Changing Employment Regulations
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Changing Employment Regulations

In the past several months, SGIA has seen the U.S. Department of Labor (DOL) issue three proposed rules that, once finalized, will impact employment policies. Let's look at how they will affect us.

By Marci Kinter
This article appeared in the SGIA Journal July / August Edition 2019 Issue and is reprinted with permission.
Copyright 2019 Specialty Graphic Imaging Association (www.sgia.org). All Rights Reserved.

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  • Proposed Overtime Rule
    Back in 2016, the DOL issued a final rule on overtime exemptions that would have raised the minimum salary required for exemption from overtime requirements under the certain Fair Labor Standards Act (FLSA) to $47,476, up from $23,660.

    However, that increase never came to be. In November 2016, a month before it was due to take effect, a federal judge in Texas issued a temporary nationwide injunction blocking the Obama administration's rule. This decision was appealed, and repeated extensions brought it to the Trump administration. Under this administration, the DOL has filed a brief with the Court of Appeals indicating that it will not seek to reinstate the rule as currently written.

    However, the brief did indicate that, while the DOL is not advocating for the specific salary threshold set by the Obama administration, the DOL still plans to assert its power to use salary as a factor in determining whether employees should be eligible for overtime. In other words, to the extent that the Court of Appeals affirms the DOL's authority to set a salary threshold, the Trump administration DOL has indicated that it intends to raise the threshold above the current amount of $23,660.

    This past March saw the DOL's Wage & Hour Division release a notice of proposed rulemaking to increase the salary threshold from $23,660 to an annual salary of $35,308, or $679 per week. This means that if this rule becomes final, employers will be required to pay overtime rates to all employees making less than $679 per week, regardless of their duties or whether they are paid on a salary basis.

    So, what does this really mean? Based on fourth quarter 2018 data from the Bureau of Labor Statistics, the median income for employees ages 20 - 24 was $594 per week, which would exempt them from overtime requirements (i.e., the employer would not be required to pay him/her the overtime rate of pay), provided they meet the duties and requirements of an exemption. Under this current proposal, the same employee would not be eligible for an exemption - regardless of duties - and thus, would be eligible for overtime pay. DOL estimates that the proposal will provide access to overtime pay to more than a million more workers.

    The DOL's newly issued Notice of Proposed Rulemaking also proposes to increase the "highly compensated" employee annual compensation level from $100,000 in total annual compensation to $147,414, which will also have a significant impact on increasing the number of employees who will be eligible for overtime rates of pay. The proposal does not include any changes to the current structure of the duties tests for Fair Labor Standards Act (FLSA) exemptions.

    Regular Rate of Pay
    For the first time in more than 50 years, the DOL has proposed changing the definition of the regular rate of pay. And after 60 years, it has proposed a new four-factor test for joint employment liability.

    The regular rate of pay is the basis on which employers calculate overtime rates for non-exempt employees. Some forms of payment must be included in the regular rate of pay while other forms of payment can be excluded. The existing rules are somewhat vague and have the effect of discouraging employers from offering more perks to their employees, as those perks may be required to be included in the employee's regular rate of pay. The proposed rule clarifies whether certain kinds of perks, benefits or other items must be included in the regular rate of pay. As the current regulations are decades old, the new proposal offers much needed guidance for today's employer.

    Under the newly proposed rule, the following benefits and payments may be excluded from an employee's regular rate of pay:

    • The cost of providing wellness programs, on-site specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services.
    • Payments for unused paid leave, including paid sick leave.
    • Reimbursed expenses, even if not incurred "solely" for the employer's benefit.
    • Reimbursed travel expenses that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System and that satisfy other regulatory requirements.
    • Discretionary bonuses (the proposal provides additional examples of discretionary bonuses and clarifies that the label given to a bonus by an employer does not determine whether it is discretionary).
    • Benefit plans, including accident, unemployment and legal services.
    • Tuition programs, such as reimbursement programs or repayment of educational debt.

    Another change is an update to DOL's basic rate regulations. Currently, employers using an authorized basic rate to calculate overtime may exclude any additional payment that would increase total overtime compensation by less than 50 cents a week on average. The proposed rule would change the limit from 50 cents to 40% of the federal minimum wage. At today's minimum wage ($7.25), that comes to $2.90.

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    Joint Employment Liability
    FLSA imposes joint employer liability when an employer and another company (a joint employer) are jointly responsible for an employee's wages. The proposed rule is intended to help employers and joint employers more clearly understand their legal obligations under the FLSA.

    The DOL has proposed a clear, four-factor test that would consider whether the potential employer actually exercises the power to hire or fire the employee; supervise and control the employee's work schedules or conditions of employment; determine the employee's rate and method of payment and maintain the employee's employment records.

    This new joint employer test applies only for purposes of the FLSA and does not apply to other laws such as the National Labor Relations Act or anti-discrimination laws. The proposed rule states, "Only actions taken with respect to the employee's terms and conditions of employment, rather than the theoretical ability to do so under a contract, are relevant to joint employer status under the Act." This means the joint employer must actually exercise the power to hire and fire the employee, supervise and control the employee, determine the employee's rate and method of payment and maintain employment records - the theoretical ability or reserved right to do so will not trigger joint employer status.

    The proposed rule also clarified the factors that are not relevant to the joint employer analysis under the FLSA. While the following are often used under other tests, such as in determining if a worker is an employee or independent contractor, they are not to be used under the FLSA joint employer test:

    • Whether the employee has economic dependence on the potential joint employer.
    • Whether the employee is in a specialty job or a job otherwise requiring special skill, initiative, judgment or foresight.
    • Whether the employee has the opportunity for profit or loss based on managerial skill.
    • Whether the employee invests in equipment or materials required for work or the employment of helpers.

    The proposed rule also identifies business models, practices and agreements that do not make joint employer status more or less likely for an entity. These include the following examples:

    • Operating as a franchisor.
    • Allowing an employer to operate a facility on the entity's premises.
    • Jointly participating in an apprenticeship program.
    • Offering an association health or retirement plan to an employer or participating in such a plan with an employer.
    • Requiring an employer to institute workplace safety measures, wage floors or sexual harassment policies.

    Remember, these newly proposed rules are not in final form. There is always the possibility of substantial changes before the final rules are implemented. Employers should not make any changes to their policies at this time. SGIA will continue to provide updates to the industry as these important regulatory issues move through the process.

    If you have any questions, or need additional information, please contact the Government Affairs Department at govtaffairs@sgia.org.

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