Pay Now or Pay Later: Compliance with New Wage and Hour Requirements

Transcription

1 Higher Education Institute: Avoiding Compliance Pitfalls Across Your Campus From Admissions to the Title IX Office to the Board Room Pay Now or Pay Later: Compliance with New Wage and Hour Requirements Presented by: Benjamin E. Mudrick

2 Overview FLSA Rule for White Collar Exemptions New York State Issues Minimum Wage Increases Wage Order Issues Pay Equality Issues Proposed Regulations for Payroll Cards and Direct Deposit Your Questions

3 FLSA Overtime Rule Unless specifically exempted, employees covered by the FLSA must receive overtime pay for all hours worked in excess of 40 in a workweek at a rate not less than one and one-half times their regular rates of pay. Overtime is intended to reduce the detrimental impact of overworking employees by incentivizing employers to hire and spread hours over more workers.

4 Question Are all employers covered by the FLSA? No, but the vast majority of employers and employees are. There are two types of coverage under the FLSA enterprise coverage and individual coverage. Caveat Even if an employer or employee is not covered by the FLSA, the New York State Labor Law s minimum wage and overtime requirements likely still apply.

5 Exemptions from Overtime To qualify for exemption, white collar employees generally must satisfy three tests: Salary Basis - Paid a predetermined and fixed salary each week that is not adjusted because of variations in the quantity or quality of work performed; Salary Level - Paid at least a minimum salary level set by regulation (employees can be paid more); and Primary Duty - Job primarily involves performing executive, administrative, or professional duties, depending on the nature of the exemption. Exemptions are premised on the belief that exempt workers earn salaries well above the minimum wage, enjoy greater levels of benefits, and have better opportunities for advancement and job security.

6 Common Exempt Categories White Collar/EAP Executive, Professional, Administrative Highly Compensated Employee (HCE) Certain Computer Professionals (hourly) Certain Outside Sales Professionals

7 Key Changes in Final Rule Increase in minimum salary level for executive, administrative, professional and salaried computer employees Limited use of non-discretionary bonuses and commissions to satisfy minimum salary requirement Increase in salary for highly compensated employees Adoption of automatic minimum salary level increases December 1, 2016 effective date for (almost) all employers

8 Current Salary Level Threshold Federal threshold: $455 per week or $23,660 annually New York threshold: $675 per week or $35,100 annually DOL concerned that minimum wage is too close to the salary threshold, eroding the beliefs on which the exemptions were premised.

9 New Salary Level Threshold 40 th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region $913 per week or $47,476 annually Based on 2015 Q4 BLS data for the South Census Region This is lower than the threshold in the proposed rule, but still a 101% increase for employers currently subject to the $455 minimum and a 35% increase for employers in New York subject to the $675 minimum. 40 th percentile nationally is $972, and the 40 th percentile in the highest-earning wage Census Region (currently the West) is $1,050.

10 Non-Discretionary Payments Count Employers can count non-discretionary compensation such as bonuses, incentive payments, and commissions toward the minimum salary threshold. To count, such compensation must be paid at least quarterly and cannot exceed 10% of the salary threshold. Employers could not previously count these types of non-discretionary bonuses toward the minimum salary needed to satisfy the threshold.

11 Non-Discretionary Payments Count Minimum Total Salary Max Bonus (up to 10% of minimum) Remainder to Be Paid on Salary Basis Annual Quarterly Monthly Weekly $47, $11, $3, $ $4, $1, $ $91.30 $42, $10, $3, $821.70

12 Question What if the criteria for a non-discretionary payment are not met? Do I have to make up the difference? Yes, employers must true up an employee s compensation no later than one week after the end of the quarter if the salary paid plus any non-discretionary payment falls short of the minimum required threshold ($47,476 / 4 quarters = $11,869 per quarter). Example - Suzie performs exempt work as an office manager for A Corp. Her annual salary is $45,500. She is eligible for a nondiscretionary bonus of up to $5,000, to be paid in equal installments of up to $1,250 per quarter, provided A Corp. meets its predetermined revenue targets. A Corp. pays 35% of the target bonus in Q2, 50% in Q3, and 100% in Q4. No bonus is paid in the first quarter because the eligibility criteria are not met.

13 First Quarter Second Quarter Third Quarter Fourth Quarter Minimum Salary ($47,476) $11,869 $11,869 $11,869 $11,869 Annual Salary ($45,500) $11,375 $11,375 $11,375 $11,375 Bonus Paid* $0 $ $625 $1,250 True Up Amount Owed $494 $56.50 $0 $0

14 Highly Compensated Employees Current Salary Threshold - $100,000 annually New Salary Threshold - 90 th percentile of earnings of full-time salaried workers nationally Works out to $134,004 annually Based on 2015 Q4 data Must pay at least the weekly minimum salary otherwise required for white collar workers ($913) Cannot use non-discretionary bonus or incentive compensation to cover this portion, but can use it to cover the difference between $47,476 and $134,000

15 Automatic Updates Final rule calls for updates to the salary thresholds every three years using the same methodology (40 th percentile for white collar; 90 th percentile for HCEs) First update will take effect January 1, 2020 DOL will publish the new thresholds on its website and in the Federal Register at least 150 days in advance Based on historic data, thresholds on January 1, 2020 would rise to $984 per week (or $51,168 annually) for white collar exemptions, and $147,524 for HCEs Prior versions of the rule did not contain a provision for automatic updates Proposed rule suggested an annual update based on the percentile methodology or rises in the CPU

16 Duties Test The Good News! Although the DOL requested comments concerning whether the duties test should change, the final rule retains the existing test without change. Although there are no changes to the duties test, this is a good time to review job descriptions versus actual duties to make sure that individuals classified as exempt are actually performing exempt work.

17 WHAT NOW? (Immediate Steps To Take) 1. Review exempt positions with salaries below or near the $47,476 annual threshold Opportunity to review all exemptions even if salary is in excess of threshold 2. Determine course of action for each affected employee (see next slide) 3. Prepare communications strategy for affected employees, including new WTPA notices 4. Think about compression and impact on morale does this need to be addressed as well? 5. Ensure implementation on or prior to December 1, Establish method to track and implement future increases

18 Options for Employees Below New FLSA Threshold Option 1: Increase Salary Option 2: Covert to Non-Exempt Hourly or Other Non- Exempt Status (Commission, Piece Rate, Non-Exempt Salary) Option 3: Consider Fixed Salary for Fluctuating Workweek NOTE: THIS IS NOT A CURE-ALL REMEDY AND IS VIEWED SKEPTICALLY BY THE DEPARTMENT OF LABOR Option 4: Search for Another Exemption NOTE: THIS OPTION WILL BE LIMITEDTO VERY SPECIFIC JOBS AND INDUSTRIES

19 OPTION 1: Increase Salary Most simple (but perhaps most costly) option Minimum Total Salary Max Bonus (up to 10%) Remainder to Be Paid on Salary Basis Annual Quarterly Monthly Weekly $47, $11, $3, $ $4, $1, $ $91.30 $42, $10, $3, $ Don t forget other requirements for white collar exemptions Payment on a salary basis Duties test Increasing the salary of an employee who does not meet the other tests will just increase your damages!

20 OPTION 2: Convert to Non-Exempt (Hourly) Easiest option: track hours and pay on an hourly basis Hourly rate can be adjusted upward or downward on a prospective basis Remember minimum wage increases: Effective Date Upstate NYC with 11 or More Employees NYC with 10 or Fewer Employees Nassau, Suffolk and Westchester Counties 12/31/2016 $9.70 $11.00 per hour $10.50 $ /31/2017 $10.40 $13.00 per hour $12.00 $ /31/2018 $11.10 $15.00 per hour $13.50 $ /31/2019 $11.80 $15.00 per hour $15.00 $ /31/2020 $12.50 $15.00 per hour $15.00 $ /31/2021 TBD $15.00 per hour $15.00 $15.00 Also remember minimum wage orders for specific industries

21 OPTION 2: Convert to Non-Exempt (Other) Non-exempt employees can also be paid a weekly salary, or, in certain circumstances, a commission or piece rate OVERTIME STILL APPLIES Remember that overtime is based on REGULAR RATE not simply hourly rate May include other payments like bonuses and commissions Under FLSA, assumption is that all remuneration for employment paid to, or on behalf of, the employee is included in regular rate Specific exemptions set forth in Section 7(e) of the FLSA

22 Option 3: Fixed Salary for Fluctuating Workweek Adopting fixed salary for fluctuating workweek pay method for certain non-exempt employees may save money PROCEED WITH CAUTION Method of pay for non-exempt but only requires that hours in excess of 40 be paid at half time rather than time and a half 29 CFR : Where there is a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period, such a salary arrangement is permitted by the Act if the amount of the salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours he works is greatest, and if he receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay.

23 Option 3: Fixed Salary for Fluctuating Workweek Example: Employer and non-exempt employee will receive a base salary of $500 per week, regardless of the number of hours worked If employee works 20 hours, employee receives $500 Assuming no other payments, regular rate is $25.00 per hour If employee works 50 hours, employee receives $500 plus overtime at.5 times regular rate for 10 hours of overtime Assuming no other payments, regular rate is $10.00 per hour Accordingly, employee is entitled to an extra $5.00 for each overtime hour worked Total weekly payment of $ Note that OT rate changes based on number of hours worked higher overtime rate for fewer hours of overtime

24 Option 3: Fixed Salary for Fluctuating Workweek To use the fluctuating workweek method: 1. The employee s hours must actually fluctuate from week to week; 2. The employee must receive a fixed salary that does not vary with the number of hours worked during the week (excluding overtime premiums); 3. The fixed amount must be sufficient to provide compensation every week at a regular rate that is at least equal to the minimum wage; and 4. The employer and employee must share a clear mutual understanding that the employer will pay that fixed salary regardless of the number of hours worked.

25 Option 3: Fixed Salary for Fluctuating Workweek ISSUES TO CONSIDER BEFORE ADOPTING FLUCTUATING WORKWEEK DOL and courts are skeptical Employees hours must truly fluctuate (and many weeks should be below the 40 hour threshold) Pre-determined/set schedules are often evidence against Payment of certain incentives or bonuses can undermine argument May be prohibited in some states TALK TO YOUR ATTORNEY!

26 Option 4: Other Exemptions There are other (limited) exemptions to overtime requirements under the FLSA for specific industries and occupations For example: certain outside salespeople, teachers, car salesmen, mechanics, partsmen, lawyers, doctors, employees of seasonal recreational and amusement facilities Caution: THESE ARE LIMITED AND MAY NOT BE ACCEPTED BY NEW YORK STATE LAW If you think any of these exemptions may apply, talk to your attorney first!

27 How Does This Work in the Real World??? EXAMPLE 1: We have 3 employees who are salaried exempt at the rate of $38,500 per year. They usually work 40 hours per week, but occasionally stay late to help finish projects. This amounts to 3-4 hours per month. We can t really afford to raise them to $47,476. What can we do? Keep them salaried and set a 40 hour per week expectation (or, even better, 37.5 hours) Convert to non-exempt and pay overtime for any hours over 40 Extra cost = $27.76 per hour for overtime hours. For 3 employees at 4 hours per month = $ per year Limit overtime if possible Fluctuating workweek will likely not apply

28 How Does This Work in the Real World??? EXAMPLE 2: We have 4 employees who are salaried exempt. Their salary is $41,500 and they work on average 50 hours per week. What are our options? Increase salary to reach threshold = $23,904 for four employees Overtime hour = $29.93 (800 OT hours to justify increase to threshold) Limit overtime by shifting non-essential work to other employees Hire part-time employee Consider fluctuating workweek method (but may be difficult if employees regularly average 50 hours per week because no fluctuation)

29 How Does This Work in the Real World??? Keep salary but lower the number of expected hours and pay OT if employee works more than expected Expected Hours Hourly Rate Overtime Rate 40 Hours 45 Hours 50 Hours 40 $19.95 $29.92 $41,500 $49,279 $57, $16.80 $25.20 $34,944 $41,500 $48, $14.51 $21.76 $30,181 $35,837 $41,500

30 Minimum Wage Effective Date Upstate (Anywhere not Covered by Other Requirements) NYC with 11 or More Employees NYC with 10 or Fewer Employees Nassau, Suffolk and Westchester Counties 12/31/2016 $9.70 $11.00 per hour $10.50 $ /31/2017 $10.40 $13.00 per hour $12.00 $ /31/2018 $11.10 $15.00 per hour $13.50 $ /31/2019 $11.80 $15.00 per hour $15.00 $ /31/2020 $12.50 $15.00 per hour $15.00 $ /31/2021 TBD $15.00 per hour $15.00 $15.00 Don t forget different rates for fast food workers and tipped employees

31 Minimum Wage Orders/Overtime Miscellaneous Industries and Occupations Wage Order Call-in pay. An employee who by request or permission of the employer reports for work on any day shall be paid for at least four hours, or the number of hours in the regularly scheduled shift, whichever is less, at the basis minimum hourly wage Additional rate for split shift and spread of hours. An employee shall receive one hour s pay at the basic minimum hourly wage, in addition to the minimum wage required in this Part for any day in which: (a) the spread of hours exceeds 10 hours; or (b) there is a split shift; or (c) both situations occur. Hospitality Wage Order is even more burdensome! Are you calculating overtime correctly? hourly rate v. regular rate

32 Equal Pay Took effect January 19, 2016 Under past law, an employer can defeat a NYS wage discrimination claim by showing that the differential is based on: 1. A seniority system; 2. A merit system; 3. A system that that measures earnings by quantity or quality of production; OR 4. Any factor other than sex - Mirrors federal Equal Pay Act New law replaces any factor other than sex with a bona fide factor other than sex, such as education, training and experience. Must be job-related and consistent with business necessity May not be based upon or derived from a sex-based differential

33 Equal Pay Exception will not apply if employer s claimed factor: 1. Causes a disparate impact on the basis of sex; 2. An alternative employment practice exists that would serve the same business purpose and not produce the same differential; AND 3. The employer has refused to adopt such alternative practice Employer cannot rely on employees working in different geographic locations to justify pay differences Employees who work in the same geographical region, no larger than a county are considered to be in the same establishment Increases possible liquidated damages from 100% to 300% of the amount of unpaid wages

34 Wage Disclosure No employer shall prohibit an employee from inquiring about, discussing, or disclosing the wages of such employee or another employee Employer may adopt a written policy establishing reasonable workplace and workday limitations on the time, place and manner for inquires or discussions about wages Failure to maintain written policy = limits on employer s potential affirmative defense to a claim by an employee The reasonable limitations in the written policy may include prohibiting employees from discussing or disclosing the wages of another employee without such employee s prior permission Is this consistent with the NLRA? Somewhat. NY law is more strict.

35 Wage Disclosure The law does not require that an employee discuss or disclose his or her wage information with other employees The law does not apply to employees (1) who have access to the wage information of other employees as a part of their essential job functions, and (2) who discloses the wages of other employees to individuals who do not otherwise have access to such information

36 Proposed Payroll Card and Direct Deposit Regulations Proposed on June 15, 2016 Comment period has closed Employers using payroll debit cards or direct deposit or must provide adequate notice of the terms and conditions before the employee selects a wage payment method. Under proposed regulations, the notice must include the following: a description of all of the options employees have for receiving wages; a statement that the employer will not require employees to accept wages by payroll debit card or by direct deposit; a statement that employees may not be charged fees for services needed to access wages; and a list of locations where employees can access and withdraw wages at no charge within reasonable proximity to their place of residence or work. Other limitations on payroll card programs Employers must provide the written notice and consent in both English and the primary language of the employee [P]rior consent that was provided without the requisite notices or in conflict with the terms of [the rule] is ineffective.

37 Contact the Presenter Benjamin E. Mudrick Location: Rochester Phone: Website: