recent developments in Wage and hour law Presented by: Heather kaiser, jd HR consultant Heather.kaiser@associatedbrc.com www.associatedbrc.com

Agenda Update on Exempt status salary levels DOL Initiatives DOL opinion letters

The salary basis The Fair Labor Standards Act (FLSA) obligates employers to do certain things in connection with “nonexempt” employees Pay minimum wage Pay overtime Keep accurate records of hours worked FLSA also created exemptions for some EEs, including those whose job duties fall within certain employment classifications Executive Professional (either Learned or Creative) Administrative Outside sales

The salary basis The Department of Labor (DOL) developed regulations requiring that, in order to be exempt from the FLSA: An employee’s primary duties must satisfy the definitions the DOL has developed for each of the exemption categories, AND An employee must be paid a regular salary from week to week In other words, to be exempt you must pass both a Primary Duties test and a Salary Basis test The minimum weekly salary necessary for exemption status has changed over the years 1938: $30 / $50 per week 2004: $455 per week / $23,660 per year (last changed 1975) 2016: $913 per week / $47,476 per year (set to go into effect 12/1/2016)

The salary basis Argument was that FLSA only gives DOL the authority to define the Primary Duties test: “The provisions of sections 6 and 7 shall not apply with respect to (1) any employee employed in a bona fide executive, administrative, professional ... capacity ... (as such terms are defined and delimited by regulations of the Administrator ...).” November, 2016: Court issued injunction that put regulations on hold, but called into question whether DOL has the right to establish a minimum salary requirement at all Because of how high the new Salary Basis test was, states and business groups promptly sued

The salary basis Obama DOL appealed entire injunction Trump DOL continued the appeal, but only on the issue of whether the DOL had the authority to set a minimum salary requirement Trump DOL argued that appeal on the new salary level itself is moot, since they will be engaging in new rule making

The Salary basis August 30 – Texas court concluded that the DOL’s Final Rule is invalid by going “too far” Broad authority given to the DOL to “define and delimit” the scope of exemptions Setting the minimum salary level at the low end of the range of prevailing salaries is consistent with Congress’s intent because salary serves as a defining characteristic when determining who, in good faith, performs actual EAP duties The Final Rule’s doubling of the DOL’s previous minimum salary level would exclude too many employees who perform exempt duties, essentially making the duties test meaningless if the employee’s salary fell below the new salary level Note: never conclusively states the DOL’s ability to establish a minimum salary is clearly within that power

The salary basis In July DOL requested feedback from the business community on a number of questions, including: Would updating the 2004 salary level for inflation be an appropriate basis for setting the standard salary level and, if so, what measure of inflation should be used? Should the regulations contain multiple standard salary levels? If so, how should these levels be set (e.g. by size of employer, census region, etc.)? Should DOL set different salary levels for the executive, administrative and professional exemptions and, if so, should there be a lower salary for executive and administrative employees? To what extent did employers, in anticipation of the 2016 Final Rule’s effective date, increase or decrease employee salaries or make other changes to address the new threshold? Would a test for exemption that relies solely on the duties performed by the employee without regard to the amount of salary be preferable and if so, what elements would be necessary in a duties-only test? Does the salary level set in the 2016 Final Rule exclude from exemption particular occupations that have traditionally been covered by the exemption? Should the salary level and the highly compensated employee total annual compensation level be automatically updated on a periodic basis?

FLSA Exempt status salary level Will likely be some time before the Trump DOL’s rule making process. Indications are that DOL will propose lower salary level, and new Labor Secretary Acosta has suggested in the past that $33,000 annually may be reasonable. In the meantime, existing $23,660 minimum salary remains in effect. What should employers do? New salary level never implemented Stay the course and follow existing rules Implemented new salary levels and/or employees moved to nonexempt status Roll back increases and/or reclassify employees as exempt Law today: $23,660 2 options if implemented changes: rollback or continue

The salary basis For now, the standard remains $455/week ($23,660/year), and what you should do depends on: What you’ve already done in preparation for the new standards What you can afford to do What your employees want

Agenda Update on Exempt status salary levels DOL Initiatives DOL opinion letters

DOL Initiatives

DOL formally withdrew both Interpretation Letters effective 6/7/17 Dol guidance 2015 DOL Administrator Interpretation Letter on independent contractors Created a very narrow interpretation of independent contractors (“most” workers will be considered “employees”) Focused on economic dependence of the worker Minimized control factor 2016 DOL Administrator Interpretation Letter expanded definition of who could be considered a “joint employer” under FLSA Effect: it became easier for one employer to be responsible for failures of other joint employer DOL formally withdrew both Interpretation Letters effective 6/7/17 No change in law, but sends signal that DOL will be taking a more business-friendly approach in interpreting the law

DOL initiatives June 7, 2017 - DOL’s announced it rescinded guidance on independent contractors The guidance essentially stated that the DOL considered most workers to be employees under the FLSA. DOL was applying a broad definition of “employee” and “employer” when investigating a company’s practices. The rescission will be helpful for some businesses and business groups.

DOL Initiatives Misclassification of Employees as Independent Contractors According to the DOL, the “misclassification of employees as independent contractors presents one of the most serious problems facing affected workers, employers and the entire economy.” It is the DOL’s position that misclassified employees often are denied access to critical benefits and protections they are entitled to by law, such as the minimum wage, overtime compensation, family and medical leave, unemployment insurance, and safe workplaces. The DOL states that employee misclassification generates substantial losses to the federal government and state governments in the form of lower tax revenues, as well as to state unemployment insurance and workers’ compensation funds. However, memorandum of understanding with Minnesota expires on October 24, 2017.

Dol Initiatives Focus of enforcement for DOL in recent years 2015 DOL Administrator Interpretation Letter Narrow interpretation of IC Focused on economic dependence of the worker Minimized control factor Withdrawal of letter as of 6/7/17 No change in law Signals more business-friendly approach in interpretation though But left without guidance presently

Dol initiatives Withdrawal of letter as of June 7, 2017 DOL Administrator Interpretation Letter January 20, 2016 Horizontal v. vertical joint employment Effect: more employers considered joint employers, creating additional exposure for failures of other joint employer Withdrawal of letter as of June 7, 2017 No change in law Signals more business-friendly approach in interpretation though But left without guidance presently

Dol initiatives New rule making process from Trump DOL More guidance from DOL/Acosta New regulations Revising regulations DOL still has authority on the interpretation of the duties test Expect changes to the regulations and opinion of what types of duties will qualify under the duties test

Agenda Update on Exempt status salary levels DOL Initiatives DOL opinion letters

Dol guidance Formally, such as by creating and implementing regulations Informally, such as through interpretive guidance, opinion letters, field manuals, etc. DOL gives guidance to employers through a variety of mechanisms Opinion letters issued for decades, but discontinued by Obama DOL in 2010, and replaced by Administrator Interpretations Trump DOL has reinstituted opinion letters, and unofficially discontinued Administrator Interpretations

Dol guidance What does a return to opinion letters mean for you? Probably not much, but There is likely to be more guidance coming out, which can bring greater certainty to various employer practices Business-friendly groups are likely to request opinion letters on specific subjects, and may be more likely to get the answers they want

lessons Lessons Watch for new rule making and updates on exempt status salary levels from DOL DOL initiatives will be more business-friendly DOL opinion letters will clarify and complicate the wage and hour arena

Questions / ABRC resources Upcoming webinars (FREE SHRM and HRCI credit): Intro to benefits administration part I: Implementing new hire benefits and key benefit concepts (Oct.18) 2 CEU Intro to benefits administration part II: Administering employee changes, payroll and tax considerations and more (Oct. 25) 2 CEU Wage and hour: Beyond the basics of calculating overtime (Oct. 26) 1.5 CEU Recent developments in HR and benefits law (Oct. 27) 1 CEU How to explain the Medicare puzzle to your employees aged 65+ and still working (Nov. 2) 1.5 CEU Benefits during leave (Nov. 29) 2 CEU Risk management compliance audits Employee benefit consulting and tools HR Hotline for clients of ABRC (guidance, templates documents, FLSA flowcharts) Onsite training for managers and employees Employee handbooks Safety consulting Heather Kaiser, J.D., HR Consultant Heather.Kaiser@AssociatedBRC.com