Presentation for Arts Services Initiative of Western New York Surviving the DOL Vice Grip: Practical Insight for Managing the Flood of New Employer Regulations

Tough Time To Be An Employer 2

The DOL Vice Grip: Topics to Cover USDOL Proposed Fair Labor Standards Act (FLSA) White-Collar Regulations Independent Contractor “Misclassification” Guidance NYSDOL Proposed “Wage Payment” Regulations Industry-specific Minimum Wage Increases 3

Why all the Change? A “dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain that if you work hard, you have a chance to get ahead”... is the defining challenge of our time.” 4 President Obama December 4, 2013

USDOL Proposed FLSA White-Collar Regulations 5

FLSA: The Basics FLSA has two fundamental requirements: 1.Minimum Wage; and 2.Overtime for Hours > 40/week 6

FLSA Overtime Exemptions Overtime need not be paid if the employee meets one of several statutory exemptions Most common are the “white-collar” exemptions: o Executive o Administrative o Professional 7

Qualifying For The White-Collar Exemptions Three Tests: 1.Salary Basis 2.Salary Level 3.Duties Test A “short-cut” test also applies to “highly compensated” executive, administrative or professional employees 8

Nonprofit FLSA Coverage Per USDOL, most employees of nonprofits are entitled to MW and OT protection under FLSA Two bases for employees to be covered: o Enterprise coverage o Individual coverage Municipal agencies, hospitals, residential care facilities, and preschools/schools/colleges are also generally subject to FLSA 9

Enterprise Coverage Generally, a covered “enterprise” is one with ≥ $500,000 in annual business or sales revenue Nonprofits are not covered unless they engage in “ordinary commercial activities” that meet $500,000 threshold Only employees engaged in commercial activities are covered by FLSA o Employers engaged in charitable activities are not covered on enterprise basis 10

Individual Coverage Employees may still be covered on “individual basis” if they engage in interstate commerce o Make out-of-state phone calls (e.g., fundraising) o Mail/conduct business by U.S. mail o Order/receive goods from out-of-state o Handle credit card activities o Perform bookkeeping for above activities Note: USDOL says that it will not assert individual coverage if covered work is for insubstantial amount of time 11

Proposed FLSA Regulations 3/13/14 – Obama directs USDOL to “modernize and streamline” white-collar exemptions 7/6/15 – USDOL publishes proposed rule 9/4/15 – Public comment period closed (nearly 250,000 comments) ?/16 – Final rule to be published ?/16 – Final rule to take effect 12

Reasons for Changing the Exemption Regulations “Overtime is a pretty simple idea. If you have to work more, you should get paid more.” President Obama (March 13, 2014) USDOL shall “… simplify the regulations to make them easier for both workers and businesses to understand and apply.” President Obama (March 13, 2014) 13

Simplify? Really? 2004: USDOL last revised white-collar exemptions to make compliance easier o Duties test for administrative employees required that individuals exercise independent judgment and discretion over “matters of significance” o Resulted in substantial litigation over meaning of the phrase “matters of significance” 14

Since 2004: Explosion of FLSA Actions More FLSA actions filed in 2014 than any prior year Frequency of FLSA class and collective actions continues to trend upward Overwhelming number of FLSA claims concern whether employee(s) satisfy the duties test 15

USDOL’s Response … 16

Proposed Changes to Salary Level Current Salary Level: o $455 per week ($23,660 per year) o $100,00 per year (highly compensated) Note: NY’s current salary level is $656.25/week and is scheduled to increase to $675/week on 12/31/15 Proposed Salary Level: o $970 per week ($50,440 per year) o $122,148 per year (highly compensated) 17

Proposed Annual Indexing or Automatic Increases Current salary level is fixed USDOL proposes either: o Automatic annual updating based on 40 th percentile of weekly earnings for full-time salaried workers), or o Pegging to consumer price index Proposed regulations would require annual adjustments by employer to ensure exempt status of workers 18

Non-Discretionary Bonuses Currently, non-discretionary bonuses (e.g., production, attendance, referral, etc.) cannot be counted towards salary level USDOL’s proposal sought comments on whether to allow non-discretionary bonuses to satisfy a portion of the salary level test 19

So What About the Duties Test??? USDOL states that it views salary level test as the “initial bright line test” for the white-collar exemptions However, it also recognizes that salary level works “in tandem” with the duties test No change to duties test proposed … But… 20

Duties Test USDOL requested comments so it could assess whether changes to the duties test might be appropriate For instance: o Possible adoption of a “California-style” duties test o Possible modification of the “concurrent duties” standard for executive employees 21

Proactive Risk Management Step 1: Self Audit Review salary levels and duties o Examine job descriptions, evaluations, etc. Identify and evaluate part-time “exempt” employees Document reclassification decisions Consider benefits of attorney-client privilege 22

Proactive Risk Management Step 2: Roll-Out Changes Determine timing of re-classification decision Develop action plan and employee communications Educate supervisors Be prepared to answer questions and address complaints 23

Proactive Risk Management Step 3: Training & Compliance Recordkeeping o Requirements of exempt vs. non-exempt o WTPA Meal periods (NYLL) Restrictions on working outside of normal work hours Overtime restrictions 24

If keeping exempt: Must satisfy new salary level o Budget issues (revisit on annual basis) o Pay compression o Morale problems Must satisfy whatever duties test exists o Significant misclassification problems will be caused by a “California-style” test or change to the concurrent duties standard 25 Making The Classification Decision

If exempt  non-exempt: Must set the new pay rate (including overtime) Must enforce record-keeping policies Must take steps to avoid unauthorized overtime and “off-the-clock” work Must be prepared for morale problems 26 Making The Classification Decision

USDOL: New Independent Contractor “Misclassification” Guidance 27

FLSA & Independent Contractors 7/15/15 – USDOL recently issued new “Administrator’s Interpretation” addressing “problematic trend” of independent contactor “misclassification” Problems with misclassification: o Employees denied workplace protections (minimum wage/OT, UI, WC, non- discrimination, etc.) o Loss of tax revenue o Unfair competition 28

FLSA & Independent Contractors USDOL Position “Most workers are employees” under the FLSA Scope of “employment” under FLSA is very broad Must use multi-factor “economic realities” test to determine if worker is employee or IC: o No one factor determinative o Should not be “mechanically” applied o Liberally construed to provide expansive coverage of FLSA 29

USDOL “Economic Realities” Test 1.Is work an integral part of employer’s business? 2.Does worker’s opportunity for profit or loss depend on his or her managerial skill? 3.What is worker’s investment compared to employer’s? 4.Does work performed require special business skills, judgment, and initiative? 5.Is relationship permanent or indefinite? 6.How much control is exercised by putative employer over the worker? 30

USDOL “Economic Realities” Test Fundamental Question per the USDOL: Is the worker “economically dependent” on the business? Or is the worker “in business” for herself/himself? 31

Some “Actual Realities” About the USDOL’s Interpretation… USDOL: o predisposed to find employment relationship o has extreme discretion to weigh certain factors (and marginalize others) 32

Recommendations Consider “independence” of contingent workers ● separate business● performance for others ● advertisements● right to refuse work ● investment● own insurance (WC, UI, ● profitability/risk of loss liability, etc.) Importance of an “independent contractor” agreement 33

NYSDOL: New Proposed Wage Payment Regulations 34

Proposed Wage Payment Regulations: The Basics 11/27/15 – Comment period on proposed regulations closed Under proposed regulations, employer may pay wages to employees by: o Cash o Check o Direct Deposit o Payroll Debit Card majority of changes 35

Payment By Payroll Debit Card & Direct Deposit Proposed regulations establish very specific requirements for: o Employee consent o Employer notice obligations o Document retention o Other technical requirements (e.g., employee access to funds, fees, ATM locations) 36

NYSDOL: Industry-specific Minimum Wage Increases 37

Fast Food Industry 38 General minimum wage increase: o $9.00 (eff. 12/31/15) Fast food industry: o $9.75/$10.50 (eff. 12/31/15) o Scheduled to increase to $15 (by July 2021/January 2019) Governor Cuomo pushing for state-wide minimum wage of $15

Questions? 39

Presentation for Arts Services Initiative of Western New York Surviving the DOL Vice Grip: Practical Insight for Effectively Managing the Flood of New Employer Regulations