It’s time once again to gaze into the crystal ball and try to predict what wage and hour issues will be at the forefront in 2015. Employers who want to avoid wage and hour liability will likely want to focus on these issues in the coming year:
The classification of employees versus independent contractors has been a “hot button” issue for many years now, and 2015 will see no change in this emphasis.
As of October 2, Alabama has become the 16th state to sign a Memorandum of Understanding (MOU) and join the U.S Department of Labor’s Misclassification Initiative. Other participating states include California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah, and Washington.
This latest MOU closely follows the DOL’s September 15, 2014, award of $10.2 million to 19 different states to implement and improve misclassification detection and enforcement in unemployment insurance programs. In most states, when someone classified as an independent contractor files for unemployment, a tax audit is automatically triggered. These tax audits don’t just cover the individual contractor who filed for unemployment, but instead all the independent contractors employed by the company or even the entire company itself. This means they can result in a huge bill for unpaid taxes, penalties, and interest if the company is found to have misclassified its workers.
Smart employers will make sure they’ve covered their bases when it comes to worker classification. Carefully document your reasons for classification of each worker. This documentation can prove invaluable in the event of an audit.
In 2014, the DOL stated their intent to update the rules for white collar exemptions. For instance, the new rules could change the criteria for job duties or wages in order for a worker to be considered exempt from overtime.
Originally, the proposed rules were to have been issued in November 2014, but according to a statement by Solicitor of Labor M. Patricia Smith, speaking in Manhattan in early October, the updates have been officially postponed until sometime in 2015.
Even after the proposed rules are issued, they will not be implemented immediately. They will first be subject to a public comment period (watch our blog to learn when the comment period is announced). Based on the comments received, the DOL will craft the final rules. These must then be approved by the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). It’s possible the new rules could be in place during 2015, but it’s likely the process will stretch into 2016.
What this means for employers: depending on the specifics of the rules changes, some workers that are currently classified as exempt could be reclassified as non-exempt (and vice versa). Before the new rules become effective, be sure to check with your employment law attorney to ensure all your employees are still classified correctly.
Home Care Workers
Effective January 1, 2015, new minimum wage and overtime requirements were originally slated to go into effect for home care workers. These workers had previously been exempt from overtime and minimum wage rules, but under the new regulations would be covered.
Late in December 2014, a Federal judge vacated a portion of the new regulations, specifically that portion of the rules requiring third-party home care companies to pay minimum wage and overtime to workers employed for “companionship.”
The DOL has 60 days to appeal the judge’s ruling and has already indicated that they will likely do so. In addition, there are ongoing challenges to other portions of the new regulations. We’ll keep you posted with any additional developments.
Keep in mind, the judge’s ruling applies only to workers who are employed by third-party agencies to provide “companionship.” The judge’s ruling did not affect the DOL’s revised definition of “companionship.” This means workers can spend no more than 20% of their time providing care (such as monitoring medications, assisting with exercise or physiotherapy, bathing/dressing/feeding and the like). Even if you are an agency, those of your workers who spend more than 20% of their time providing care are still covered by the new overtime and minimum wage rules.
Beyond that, the enforcement of the remaining rules by the DOL has been delayed until June 30, 2015. During this “grace period,” the DOL will not bring formal enforcement actions against employers they find to have violated the rules. From July 1 through December 31, 2015, the DOL says they will proceed with “limited enforcement.” According to the DOL, this means they’ll consider good faith efforts made by the employer to come into compliance.
One thing to keep in mind, though: the delay only applies to the DOL itself. The remaining rules still officially go into effect January 1, 2015, which means employers may be subject to private actions if they’re not in compliance after that date. I strongly advise anyone employing home care workers to stay in communication with your employment law advisor to make sure you’re aware of any developments in this case and complying with the current regulations.
2015 Bi-Weekly Pay Periods
Finally, some employers will face an unusual situation in 2015. If you pay your exempt employees on a bi-weekly basis (i.e. every two weeks), in 2015 you will incur 27 pay periods instead of the usual 26. This situation reoccurs every 11 years. It happens because 26 bi-weekly pay periods equal out to 364 days. Because the year is 365 days long (366 in leap years), every 11 years you end up with an additional bi-weekly pay cycle.
For those employers, you have several alternatives.
You can simply pay your employees the normal amount, but for 27 checks instead of 26. The advantage to this is that your employees will continue to receive the same amount they are used to in each paycheck. The disadvantage is that you will end up paying the equivalent of an additional payroll in 2015.
You can reduce the amount per pay period for your exempt employees to account for the additional pay period. The advantage is that you will not end up paying additional payroll. The disadvantage is that employees will be receiving less in each paycheck, which could cause some disgruntlement. Another potential problem: for employees who are close to the threshold, the reduction could impact their eligibility for exempt status. In addition, if any of your employment agreements are written to specify an amount per pay period (as opposed to an annual salary only), you may not be able to reduce the amount of each paycheck.
You can change your pay period to semi-monthly (twice a month) instead of bi-weekly. This would permanently solve the problem, but could have other implications for your payroll and other business processes.
Which alternative will work best for you will depend on your specific situation, including any employment agreements or contracts you might have in place. I encourage you to consult with an employment law advisor or attorney before you make a final decision.
No matter what your wage and hour concern, one of your best lines of defense to limit potential liability is a good time tracking system, properly configured and consistently used — for all workers (yes, even exempt employees). Acroprint offers a variety of alternatives suitable for all sorts of work environments from factories and warehouses to professional offices and even remote/distributed workforces. Call to speak with one of our trained customer care representatives or visit our website for more information and to find the perfect solution for you.