Author: Brett Holubeck

2020 Labor & Employment Law Predictions

Published by Brett Holubeck on January 20, 2020

Image of a man holding a "Happy New Year" sign to kick off the 2020 labor and employment law predictions for the Texas Labor Law Blog — Photo by Kelly Sikkema on Unsplash

2020 has arrived and so have my 2020 labor and employment law predictions. One side note, I am not going to repeat my 2019 labor and employment law predictions that are likely to happen in 2020 (new states that protect medical marijuana use outside of work, increased sexual harassment charges, the elimination of the H-4 EAD program, the NLRB issuing the joint employer standard, more states passing paid family leave, independent contractor issues arising, notices of inspection (I-9 inspections) increasing, and the Supreme Court’s decision on DACA.) So what’s new in 2020? Let’s dive right in.

1. Minimum Wage Increases Will Occur in a Number of States and Ballot Initiatives Will Be Undertaken to Get Them on the Ballot in Additional States

Florida is one state that will have a ballot initiative to raise the minimum wage to $15 per hour. The bill would raise the wage to $10 by September 30, 2021 and then increase it by one dollar every year until the wage reaches $15 in 2026. It is likely to pass as 25 out of the 27 ballot initiatives to increase the minimum wage were approved from 1988 to 2018.

Arizona (Arizona Hospital Worker Minimum Wage and Insurance Regulations Initiative), Idaho (Idaho Minimum Wage Increase Initiative), and Missouri (Missouri Prohibit State Preemption of Local Minimum Wage and Benefits Laws Initiative) also have potential ballot measures related to the minimum wage next year. Each of them are in the gathering signatures stage and more states could potentially follow suit. Arizona’s law is for hospital workers, Idaho’s law would raise the minimum wage to $12 by 2024, and Missouri’s would prohibit the state from stopping local governments from enacting their own minimum wages.

2. Retail Closures and Other Layoffs (Perhaps in the Energy Sector) Continue to Remain High or Accelerate

Ok. So, this is not exactly a labor and employment law prediction, but it affects employment law. Over 9,000 stores closed in 2019 (more retail stores closed than opened). Even if the number of retail closures is not as high next year, there is still the probability that there will be a number of closures.

In the world of oil and gas, there are a lot of companies with debt maturities coming due in 2020 or 2021 (see this article from the Wall Street Journal discussing the $120 billion debt wall these companies will face through 2023), and oil prices have been below the break-even point for many drilling sites. It is possible that there could be a number of layoffs in that industry. Of course, the situation in Iran (the death of Soleimani and Iran’s reaction to his death), any decisions from OPEC, and any possible economic slowdowns or other geopolitical issues could change this.

Unemployment is still low and there are more job openings than there are people that can fill them. If a recession takes place, then everything will change.

The workplace and workforce is changing even if the situation for retail stores and the oil and gas industry improves and we avoid a recession. Many people have read articles about the jobs that supposedly won’t exist in the future, which is something to keep an eye on. In short, layoffs are a part of life and the economy. We can expect them to continue or increase in 2020.

3. Onboarding and Employee Retention Continues to Grow in Importance

No matter what happens next year with layoffs, there will be a lot of workers that will need to be trained, retrained and onboarded. Companies are finally starting to recognize they need to find, adequately train, and keep their employees because unemployment is at a low. In short, businesses are going to want to find the right people, train them well, and try to keep them given the lack of qualified and available employees. Remember, onboarding is more than just orientation. It is a long process to help workers become established in an organization and usually occurs over an extended period of time through a set process to help the employees adjust to their new job. Onboarding also takes more importance as certain jobs are eliminated, new technology is brought into a company, and workers change positions.

The Bureau of Labor Statistics found that “Over the 12 months ending in October, hires totaled 69.8 million and separations totaled 67.4 million, yielding a net employment gain of 2.4 million. These totals include workers who may have been hired and separated more than once during the year.” Again, there were 69.8 million people hired between October 2018 and October 2019. Onboarding, training, and employee retention have gained in importance over the past few years and will continue to do so.

4. The Governmental Agencies Gear Up for the Election by Releasing a Lot of New Regulations Before the Election Happens

The Congressional Review Act allows a new Congress to disapprove of any new regulation within a 60 legislative day window by a majority vote. If the vote succeeds, then the rule does not go into effect. It was only used once before the Trump administration. The Republican Congress under Trump used it 14 times.

The Trump administration and the agencies will push out new regulations and decisions to avoid their regulations being undone either by the Congressional Review Act or by the heads of the agencies after the election (assuming that a Democrat is elected). Many agencies that previously did not engage in much rulemaking are also engaging in rulemaking to avoid their new rules being overturned easily (through decisions). You can look to the NLRB (joint employer rule) and the DOL (overtime rule and joint employer rule) as prime examples of this.

5. Candidates Push Their Election Agendas Which Will Give us a Peek into the Labor and Employment Landscape in 2021

I wrote awhile back about the Democratic candidates. At that time there were around 25 different candidates. Most of those have basically fallen away. We can expect that President Trump and the eventual Democratic candidate will propose a number of different ideas that will affect the workplace.

I expect President Trump to push limiting immigration based on the belief that this will protect American jobs and perhaps he will also propose some kind of paid family leave program as he discussed in his 2016 campaign.

The Democratic candidate can be expected to support raising the minimum wage to $15, the PRO act (that would transform union organizing, eliminate right to work states, permit card check (union elections would not need to happen if enough authorization cards were signed), expand the definition of ‘joint employer’, permit secondary boycotts (targeting neutral worksites), adopt a more restrictive definition of independent contractors, and much more), and a paid family leave program. Depending on the final Democratic candidate, more proposals could go into effect. Moreover, the success of these proposals will depend on the final composition of the House and Senate (in addition to who controls the White House).

6. Union Elections and Organizing Increases this Year Especially in the Tech Sector

Unfortunately, I did not get to publish this blog post before this prediction started to come true (I swear I wrote this before I heard about the CWU trying to organize video game developers, you can ask my kids, but who can trust anyone under 5 years old…). The tech sector is going to become an increasing target of union organizing. Unfortunately, many companies do not treat their employees right (they work long hours, their concerns are not addressed, and many of their coworkers are let go for what feels like no reason to them). Mistreated employees are always the biggest threat and cause of union organizing. The tech sector is ripe for organizing because many companies fit this model.

7. More States Pass Employment Related Laws- Especially Variations of the Independent Contractor Law that California Adopted (the ABC Test)

Employment law has become more fragmented and more influenced by multiple sectors of government (federal, state, county, and city) with a greater influence at the local level than ever before. This is going to continue. This fragmentation affects almost every area of employment law (labor law has not been affected to the same degree). For example, a number of states have their own overtime salary threshold so the new federal overtime rule does not affect them and a number of states have begun to tighten their independent contractor rules (which means that companies must follow these complex rules for each state that they operate in).

This one is not so much a prediction as it is a statement of fact. With the current administration being more business friendly (and depending on the results of the election in 2020, that may continue for 4 more years) the trend of employment law is increasingly being done at the state and local level.

8. Mental Health Issues and the Workplace Become More Important

Nearly 1 in 5 adults had a mental illness in 2016. Carley Sime at Forbes wrote “Mental health and substance abuse cost US businesses between $80 and $100 billion annually.” That is a cost that companies cannot ignore. In 2020 and throughout the decade more companies will recognize this cost and offer treatment and solutions to their staff.

The good news is that more companies are discovering that treatment works. The Center for Workplace Mental Health found that 80 percent of employees treated for mental health problems reported improvements in both their productivity and job satisfaction.

More companies are recognizing the effects of mental health and wellbeing on their workforce and taking steps to prioritize these issues and ensure their employees feel supported.

9. There will be a Ton of Issues Around Free Speech and the Workplace (i.e. It is an Election Year).

This one feels like cheating. It hardly counts as a prediction. It is an election year.

Trump is a polarizing figure. Politics seems more divided now than any time in the last twenty years or so. “A 53-point [difference] separates the percentage of Republicans (65%) and the percentage of Democrats (13%) who believe the United States is headed in the right direction, according to data from the latest Economist/YouGov poll.”

We may be more divided now than any time since Thomas Jefferson and John Adams faced off (you really need to watch this video on what they said about each other in the campaign to understand how bad it was) With this being an election year, we also get to experience attack ads (here is a history of attack ads), which means that more people will have more fodder to attack supporters of one candidate.

Additionally, from a workplace perspective, the election will likely cause more people to talk about politics at work, which can be another polarizing situation you may want to be smart about. You can read about what to do here. This is something that will probably only get more divisive before it improves (some time after the 2020 presidential election but before the 2022 midterms). With the impeachment and the bitterness of this election we have reached a bit of a tipping point in divisive politics and can perhaps expect them to be more divisive and interfere with the workplace more than ever.

10. The Cases Before the Supreme Court Put Increased Focus on Religion, Transgender Issues, and Sexual Orientation in the Workplace.

With a Supreme Court decision on whether sexual orientation is a protected characteristic and whether transgenderism is protected (see this previous article discussing Bostock v. Clayton County, Georgia and Altitude Express Inc. v. Zarda (sexual orientation discrimination cases)) and (R.G. & G.R. Harris Funeral Homes Inc. v. Equal Employment Opportunity Commission (gender identity/transgenderism discrimination case)) this is an issue that will see more traction this year. Once these decisions come out there will be talk in many workplaces about sexual orientation, transgender issues, and religion in the workplace.

The Supreme Court cases on the ministerial exception add to this issue. Here is a breakdown from SCOTUSblog on those cases:

In Our Lady of Guadalupe School v. Morrissey-Berru and St. James School v. Biel, the justices will consider the scope of the “ministerial exception,” a court-created doctrine that prohibits courts from reviewing employment decisions by religious employers involving their ministers. Under the exception, courts must determine which employees serve a “ministerial function.” In these cases, which will be argued together, two California Catholic schools are challenging rulings by the U.S. Court of Appeals for the 9th Circuit that teachers who sued the schools after the teachers’ contracts were not renewed were not, despite their religious duties, “ministers” for purposes of the exception. The schools tell the justices that the issues presented in the two cases are “vital to the daily operations of religious organizations,” and that “getting it right is crucial in protecting church-state relations.”

All of these Supreme Court decisions will cause a lot of talk about the place of religious beliefs and how they relate to the issue of sexual orientation and transgenderism/gender identity.

11. States Continue to Implement Restrictions on Noncompetition Agreements

This is something that is already happening in a number of states and now the FTC has also begun to weigh in on the issue. The Federal Trade Commission recently held a public workshop to “examine whether there is a sufficient legal basis and empirical economic support to promulgate a Commission Rule that would restrict the use of non-compete clauses in employer-employee employment contracts. This follows a labor market workshop hosted by the Department of Justice’s Antitrust Division in September 2019.”

Washington has a law that went into effect on January 1 that prohibits noncompetes for employees that earn less than $100,000 and independent contractors that earn less than or equal to $250,000.

Maryland also enacted a similar law last year that prohibits noncompetes for “employees earning equal to or less than $31,200 annually or $15 per hour.”

Maine’s law went into effect in 2019 and prohibits employers from entering into a noncompete agreement with an employee if they earn wages at or below 400% of the federal poverty level.

New Hampshire passed a law in 2019 that prohibits employers from entering into or enforcing agreements with low-wage employees (those earning less than 200% of the federal minimum wage currently $14.50 an hour).

Rhode Island’s law went into effect on January 15. It prohibits noncompetes for nonexempt employees, certain graduate and undergraduate students, people 18 and under, and low wage employees (those earning less than 250% of the federal poverty level currently $600.48 per week ($31,225 / 52))

Conclusion

2020 is going to be a big year for employment and labor law issues. Employers should prepare for these upcoming changes to ensure that they are staying a step ahead of the competition. As usual, these issues will be followed this year at the Texas Labor Law Blog, and I hope you all stay ahead of the curve this year!

The information provided in this blog is for educational purposes only and is not legal advice. If you need legal advice, then you should speak with a lawyer about your specific issues. Every legal issue is unique. A lawyer can help you with your situation. Reading the blog, contacting me through the site, emailing me or commenting on a post does not create an attorney-client relationship between any reader and me.

The information provided is my own and does not reflect the opinion of my firm or anyone else.

2019 Labor & Employment Predictions Reviewed

Published by Brett Holubeck on January 2, 2020

Image stating "Happy New Year" to demonstrate the review of the 2019 labor and employment predictions. — Photo by Kelly Sikkema on Unsplash

If you recall this article from last year, then you remember that I made some labor and employment predictions for 2019. Some of them came true, but some of them were delayed, likely until 2020. Here is an overview of each of the labor and employment predictions and where the law or issue stands right now.

1. Sexual Harassment Lawsuits Increased

In 2018, the last fiscal year that data is available for sexual harassment lawsuits, the data from the EEOC showed that these lawsuits increased:

The agency also received 7,609 sexual harassment charges – a 13.6 percent increase from FY 2017 – and obtained $56.6 million in monetary benefits for victims of sexual harassment.

The final figures for 2019 are not available yet. However, increasing sexual harassment litigation and charges at the EEOC is a trend that will likely continue. Sexual harassment is not being tolerated in the workplace. Moreover, companies are holding their executives, managers and others to a higher standard than they used to. For example, the CEO of McDonalds stepped down last year for having a consensual relationship with an employee. Again, that is a consensual relationship without any sexual harassment. Many companies prohibit their C-suite from dating anyone at the company. Every company needs to consider how they can prevent sexual harassment. Training for employees, training for managers, and having an appropriate complaint procedure is absolutely necessary, or it will most certainly cost you in the long run. You can read more of how companies can prevent sexual harassment here and in this recent Chicago Tribune article where I discussed office romance in the workplace.

2. The Supreme Court Has Taken Cases to Determine Whether Sexual Orientation is Protected.

The Supreme Court has consolidated 2 cases (Bostock v. Clayton County, Georgia and Altitude Express Inc. v. Zarda) to determine whether discrimination against an employee due to their sexual orientation is prohibited employment discrimination “because of sex” under Title VII. The Supreme Court also took a case (R.G. & G.R. Harris Funeral Homes Inc. v. Equal Employment Opportunity Commission) to determine “[w]hether Title VII prohibits discrimination against transgender people based on (1) their status as transgender or (2) sex stereotyping under Price Waterhouse v. Hopkins.”

Essentially, the first cases will determine if sexual orientation is a protected characteristic under the law (whether it is illegal to discriminate against someone because of their sexual orientation). The second case will determine whether it is illegal to discriminate against someone because they are transgender.

The arguments were in early October; most people expect this to be one of the final decisions that the court issues in June. It is anyone’s guess how these cases will be decided. Most people expect that these cases will be highly divided.

3. The Department of Labor is Increasing the Salary Threshold (but I’m Off by 1 Day).

The Department of Labor did increase the salary threshold to be exempt from overtime (employees must still meet the duties test of one of the exemptions), but I missed my prediction by 1 day (it went into effect on January 1, 2020).

I wrote about this a couple of weeks ago. Here is what the DOL did:

The new overtime salary threshold will be $684 per week (which equals $35,568 per year). The new rule also raises the threshold for the highly compensated category from the current threshold of $100,000 to $107,432 per year. The new rule will also permit employers to use nondiscretionary bonuses and commissions that are paid on at least an annual basis within this count towards meeting the overtime salary threshold (but only up to 10%) of the salary level.

4. Paid Family Leave is Still Coming. It was not Implemented Nationally Last Year, but There Have Been Some States that Have Expanded Paid Leave.

Currently only D.C. and 8 states have passed Paid family leave laws. While no paid family leave proposals were enacted last year at the federal level, several states (and the federal government for its employees) have begun implementing paid family leave or increased paid sick leave.

The House of Representatives has approved a bill to give 12 weeks of paid parental leave to federal workers and President Trump has shown support for the bill.
The state of Washington passed SB 5975 in July 2017 to commence a paid leave program at the start of 2020.
Connecticut passed legislation in 2019 that establishes a paid family leave program. Employers must begin withholding and remitting contributions by January 1, 2021, and employees can begin using the leave on January 1, 2022.
Oregon also passed a law that will take effect in 2023 and will provide 12 weeks of paid time off for parental leave, leave for domestic violence issues, and if the person is ill or caring for a family member that is ill.
Nevada passed a paid leave law that went into effect on January 1 and will apply to employers with 50 or more employees. These employees will generally get 40 hours of leave per year.
Washington D.C. residents will be eligible for paid leave beginning on July 1, 2020. Employees will be able to use “8 weeks to bond with a new child, 6 weeks to care for a family member that has a serious health condition, and 2 weeks to care for their own serious health condition.”
Maine passed a law that will go into effect in January 2021 that will require employers with 10 or more employees to provide up to 40 hours of paid leave every year. It is the first state to allow the leave to be used for any reason rather than merely sick leave.
California passed SB 83 which increased paid family leave from 6 weeks to 8 weeks beginning on July 1, 2020 and increases the wage replacement rate.

With this year being an election year, one should expect that more states will begin to pass paid family leave.

5. NLRB Joint Employer Standard Will be Issued Soon

Again, this one was close. Originally, the National Labor Relations Board (NLRB) was set to issue the final rule in December 2019, but it has not yet issued the final rule. It has, however, ruled that McDonald’s should not be held responsible for any labor violations of its franchisees (i.e. it is not a joint employer). The final rule was not published in 2019, so employers should expect that it will be published sometime this year.

Moreover, both the Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL) are set to issue joint employer rules of their own in 2020.

6. Independent Contractor Issues Did Arise in Many States

This prediction is a big yes. 2019 may be remembered as a tipping point for issues related to independent contractors. However, it is not due to the actions of the federal government.

The change occurred because of state regulations and new legislation. The biggest impact on independent contractors last year came out of California and New Jersey (which may spread to other states in 2020). California passed AB 5 in September of last year and the legislation took effect on January 1, 2020. To be an independent contractor all 3 of the following elements must now be met:

(A) The hiring entity does not control or direct the worker in performing the work in fact or under the terms of a contract;
(B) The work performed is outside the “usual course” of the hiring entity’s business; [and]
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

It is very difficult for many workers to meet the second prong (outside the usual course of a company’s business). This prong (and specifics in the bill) is why the new test has come under a lot of controversy from independent truckers and freelance writers (who are now limited to 35 articles per publication before the company must hire them as employees, and as a result being hurt by this new law). These individuals are losing their flexibility due to the law as they can no longer be independent contractors.

Of course, the law will have an impact on the major companies in the gig economy (Uber, Lyft, DoorDash, etc.), but many of these companies do not plan on transitioning their independent contractors to employees right away as they plan to argue that these workers are not a part of their core business. For example, Uber will argue that they are a technology platform for several different digital marketplaces (Uber, Uber Eats, etc.) that match providers (drivers) and customers (riders) and their drivers are thus independent contractors.

New Jersey was also a major player in changing the landscape of independent contractors this past year. The New Jersey Department of Labor and Workforce Development issued a $649 million fine to Uber for unpaid unemployment and disability insurance taxes, which Uber is challenging. Essentially, the ruling was for Uber failing to pay taxes for these workers because they were misclassified as independent contractors rather than employees.

7. Medical Marijuana Protections Update

Marijuana laws have continued to change all across the country. The Health Employment and Labor blog from Epstein Becker Green does a nice job explaining the past year of marijuana changes.

Illinois became the 11^th state to legalize the use of recreational marijuana and the law took effect on January 1, 2020. Under the law, employers in Illinois may still take action against employees or applicants that fail a drug test provided that it is in the employer’s reasonable policy.

Epstein Becker Green’s blog also notes that:

New Mexico and Oklahoma each passed legislation that prohibits employers from discriminating against employees because of their status as registered medical marijuana users; however, the Oklahoma law does provide an exception for safety-sensitive jobs and for situations which the employee possesses, consumes or is under the influence of marijuana at work.

In Nevada, a new law taking effect on January 1, 2020, prevents employers from failing or refusing to hire an applicant because the applicant tests positive for marijuana. Perhaps not surprisingly, New York City went one step further when it passed an Int. 1445-A, barring most employers from conducting any pre-employment testing for marijuana or THC.

Similarly, New Jersey now prohibits employers from disciplining or terminating an employee solely based on that individual’s status as a registered medical marijuana user. While the law does not prevent employers from prohibiting or disciplining employees from using marijuana during work hours or on workplace premises, Garden State employers with a drug testing policy are required to offer employees and applicants who test positive the opportunity to explain the positive result.

Companies should expect more changes in marijuana law in 2020.

8. ICE and Notice of Inspection Statistics

We are still waiting to see the exact numbers for 2019, however, Miriam Jordan’s New York Times article, More Than 2,000 Migrants Were Targeted in Raids. 35 Were Arrested, confirms that 3,282 Notices of Inspection were issued as of July 22, 2019. The article also provides key statistics from Immigration and Customs Enforcement. It appears that notices of inspection are at least on pace to be at an increased level from the Obama administration.

9. DACA’s Constitutionality to be Determined in 2020

The Supreme Court has consolidated three cases that concern DACA (Department of Homeland Security v. Regents of the University of California, Trump v. NAACP, McAleenan v. Vidal)

As I said in a prior post:

These cases basically deal with whether the Department of Homeland has the authority to end the program which 700,000 people rely on. Trump has expressed support for DACA, but wants Congress to act on a more permanent solution (likely as part of a wider deal on immigration).

I thought that the Supreme Court would have accepted the case a bit earlier than they did (in first half of 2019), but the case was ultimately not on the 2018-2019 docket. It is instead on the 2019-2020 docket, so we will get an answer on the constitutionality of the DACA program this year. Everyone expects this to be one of the most contentious cases this term with a decision in late June 2020.

10. Work Authorization for the spouses of H-1B Visa Holders with an Approved I-140 (Essentially their Employer Sponsored Green Card Petition) Will Likely be Determined in 2020.

I thought that the government would have reached a decision on the Employment Authorization Documents for spouses of H-1B visa holders with an approved I-140 (there are some immigrants that are waiting 10 or more years from the approval of their employer sponsored petition for them to become green card holders to them finally becoming permanent residents) in 2019. Fortunately, there has been a delay, which is great for H-1B visa holders as their spouses can continue to renew their work authorization until a decision is issued.

Big Law Business from Bloomberg law explains the current state of the law:

The fate of H-4 employment authorization hangs in the balance as 2019 [came] to a close. It’s been nearly a year since the Department of Homeland Security sent the Office of Management and Budget a proposed rule that would rescind a 2015 regulation extending certain H-4 visa holders—the spouses of H-1B professional workers—the opportunity to seek U.S. employment.

The DHS has offered little explanation as to why the rule remains unpublished, but recently affirmed its commitment to proceed with rescission as early as spring 2020, albeit referring to that timeframe as “aspirational.”

In the meantime, H-4 employment authorization faces a second, more pressing threat. On Nov. 8, in Save Jobs USA v. DHS, the U.S. Court of Appeals for the District of Columbia Circuit held that a group of American IT workers has standing to challenge the H-4 regulation.

The court remanded the case to the district court to address the merits of Save Jobs’ claim—that the DHS lacks authority to extend employment authorization to H-4 spouses absent explicit congressional direction.

Essentially, there is now a court case that will be decided over the next year or two (through a decision and appeals) and a regulation that may be released in 2020 (however, that is what the agency said in 2019 so we will see if that holds true) that will provide clarity on the issue. Of course, if a Democratic candidate is elected in 2020, then these individuals will likely keep their work authorization (or will regain it in 2021).

Conclusion

2019 was a huge year for labor and employment law. 2020 will be another big year as the current administration tries to put out more regulations and decisions before the 2020 presidential election. I will follow along with these pending cases this year, and address them here as decisions are made. I also be making some more labor and employment predictions for 2020, so stay tuned.

Wishing everyone a happy and healthy 2020- and for those of you who have already broken your resolution (did you already eat that piece of pie you swore off of? I know I did.), remember every single day is a day for progress. Cheers to that!

The information provided is my own and does not reflect the opinion of my firm or anyone else.

Overtime Exemptions and Managing Overtime

Published by Brett Holubeck on December 8, 2019

Picture of a piggy bank to represent the overtime exemption and the increase in the salary threshold. — Photo by Fabian Blank on Unsplash

Wage and hour issues can cause a variety of headaches for companies. In 2017, there were 8,261 Fair Labor Standards Act (FLSA) lawsuits filed against companies, which is 417 percent more than in 1997. The Wage and Hour Division of the Department of Labor has recovered $2.8 billion from companies since 1984 with 70% of the money coming from FLSA violations that collectively affected 3 million workers. Failing to properly pay overtime accounts for a large portion of these fines.

A side note here for all of you looking forward to a new year- “New year, new you” is now “New Year, New overtime salary threshold”. So let’s prepare together to ensure you aren’t one of the people who are ill prepared when it comes to overtime pay.

The New Overtime Rules

Many companies believe that one only needs to pay a salary for an employee to be exempt from overtime. This is 100% false! And yet it is extremely common for both employers and employees to believe.

As a reminder, the new overtime rules become effective on January 1, 2020. Currently the minimum salary that an employer must pay for an individual to be exempt from overtime is $455 per week (which equals $23,660 annually). The new overtime salary threshold will be $684 per week (which equals $35,568 per year). The new rule also raises the threshold for the highly compensated category from the current threshold of $100,000 to $107,432 per year. The new rule will also permit employers to use nondiscretionary bonuses and commissions that are paid on at least an annual basis within this count towards meeting the overtime salary threshold (but only up to 10%) of the salary level.

Employers that are not paying at least $684 per week as a salary for any currently salaried exempt employees need to convert the employees to hourly employees or ensure that these employees do not work more than 40 hours in a week (which is when overtime begins under the FLSA).

Duties Tests

As I said earlier, improper classification of employees as “exempt from overtime” can result in big fines, and with the common (false) belief that someone only has to be salaried to be exempt, this happens quite frequently. To prevent those fines, employers must pay attention to the overtime exemptions. Here is a quick overview:

Executive

To qualify for the executive employee exemption, all of the following tests must be met as noted by the Department of Labor:

• The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $684* per week;
• The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
• The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
“Primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.

Common job examples of the exemption are managers, CEO’s, supervisors, and business managers.

Professional

To qualify for the learned professional employee exemption, all of the following tests must be met as explained by the DOL:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684* per week;
• The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
• The advanced knowledge must be in a field of science or learning; and [t]he advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Administrative

To qualify for the administrative employee exemption, the DOL requires that all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684* per week;
• The employee’s primary duty must be the 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
• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

HR Generalist, Internal Auditor, Budget Analysts, and Buyers are the typical positions that qualify for this exemption.

Computer Employee

To qualify for the computer employee exemption, the following tests must be met as explained by the DOL:

• The employee must be compensated either on a salary or fee basis at a rate not less than $684* per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;
• The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;
• The employee’s primary duty must consist of:
1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; and
2. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
3. The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
4. A combination of the aforementioned duties, the performance of which requires the same level of skills.

Outside Sales

To qualify for the outside sales employee exemption, all of the following tests must be met as noted by the DOL:

• The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
• The employee must be customarily and regularly engaged away from the employer’s place or places of business. The salary requirements of the regulation do not apply to the outside sales exemption.

The most important thing to pay attention to regarding the outside sales exemption is that the person must be truly located outside of the office.

Highly Compensated Employees

The regulations contain a special rule for “highly compensated” employees who are paid a total annual compensation of $107,432 or more. The Department of Labor explains what a worker must be do to be a highly compensated employee:

A highly compensated employee is deemed exempt under Section 13(a)(1) if:
1. The employee earns total annual compensation of $107,432 or more, which includes at least $684* per week paid on a salary or fee basis;
2. The employee’s primary duty includes performing office or non-manual work; and
3. The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

Misclassification and Common Overtime Mistakes

Improperly classifying an employee as exempt from overtime can result in hefty penalties for a company and is not something that any company should do willingly.

There are a few common ways that many companies mess up the overtime exemptions:

The employee is actually paid an hourly wage rather than being paid a salary. Rule 1 is that these employees must be paid a salary for them to be exempt from overtime unless they are a computer professional.
The employee failed to perform the required duties that are necessary to meet the qualification even though they had the right title. For example, the employee was labeled a manager, but really was just a glorified cashier.
The company failed to consider the requirements at the state level, which may have a different salary threshold. Alaska, California California, and New York have salary thresholds that are higher than the new threshold that will go into effect in January. Pennsylvania’s salary threshold to be exempt from overtime will be above the federal threshold beginning in 2021. Washington state also has a proposed rule that would increase the overtime threshold for workers in the state.

With the new regulations coming it may be time to review your classifications to ensure that they are properly done.

Pay Deductions for a Salary Exempt Employee

You can make deductions from the pay of a salaried exempt employee under certain circumstances as noted by the Department of Labor:

Deductions from pay are permissible when an exempt employee:
is absent from work for one or more full days for personal reasons other than sickness or disability;
for absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;
to offset amounts employees receive as jury or witness fees, or for military pay;
for penalties imposed in good faith for infractions of safety rules of major significance;
or for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.
Also, an employer is not required to pay the full salary in the initial or terminal week of employment [(if the employee did not work a full week)], or for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act.

Practical Steps to Reduce and Manage Overtime

Managing overtime can be one of the trickiest tasks for HR to do. Fortunately, there are some ways that employers can manage overtime.

Track hours- count the hours that people work through software or a timekeeping device. If a person is working less than 40 hours a week, then you can pay them a salary and not worry about whether or not they are exempt from overtime.
Have policies- Make sure that you have a policy that requires employees to report off-the-clock work. Inform employees of the policy and make them sign an acknowledgement. You still must pay employees if they perform unauthorized work off-the-clock, but you can discipline them for not getting approval for the time first or working without authorization.
Pay attention to the job descriptions: I wrote about this last week. You need to make sure that the job duties of the employee match the requirements of the overtime exemptions.
Train supervisors to be aware of these issues. Make sure that supervisors know what jobs and duties people are supposed to have and ensure that they assign tasks to exempt employees that are within their job duties and the above overtime exemptions. They should also be aware if any employees are nonexempt so that they can monitor their hours to reduce the amount of overtime.

Conclusion

The new regulations are sure to bring a number of changes to many companies. Companies may need to redistribute work and convert salaried employees to hourly employees in an effort to avoid paying overtime to employees that were formerly exempt from overtime. The right time to act is now before the regulations go into effect to ensure timely compliance.

The information provided is my own and does not reflect the opinion of my firm or anyone else.