of provoking claims.  Under new regulations effective December 1, 2016, employees paid a salary of less than $47,476 per year must be paid overtime.  Employers will have to reclassify them or give them raises.  The new regulation provides a “reason” to start paying employees overtime without implying they were misclassified in the past.  Since the salary threshold will adjust every three years, reclassifying those making more than $47,476 could be justified in anticipation of future increases. Reclassifying those well beyond $47,476 poses more of a risk, but still, careful working announcing a change as part of a broader new reclassification program could help disguise past arguable misclassifications.

     What to do right now: Smart employers should conduct a privileged (with their counsel) audit of salaried positions with counsel in the next 60 days, to identify and cure misclassifications as part of a change in payroll practices required by the new regulations.

Of course, Pilchak & Cohen can help in that regard.

Find us at MI-Worklaw.com.

EEOC to Seek Equal Pay Data in 2017

EEOC to Seek Equal Pay Data in 2017

 By: Dan Cohen – 2/4/16

 If there was ever any doubt that the feds still have a bone to pick with employers, that doubt was easily put to rest last week when the EEOC announced its proposal to revise the annual Employer Information Report (EEO-1) to include pay data. Currently, employers with more than 100 employees, and federal contractors or subcontractors with more than 50 employees are required to provide the EEOC information about employee race/ethnicity and sex in each of 10 specific job categories.   The EEOC proposal would also require employers with 100 employees to report pay ranges based upon W-2 income as well as hours worked for all employees by race/ethnicity and sex beginning on or before September 30, 2017.

If your business is not required to file the EEO-1 now, it would not be required to file the EEO-1 with pay data. Under this proposal:

  • Federal contractors with 49 or fewer employees would not file the EEO-1. This is current practice.
  • Federal contractors with 50-99 employees would not report pay data. But they would report ethnicity, race, and sex by job category, like they do now.
  • Private employers with 99 or fewer employees that are not federal contractors would not file the EEO-1 at all. This is the same rule that applies now.

Public comments are due by April 1, 2016. Once the public comment period expires, the EEOC will review the responses. A hearing will be required before anything becomes final. Let’s hope common sense prevails and the feds adjust their proposal or scrap it altogether.

The EEOC has expressly stated that “collecting pay data is a significant step forward in addressing discriminatory pay practices.” Of course, the proposed reporting does not take into account length of service, employee responsibility education, experience, and other legitimate reasons for pay differentials. The EEOC Proposal also focuses on W-2 income rather than actual pay rates, which is the wrong data for ferreting out discriminatory pay practices.  For example, employees with greater productivity or more sales will typically be paid more than others in the same position.  This obviously does not establish an equal pay violation, but the EEOC proposal would lead to suspicion and possibly a costly investigation.  Perhaps the biggest problem with the proposal is the pay ranges themselves, which are based upon the 12 pay bands used by the Bureau of Labor Statistics in the Occupation Employment Statistics Survey.  Use of these 12 pay ranges will group employees together even though they are not similarly situated.  For example, the seventh pay band of $62,920 – $80,079 will tend to capture managers, sales representatives, administrators and even some professionals.  Consequently, employers will be defending their compensation systems at significant cost when the feds use this meaningless data in their targeted witch hunts.

Public comments are due by April 1, 2016. Once the public comment period expires, the EEOC will review the responses.  A hearing will be required before anything becomes final. Let’s hope common sense prevails and the feds adjust their proposal or scrap it altogether.

 

 

Aesop For Employers:  The Hyenas And The Maze

Aesop For Employers: The Hyenas And The Maze

By:  Bill Pilchak – 11/25/15

Once upon a time, there was a huge, scary book of wage hour regulations known as 29 CFR 541. The passages were as if written by madmen. They followed neither logic nor any recognizable order, with pitfalls and dangers lurking around every corner. The entire volume was an insane, written maze.

Only a few people in the land ever dared to read the book. Some of the selected few, known as HRers, mainly read small portions- and only when they had to. Though courageous, they didn’t have the time to read the entire tome. Besides, despite the dangers lurking in the pages, the regulations were boring.

Others of the selected few, known as MgrLawers, enjoyed exalted positions where they battled fierce creatures, guarded the HRers and were paid handsomely to read the daunting, boring text. Being so paid, they read more than they had to, although they could not read the whole opus in one sitting. Still, they eventually learned of the many dangers found in the maze of regulations, and strove to teach the HRers of them. Their message was dire: If one of the flock failed to avoid the traps, pitfalls and dangers in the maze in the first place, the MgrLawer might not be able to rescue anyone who had fallen prey.

For decades, the MgrLawers guarded their flocks of HRers, only occasionally losing a straggling member of the herd to a stately lion named DOL, who had not only read the regulations, but had written them and thus easily negotiated the maze. A tolerable balance of nature developed over those many years. DOL only hunted when she was hungry. The MgrLawers earned their keep by guarding the flock, and lost only the occasional careless HRer who failed to heed the dangers.

For those same many decades, a troupe of lazy and indolent scavengers (jackals, hyenas and dogs) known as PLtfLawers scraped out an existence. Since they were not paid the handsome sums to read the massive tome of regulations, they remained ignorant of their contents and unable to negotiate the maze. They fed off scraps, using methods of attacking the herd that required less knowledge and were more easily defended by the MgrLawers.

One fateful day, one of the hyenas was forced to enter the regulations against his will and could not avoid the complex rules spread over many pages. Stumbling through the maze, nearly delirious from absorbing too much information at one time, the hyena happened upon a hapless victim: A careless HRer, who had failed to heed the warnings of the MgrLawer, and now found herself at the bottom of a pit, within easy grasp of the hyena, who snatched her up and enjoyed a tasty reward.

As one would expect, the hyena returned to the brood and related his tale. Hearing of the easy meal, a jackal next braved the massive text. She too found the regulations dreadful, but like the hyena found a hapless victim trapped in the maze, who she devoured. The jackal returned to the den and informed the pack that the MgrLawer was nearly powerless to save one who had fallen into a trap, and soon all kinds of jackals, hyenas and dogs were patrolling the maze of regulations, feasting on the prey trapped within. Soon, the horde of scavengers had spread across the land, with the fattest of the brood in California.

The moral of the story should be obvious.

The Fair Labor Standards Act regulations are a haphazard set of arbitrary rules that do not necessarily follow logic or common sense. One cannot comply by intuition. For years, employers were reasonably safe because the nuances of the regs were not known by the plaintiffs’ bar. The Department of Labor responded to complaints by employees, but since the employees did not appreciate technical violations, they only reported the most obvious infractions and problems with the DOL were manageable.

However, in recent years, the plaintiffs’ bar has learned that employers are frequently not in compliance. They have found that knowing the regulations can lead to a huge payday and now have a financial incentive to learn them. They have also learned that an employer can be “dead in the water” if out-of-compliance, making for an easy payday.

Wise HR personnel will review their pay practices to assure wage/hour compliance in advance. Though not every danger can be stated here, in Michigan and in most states, this means assuring, for example: ●Anyone not paid overtime is statutorily exempt; ●“Administrative Exempt” employees exercise the requisite discretion and judgment on matters of significance; ●Administrative exempt employees are not actually turning out (even white collar) “production;”●Managing a department is the “most important” duty of a manager who also does some non-exempt work;●All required compensation is being included in overtime calculations; ●Employees cannot claim unpaid hours (driving to assignments, travelling on business, etc.) are “hours worked” for overtime purposes; ●Employees are not required to incur expenses (such as driving their vehicle on the job) that drop their pay below minimum wage; ●Maintain records of hours worked for at least three years, ideally even for exempt employees.

For those with employees who work (even occasionally) in California, the task is much more complex: ●Employees must have meal and rest breaks; ●Overtime must be paid if one works more than eight hours in one day; ●Doubletime must be paid for more than 12 hours in a day or hours worked on the 7th consecutive work day ●To be exempt, the exempt duties must occupy more than 50% of the employee’s time; ●If a terminated employee is not paid what is owed on the date of termination, up to 30 days of salary/wages can be owed as “waiting time penalties.”

Pilchak & Cohen offers training on Wage-Hour compliance. Contact us if we can help you.

HOLIDAY SHUTDOWNS MAY HAVE IMPACT ON EXEMPT STATUS

HOLIDAY SHUTDOWNS MAY HAVE IMPACT ON EXEMPT STATUS

By:  Dan Cohen – 11/20/15

With Thanksgiving just a week away, many of us have already begun our holiday preparations and planning. Most of us will spend next Thursday, and even Friday and Saturday eating, spending time with family, watching parades and the Lions and shopping. Most of us will not be worrying about whether docking pay of our salary exempt employees for the Thanksgiving Holiday will jeopardize their overtime exemption because they can no longer meet the salary basis test. However, this is something that should be taken seriously by employers because losing an overtime exemption can result in significant back wage claims. The Department of Labor, Wage and Hour Division provides a solution for dealing with short term closures like Thanksgiving. According to the Wage and Hour Division:

 [s]ince employers are not required under the FLSA to provide any vacation time to employees, there is no prohibition on an employer giving vacation time and later requiring that such vacation time be taken on a specific day(s). Therefore, a private employer may direct exempt staff to take vacation or debit their leave bank account . . . , whether for a full or partial day’s absence, provided the employees receive in payment an amount equal to their guaranteed salary.

     Wage and Hour Opinion Letter FLSA2005-41 (Oct. 24, 2005); see also 29 C.F.R. §§ 541.600, 541.602(a); 69 Fed. Reg. 22,122, 22,178 (Apr. 23, 2004) (“[E]mployers, without affecting their employees’ exempt status, may take deductions from accrued leave accounts.”).

The DOL’s opinion does not apply to shutdowns lasting a full workweek, like the December shutdown of the automotive plants, since exempt employees need not be paid for any workweek in which they perform no work. The opinion also does not apply to employees who have no vacation or paid time off available. Indeed, the DOL has emphasized that if an exempt employee has no vacation time remaining, or has a negative vacation leave balance, the employee still must receive the employee’s guaranteed salary during the temporary shutdown in order to avoid violating the salary basis requirement and jeopardizing the employee’s exempt status.

Employers are also cautioned that employees qualify for unemployment if they lose a full week of work due to a holiday shutdown. Moreover, if the shutdown results in the loss of a partial week, employees can claim unemployment for the time off unless they earn 1 ½ times the applicable benefit rate (which is 4.1% of the highest wage paid in a base period quarter up to a maximum of $362). Holiday and vacation pay is included as remuneration when calculating eligibility for unemployment, providing another reason why employers often designate the shutdown week as a mandatory vacation week.

The Unintended Consequences of $15 an Hour

By:  Dan Cohen – 8/13/15

Ironically, there have been reports out of Seattle and elsewhere, where the minimum wage has been pushed to as much as $15, that some employees have requested cutbacks in their hours to avoid risking their entitlement to public food, housing and child care subsidies. I thought the increases were designed to lift people out of poverty and move them off of public assistance? Well, so much for that theory. If these reports are true, then we have accomplished nothing more than placing an additional financial burden on businesses.  I, for one, can hardly wait for the statistics to come out in New York in terms of how many individuals are coming off of public assistance because of the recent statewide increase in minimum wage for fast food workers.  Politicians need to quit doing things for the sake of popularity and start thinking about what is best for the economy and nation as a whole.  Flipping hamburgers at McDonalds is not supposed to be a career.  It is entry level and should be for students.

At some point, we need to stem the tide of this entitlement mentality or we will crash and burn as a nation. Think about it: if there are fewer and fewer people paying into the system and more and more recipients of these entitlements, the math will simply not work. We see this exact problem with defined benefit plans where there are more and more retirees, fewer and fewer contributing employers and fewer and fewer employees for whom the contributions must be made. The math no longer works, and those plans cannot stay above water much longer. Some are already in critical and declining status and will be or already have been cutting benefits. We are heading in that same direction as a nation of entitlements.  Reforms are needed.

Politics aside, let’s look at the situation reported out of Seattle and see what it could mean to employers. Employers faced with requests to cut hours have options at their disposal.  They can grant the requests if it makes sense to their business. If the request means the employee will become part-time, it can actually result in loss of benefits and designation as part-time under the Affordable Care Act.  Of course, if an employer has been significantly impacted by increased minimum wage levels, the decision could be made to use a workforce of part-timers, who are not eligible for benefits, including health care.

Employers also can deny the request for reduced hours. There is no law that obligates an employer to grant a request for reduced hours as long as the decision is not discriminatory.  Depending on the nature of the business and the local job market, this could result in difficulty finding employees to fill those hours, especially if enough employees seek reduced hours.  Moreover, employers may not want to run ads, interview, train and orient new workers to the business. This takes time and money and can be frustrating.  Employers may also be concerned that reducing hours can result in burdens upon other employees, particularly, if schedules must be adjusted.  While denying the request might be best under a particular business model, employers must accept the possibility that its denial might result in an unhappy employee, who starts looking elsewhere. Maybe that’s a good thing, but maybe it’s not for all the above reasons.

Employers who deny such requests may face self-help remedies in the form of attendance issues if employees take matters into their own hands and reduce their hours by calling off work, making up reasons to leave early, and making themselves unavailable for voluntary weekend assignments, for example. It is for this reason amongst others that employers should have tight attendance policies that enable them to discipline employees for not following call-in procedure, not producing doctor’s notes, for poor attendance, missed assignments, refusals to work weekends and the like. If discipline is necessary, it should be even-handed and well documented as discharges for poor attendance often result in unemployment claims that can easily be lost.

Salary Level Increases for White Collar OT Exemption:  The Latest Transfer of Wealth by the Feds

Salary Level Increases for White Collar OT Exemption: The Latest Transfer of Wealth by the Feds

By:  Dan Cohen – 7/2/15

 On June 29, 2015, The Department of Labor announced its proposal to more than double the salary level for the “white collar” overtime exemptions from $23,660/year to $50,440/year ($970/week). By most accounts, this will result in millions of additional employees becoming eligible for overtime pay. The white collar overtime exemptions include the executive, administrative and professional exemptions under the Fair Labor Standards Act (“FLSA”). The DOL last revised its overtime regulations in 2004 when it raised the salary level from $8060 established in 1975 to $23,660. As part of the 2004 Regulations, the DOL created a highly compensated executive exemption for those earning $100,000. Under its latest proposal, the threshold for the highly compensated executive exemption would jump to $122,148. The proposal also includes an annual bump up of the salary level. Whether this annual adjustment will be tied to inflation is yet to be determined.

Under the white collar exemptions, there are three tests: the salary basis, salary level and duties tests. For the exemption to apply, each of the three tests must be satisfied. The June 29th announcement only affects the “salary level” component.   For now, there have not yet been any proposals on the salary basis or duties tests.   However, the DOL has indicated that it is seeking comment on whether the standard duties tests are working. This does not sound too encouraging. In fact, my guess is that there will be a push to undo some of the 2004 changes in the duties test that then-Democratic Presidential candidate John Kerry claimed would strip 6 million workers of the right to receive overtime pay. See e.g. http://www.nytimes.com/2004/08/23/us/controversial-overtime-rules-take-effect.html.

While I will be the first one to admit that the $23,660 threshold was too low, more than doubling the threshold is probably too much, particularly since the economy has not recovered nearly as much as President Obama would like to think. One group that will be impacted by a $50,000 salary level are “supervisors” under the “executive” exemption. Supervisors in the fast food and retail industries typically do not make $50,000 and often work significant amounts of overtime. Retail businesses work on notoriously slim margins while competing against internet sales and a substantial increase could easily tip the scales of survival for some.  Small business will feel the economic pain of a $50,000 salary threshold as well. The arguments against are similar to the arguments against significant increases in the minimum wage that have been championed by this administration as well. Will this be a job killer? For some, perhaps. Will this lead to widespread use of kiosks in fast food restaurants? Maybe.   What we do know for sure, however, is that this will transfer wealth from the job creators to employees. the DOL does not hide this undeniable fact:

     “In addition to the direct costs, this proposed rulemaking will also transfer income from employers to employees in the form of higher earnings. Average annualized transfers are estimated to be between $1.18 and $1.27 billion, depending on which of the two updating methodologies is used” http://www.dol.gov/whd/overtime/NPRM2015/faq.htm.

The proposed changes will be open for public comment and could take months to finalize. They can be enacted through regulation, without approval by the Republican-led Congress.  However, Congress has the right to introduce legislation that could slow the process down even more.