As I do every year around about this time, once again I’m gazing into my crystal ball to predict what you can expect in wage and hour developments for 2016. These are the issues I think you’ll want to keep on your radar to avoid potential liabilities in the coming year:
Changes to Overtime Exemption Rules
Back in 2014, the Department of Labor (DOL) announced they were going to be reviewing the criteria for exemption from the overtime provisions of the Fair Labor Standards Act (FLSA). Originally slated to be announced in November 2014, the proposed revisions were finally published for public comment in July 2015. The comment period ended on September 4, 2015.
The major feature of the proposed changes was an increase in the salary threshold for an employee to qualify as “exempt.” Under the old regulations, anyone making a salary of at least $455 a week ($23,660 per year) could potentially be exempt from overtime, assuming their job functions passed the “duties test.”
The $455 a week salary requirement has not been updated since 1975. The DOL proposed to increase the threshold to $970 per week ($50,440 per year). It has been estimated by some that this change could make up to five million more workers eligible for overtime.
According to the latest information available at the time of this writing, the final new regulations are expected to be issued in mid-2016, with enforcement to be phased in at some time after that.
This gives you some time (but not a lot of time!) to decide how you’re going to handle this change. Read this article that outlines some of your options, then consult with your labor law attorney to ensure you’re prepared.
Changes to State and Local Laws
Another trend in 2015 that I expect to continue in 2016: the passage of sick leave, “ban the box,” minimum wage and other laws at the state and local level. Instead of waiting for federal regulators to pass new rules, state and local lawmakers are passing rules they feel are appropriate for their area.
The main thing to keep in mind is that you have to follow the most restrictive rules that apply. If the federal minimum wage is $7.25 per hour, but your state legislature has mandated an $8.50 minimum, you must pay the higher wage. When in doubt, consult with your labor law attorney.
Jail Time for Wage and Hour Violations
While we’re probably all aware of the fines and penalties a company can incur for wage and hour violations, did you know that individuals — company owners, managers and supervisors — may actually face jail time for breaking wage and hour laws?
In the case of the pizza franchisee, he apparently concocted an elaborate scheme to cover up the fact he was underpaying his workers. He pled guilty to a misdemeanor under New York State law and was sentenced to 60 days in jail, plus payments of $230,000 to his employees. Other states have similar laws on the books.
He could also have faced federal misdemeanor charges. Under federal law, first offenders can receive a fine of up to $10,000; for subsequent violations, the offender could be assessed the same penalty plus up to six months in prison.
In the case of the electrical contractor, he has been indicted by a federal Grand Jury, charged with making false certifications related to David-Bacon Act wages on three HUD housing projects. His case is currently making its way through the courts.
Some wage and hour attorneys speculate these sorts of criminal prosecutions may herald the start of a new trend. The U.S. Justice Department has issued a new policy (the Yates Memorandum on Individual Accountability for Corporate Wrongdoing – PDF format). Now, in cases of “corporate misconduct” they say they will seek “accountability from the individuals who perpetrated the wrongdoing.”
Honestly, in most cases, wage and hour violations are unintentional and jail time is unlikely. But for anyone who’s contemplating attempting some “creative accounting” to avoid paying overtime — or who thinks wage and hour violations are never a big deal (“Just pay the fine and get on with business!”) — this may serve as a wake-up call.
In 2015, even more states signed on to the DOL’s Misclassification Initiative. Agencies from 26 states (Alabama, Alaska, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Idaho, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Rhode Island, Texas, Utah, Vermont, Washington, Wisconsin and Wyoming) now share information with the Department of Labor, the IRS and other agencies to identify and prosecute companies that misclassify employees as independent contractors.
Even if your state isn’t on the list, you should still be careful. For example, just last month, Governor McCrory in our home state of North Carolina signed an executive order creating an “Employee Classification Section” within the state’s Industrial Commission. The director of this new section will proactively identify instance of employee misclassification and work with the state Department of Revenue, the Industrial Commission, and the Division of Employment Security for the Department of Commerce to ensure appropriate action is taken against employers who misclassify.
In the courts, just in recent months lawsuits have been filed by Uber drivers, drivers for three on-demand food delivery companies (Sprig, GrubHub and DoorDash), a group of Hollywood freelance media content producers, a group of Mary Kay cosmetics resellers, a group of FedEx ground drivers, a group of Amazon “Prime Now” drivers, exotic dancers in Texas and North Carolina, and others. All are claiming they’re actually employees, but have been misclassified as “independent contractors” by the companies for which they work.
For a worker to be considered a true independent contractor, the conditions of the job must meet certain criteria. Simply having a contract or agreement that states the worker is considered “independent” will not be sufficient if the terms and conditions of the work don’t meet the standards. If you employ any workers you classify as independent contractors, you should consult with your employment law attorney to make sure you’re on the right side of the regulations.
The law continues to be in flux regarding how to determine if an internship is appropriately an unpaid “educational experience,” or if the intern should be paid at least minimum wage. In the second half of 2015, both the Second and Eleventh Circuit courts rejected the DOL’s “six-factor test” (PDF format) in favor of a more flexible “primary beneficiary” approach. However, other courts have yet to weigh in, and the DOL still recommends that payment of interns is a “best practice” to attract a wider array of candidates.
In the meantime, your safest alternative is to pay interns at least minimum wage. As usual, when in doubt, consult with your wage and hour attorney for guidance.
Once again in fiscal year 2015, federal wage and hour cases have reached a new high — 8,781 cases filed, compared with 8,160 in FY2014. (For comparison purposes, in 2000, there were 1,935 such cases filed.) In federal court, employers are more likely to face wage and hour claims than any other form of employment litigation.
Analysts cite several possible factors for the increase:
Lawyers and clients are paying increased attention to worker classification due to the DOL’s misclassification initiative and a series of high-profile lawsuits.
Public debate over minimum wage and sick leave ordinances has raised awareness of minimum wage, off-the-clock work, and overtime issues.
As unions have decreased in influence, issues that might previously have been resolved via contract enforcement under the National Labor Relations Act (NLRA) are now being litigated under the FLSA. (Since 2000, NLRA-based lawsuits have declined by more than half, to only 725 cases in 2015.)
Laws designed for “smokestack” industries may not adapt well to an “on-demand” service economy.
Wage and hour lawsuits are relatively easy to file and often result in large settlements or awards, making them attractive for plaintiffs’ attorneys.
In any case, it appears the situation is going to get worse before it gets better.
Summary: Action Items for 2016
Consider your alternatives and devise a plan for handling the upcoming changes to the overtime exemption rules.
Be sure you’re complying not only with federal laws, but also with applicable state and local labor laws.
Evaluate any independent contractors you employ to ensure the terms and conditions of their employment are compatible with that classification. If they are not properly classified, begin paying them as employees and consult with your employment law attorney to determine what other action you need to take to avoid liability.
If you plan to hire interns, to be safe, pay them at least minimum wage. If you want to make use of unpaid interns, consult with your labor law attorney to ensure the internship program meets all the necessary criteria.
And, of course, to avoid potential issues with off-the-clock work, overtime claims and other wage and hour issues, make sure your time and attendance solution is up to the task. Acroprint offers a variety of options to meet the needs of most any work environment, from traditional industries to mobile or remote workforces. Visit our online store to discover all the options available and choose the solution that’s best to take your business ahead into 2016 and beyond!