It’s time once again to peer into the trusty old crystal ball and try to predict the major trends in wage and hour in the coming year. This year, the task is particularly difficult. With the election of Donald Trump, we know things are going to change — the question is what will change, and how.
Unfortunately, Mr. Trump’s statements have been short on specifics, and since he hasn’t taken office yet, we don’t have any sort of track record to rely on. But I think we can make some reasonable assumptions that will be useful in planning for the coming year.
Worker Classification and the “Gig Economy”
Workplace trends favor a continued increase in the “gig economy,” with increasing numbers of workers opting for the flexibility of working as freelancers rather than taking traditional full-time jobs.
A problem arises, however, when employers try to impose the same sorts of work rules on these independent contractors as on their “regular” employees. The law says workers have to meet a specific set of criteria to be considered true independent contractors, and cannot be subject to the same level of control that a company would exert over employees.
Note that it doesn’t matter whether the worker has signed a contract stating they are an independent contractor. If their business relationship doesn’t meet the legal criteria, the law says they’re an employee.
Companies that misclassify employees as independent contractors enjoy an unfair advantage over companies that obey the law. Among other things, they do not withhold taxes from these workers, pay the employer portion of FICA, or contribute to the state’s unemployment coverage fund. This can allow them to undercut prices or pocket additional profits compared to their law-abiding competitors.
A few years back, the Department of Labor Wage & Hour Division (WHD) launched a Misclassification Initiative, designed to better identify these employers. The idea is that the federal DOL partners with state labor boards and others to share information — when one agency discovers an employer has misclassified workers as independent contractors, they will notify other related agencies so those agencies can pursue additional action against the employer.
So far, the WHD has formed partnerships with the IRS, OSHA, the Employee Benefits Security Administration and agencies in 35 states to share information about organizations that have misclassified their workers. According to the Misclassification Initiative web page, in fiscal year 2015, the Initiative was responsible for recovering $74 million in back wages.
What can we expect in 2017? Since misclassification can have a significant impact on state revenue, it’s unlikely that states agencies will be inclined to back off entirely from enforcement, especially given the projected growth in the gig economy. It is certainly possible the WHD will take a less aggressive stance — and in fact there are already signals the WHD may allow employers more flexibility in using independent contractors. But with 35 states already signed on to the initiative, I anticipate we will see continued enforcement action in this area.
Our take: Be sure you’re classifying your workers properly. If there is a gray area, consult with your labor law attorney. Document the reasons behind any classification decisions you make; this could prove invaluable in demonstrating due diligence should any questions arise.
Originally, updated overtime rules were scheduled to take effect December 1. This change would have increased the threshold for overtime exemption from $455 per week to $913 per week. Most employees making less than $913 per week in salary would be eligible for overtime pay.
In November, a Federal judge issued a temporary restraining order preventing the DOL from enforcing the new threshold. The DOL has appealed the ruling, but even under an expedited schedule, the hearing on the appeal will not take place until after Mr. Trump has taken office.
Experts are divided on the potential future of the rule. While most agree that $455 a week (which is below the poverty line for a family of four) is too low a threshold for a true “white collar” job, some felt the jump to $913 was too much, too fast.
What can we expect in 2017? It’s unlikely that the threshold change will take effect in its current form. It’s possible there could be some sort of adjustment to the threshold, or the change might be scrapped entirely. Mr. Trump’s nominee for Secretary of Labor, Andrew Pudzer, is a fast-food CEO who is a vocal critic this update.
The appeals court could uphold the injunction, which would keep the rule on hold until the legal challenges play out. Even if the court upholds the DOL’s authority to issue the rule and invalidates the injunction, the Trump administration could issue an executive order to negate the rule. Mr. Pudzer could direct the WHD to issue a new, revised rule (or simply to reverse the current proposed update). And, of course, Congress could pass a law to reverse or modify the change, which Mr. Trump would almost certainly sign.
Our take: If you have already given some workers a salary increase to meet the proposed threshold, taking back the raise may not be a good option. That’s almost guaranteed to cause morale issues. It’s probably best to say you’re just doing your part to combat “income inequality” and move on.
Some businesses had started recording work hours for all employees, including salaried workers, so they could assess the impact of paying overtime to workers who make less than the threshold. If you’ve already started recording work time for your employees, you should keep doing so. If you aren’t recording everyone’s work hours, now would be a good time to start (for a number of reasons). If the new threshold, or a modified version of the updated threshold, does become effective, you’ll be prepared. (Plus, tracking time for all workers offers a number of additional business benefits to help you be more profitable and productive.)
The current federal minimum wage is $7.25 per hour. Mr. Trump has indicated his support for a federal minimum wage of $10. Mr. Pudzer instead has expressed support for a tiered system with a lower minimum wage for entry-level workers, rising to $9 per hour for more experienced employees. It’s unclear which of these, if either, would ever become effective — and if so, when.
Currently 30 states plus the District of Columbia have already set minimum wages higher than this federal limit. The law says when there’s disagreement between a state or municipal minimum wage and the federal minimum wage, whichever one is higher applies. In most of these states, any changes to the federal minimum wage would have little to no impact.
What can we expect in 2017: Given various remarks made in the past by Mr. Pudzer, we can expect any changes in the federal minimum wage to come slowly and in small increments. I don’t anticipate any significant update to the federal minimum wage in 2017.
Our take: Minimum wage violations are already the source of many federal and state lawsuits every year. In early December, a San Diego restaurateur was even sentenced to two years in jail for various wage and hour violations. Prudent employers will take steps to make sure they comply with current minimum wage laws, and monitor developments to ensure they stay in compliance if and when the wage levels change at either the state or federal level.
Other issues we can expect to see in the news in 2017 and beyond:
- Increased use of E-Verify. The new administration may encourage, or even require, more employers to use E-Verify to improve enforcement of immigration laws in the workplace. Under current law, use of E-Verify is voluntary, except for certain federal government contractors. The Trump administration could work with Congress or use an Executive Order to make use of E-Verify mandatory for additional classes of employers.
- Changes to the Affordable Care Act. While Republican lawmakers and Trump have both promised “repeal and replace” for the ACA, recent comments from members of Congress have revealed there is no consensus at this point for what ACA provisions, exactly, would be repealed and what the replacement would look like. Total repeal of the ACA is unlikely, as some provisions enjoy wide popularity — notably the prohibition on discrimination due to “pre-existing conditions” and the ability to carry children on their parent’s policy up until age 26. At this point, while we know some modifications to the ACA are likely, the specifics of those changes are impossible to predict. In the meantime, the law remains in effect, so be sure you keep up with the reporting requirements.
The main message at this point is that we know changes are coming, but the specific form of those changes is difficult to predict. Wise employers will be prepared for any eventuality. Of course, one of the best ways to be prepared for a wide range of wage and hour eventualities is to have accurate time records for all employees. (Fortunately, Acroprint can help you with that!)
What do you think will be the major wage and hour changes in 2017? What changes would you most like to see? What are you doing to prepare? Let me know! I’d love to hear your ideas.