Per-Project Payments – Salary or Fee Basis Pay? 2020-01-16T11:26:43-07:00

Posted on January 16, 2020

Certain exemptions from employee rights to overtime premium pay require the employee to be paid on a salary basis or on a fee basis. On January 7, 2020, the U.S. Department of Labor (“DOL”) issued opinion letter FLSA2020-2 discussing a specific pay arrangement – where the total compensation is set by the scope of an assigned project, but the amount paid each week is a set amount. According to the DOL, these payments indicate a salaried employee (and exempt from overtime), so long as the payments do not change too often. The letter responds to the specific inquiry posed to the DOL, but the opinion informs payments generally for project-basis workers.

The DOL inquiry addresses an educational consultant hired to perform a specific project. The consultant was to receive a predetermined amount in 20 equal biweekly installments paid throughout the district’s academic year. The DOL found this qualifies as a salaried employee, assuming the educational consultant meets the duties tests of the administrative or professional exemptions and the weekly pay exceeds the salary threshold for those exemptions. The DOL’s opinion focuses on the pre-determined nature of the consultant’s weekly compensation. The weekly pay is the same regardless of actual hours spent and the quality of work performed during the week—the definition of a salary basis pay.

The DOL then considered whether additional compensation changes an employee’s pay status. For example, what if the same employee works, not only the agreed 40 weeks to develop the literacy curriculum, but also on a side project conducting teacher workshops over an eight week period? Because compensation in addition to the salary can be paid on any basis, such as a flat sum, bonus, or hourly amount, without undermining the salary basis test, the employee is still salaried if the employee receives an additional pre-determined amount for the side project in addition to their pay for the 40 week project.

The opinion letter specifically notes that an employee’s exempt status may be undermined, however, “if there are such frequent revisions to the contract that the amount of the employee’s biweekly compensation for a certain project is rarely the same from pay period to pay period and the circumstances suggest the amount of the payment is, in fact, actually based on the quantity or quality of work performed.”

Joint Employer Status Muddied Further 2020-01-15T12:20:53-07:00

Posted on January 15, 2020

By Carissa Davis

On January 12, 2020, the Department of Labor, Wage and Hour Division (“DOL”) announced its revisions to the federal regulation interpreting joint employer status under the Fair Labor Standards Act (“FLSA” or “Act’). The new rule is set to take effect on March 16, 2020.

For decades, federal regulations have recognized two situations in which an employee may have two or more employers. In the first scenario, the employee works two jobs, each for different employers (i.e. a day job and a night job). Here, the employers are not associated with one another and may ignore the employee’s work performed in the other job.

In the second scenario, the employee has one job and two or more employers. In these cases, employment by one employer is “not completely disassociated” from the employment by the other employer. With this newly promulgated rule, the DOL tries to clarify when an employee has two or more employers for the same job.

The DOL adopted a four-factor test fashioned after Bonnette v. California, 704 F.2d 1465 (9^th Cir. 1983). The test considers whether a potential joint employer may:

Hire or fire the employee;
Supervise and control to a substantial degree, the employee’s work schedule or employment conditions;
Determine the employee’s rate and method of payment; and
Maintain the employee’s records.

No single factor is dispositive, and the weight given each factor will vary depending on the circumstances. However, the maintenance of employee records alone will not sufficiently demonstrate employer status. Additionally an employer’s reservation of the right to control the worker’s schedule or conditions alone, will not establish employer status; the employer must actually exert control over the worker. Additional factors may be considered if they indicate whether the employer exercises control over the terms and conditions of the employee’s work.

To round things out, the DOL has specified several factors that are NOT relevant to joint employer status under the FLSA, including:

Whether the organization operates under a certain business model, such as a franchise;
Whether the organization adheres to certain business practices, such as allowing the operation of a store on one’s premises;
Provision of handbooks or other forms;
Offering association health or retirement plans;
Whether the organization entered into contractual agreements, such as requiring a party to institute sexual harassment policies, or requiring quality control standards; and
Whether the employee is economically dependent upon the potential joint employer.

The Final Rule is long. There are many changes and clarifications not detailed above. Moreover, the DOL is clear that this is the rule for the FLSA. A different rule might apply for the National Labor Relations Act or for liability under various federal employment statutes. The situation is as clear as mud.

No New News on Nondiscretionary Bonuses 2020-01-13T16:52:21-07:00

Posted on January 13, 2020

By Beth Ann Lennon

On January 7, 2020, the U.S. Department of Labor (“DOL”) issued a new Opinion Letter on “nondiscretionary” bonuses. When a bonus is offered to employees “to induce them to remain” with the company, the DOL considers the bonus to be “nondiscretionary.” Nondiscretionary bonuses “must be included in the regular rate of pay” for non-exempt employees. Determining how to allocate such bonuses can get a bit more complicated… When employers require that the employee stick around for some set amount of time to get the bonus and the bonus program does not clearly articulate how much of the bonus was earned in which week, the employer may “assume” each week within that period of time “counts equally in fulfilling the criteria for receiving the lump sum bonus.” In short, the employer allocates the bonus equally to each week in the time period covered by the bonus. Then, the employer must calculate overtime – taking into account this added compensation – separately for each workweek in which the employee worked more than 40 hours.

At the end of the day, this new Opinion Letter is not “new” news – it’s just a reminder that employers must carefully analyze what period of time a bonus is intended to cover and fairly and equally allocate the bonus across that period. DO NOT attempt to game the system and allocate a bonus in a manner inconsistent with this directive or you could find yourself in trouble. Another reminder – not covered in the Opinion Letter but still worth noting – don’t forget that state laws, including Colorado’s, often establish overtime requirements in addition to those set by the federal law. Make sure you are doing all of your overtime calculations in accordance with all applicable laws.

DOL Increases Salary Threshold for White Collar Exemptions 2019-09-25T10:24:38-06:00

Posted on September 25, 2019

The U.S. Department of Labor has adopted a new final rule increasing white collar exemption salary rates, which will take effect on January 1, 2020. Click here to read our client advisory about the new rule.

Freeze! Put your hands up and go review your attendance policy ASAP… 2019-08-13T15:34:10-06:00

Posted on August 13, 2019

By Beth Ann Lennon

The Sixth Circuit reminds all employers to carefully review even “no fault” attendance policies for FMLA compliance. Dyer v. Ventra Sandusky, LLC. The employer used a collectively bargained, no-fault, attendance policy that required termination when an employee received eleven or more “points” due to absences. Employees received points whenever they missed all or part of a scheduled shift. Employees who had “perfect” attendance for thirty days, on the other hand, had a point subtracted from their total. Although FMLA-protected absences were expressly excluded from the point-accumulation system, taking such leave reset the “perfect attendance” clock. According to the Sixth Circuit, and the Department of Labor (DOL), this policy may give rise to an FMLA “interference” claim.

Do you have a policy problem? The dispositive question when reviewing your own policy is whether the “practical result” of your company’s policy is that “taking FMLA-protected leave . . . [becomes] a negative factor in employment actions.” For many employers, this will not be news. As the Sixth Circuit was quick to point out, the DOL has repeatedly explained that “point reduction [under an attendance policy] can be viewed as an employment benefit.” Thus, if an employer chooses to provide their employees this benefit, FMLA-protected absences cannot “reset” the “perfect attendance” clock. According to the DOL (and, now, the Sixth Circuit), employers must draft their attendance policies so that FMLA leave “freeze[s] the accrual of attendance.”

DOL Proposes Revamp of the “Regular Rate” 2019-04-01T10:41:18-06:00

Posted on April 1, 2019

By James Korte

The DOL continues to issue proposed rules to “modernize” the FLSA. The latest proposal, if finalized, would clarify and update the requirements for how employers calculate the “regular rate” of pay. The “regular rate” is the hourly rated used to calculate the overtime premium pay for non-exempt employees. The proposal:

provides more specific examples of exclusions from the “regular rate,” including exclusions for health and wellness programs, tuition benefit programs, and employee discounts on goods and services, among others; and
clarifies rules regarding “show up,” “call-back” pay, and paid meal breaks during which no work is performed.

Finally, the proposal increases the safe harbor for small nondiscretionary bonuses. Ordinarily, a nondiscretionary bonus has to be factored into the hourly rate for all the weeks during which it was earned. With the proposed rule, employers may skip this calculation if the additional overtime pay for the week would be less than 40% of the federal minimum wage.

The full proposal can be found here. The proposal is a win-win for both employers and employees, updating examples for employers with modern wage plans. The proposed rulemaking is not final and the DOL is taking public comments on the proposed regulation changes. For anyone would like to respond to the DOL’s proposals, comments will be accepted electronically or by mail. The instructions can be found at http://www.regulations.gov/

Don’t Mess With the IRS… and Don’t Misclassify Your Employees 2019-03-27T08:53:50-06:00

Posted on March 27, 2019

By Beth Ann Lennon

For those of you who were able to join us for Sherman & Howard’s Construction Law seminar earlier this month, you may remember our warnings about making sure your company is properly classifying and paying its employees. In case you need a reminder on how serious these issues can become, be sure to consider the 30 month prison sentence one employer from North Carolina just received for failure to report and pay employment taxes, along with a hefty $1.7 million restitution bill. https://www.justice.gov/opa/pr/north-carolina-mental-health-executive-sentenced-prison-failure-pay-employment-taxes. While this may be an extreme example, it is very real and very terrifying.

Remember – when you have one agency knocking at your door, you are likely to hear from more. In fact, here in Colorado the US Department of Labor (“DOL”), the Colorado Department of Labor and Employment (“CDLE”), and the Internal Revenue Service (“IRS”) have been sharing information concerning potentially misclassified employees since 2011. https://www.dol.gov/whd/workers/Misclassification/co.htm; https://www.dol.gov/whd/workers/MOU/irs.pdf. While it is unlikely that a company, or its executives, that unintentionally misclassifies an employee will end up facing jail time, the financial repercussions can still be staggering, with agencies reporting huge recoveries due to misclassification on a regular basis. See, e.g., https://www.dol.gov/newsroom/releases/whd/whd20160817-0 ($365,000 paid – “the Wage and Hour division considers misclassification a top enforcement priority and is working alongside our state, local and federal partners to achieve greater compliance with the law”); https://www.dol.gov/newsroom/releases/whd/whd20110309 (over $700,000 paid – “misclassification of employees as exempt from the FLSA has become a common problem and one the Labor Department is determined to bring to light”); https://www.osha.gov/news/newsreleases/region1/02222016-0 (OSHA fines of over $20,000 upheld against company who attempted to “evade their responsibility by claiming that workers on a job site are independent contractors when the facts show otherwise”).

Don’t be the next news story – avoid the risky business of misclassifying your employees. Conduct an individualized assessment with the assistance of legal counsel, if necessary, to determine whether the classification you are considering using is permissible under the applicable laws before the agencies come knocking.

DOL says: Don’t Be Too Generous With Your Employees 2019-03-18T11:43:13-06:00

Posted on March 18, 2019

By Beth Ann Lennon

Thursday the Department of Labor (”DOL”) issued three new opinion letters, two of which warrant a quick note. One provided guidance regarding the Family Medical Leave Act (“FMLA”), and the other addressed the Fair Labor Standards Act (“FLSA”). Both had the same ultimate takeaway – employer generosity easily backfires.

Providing more than unpaid FMLA Leave – According to the DOL, employers who want to provide employees more leave than the FMLA requires violate the FMLA if they delay designating leave as FMLA-qualifying to allow employees to exhaust other available paid leave. “[A]n employer may not delay the designation of FMLA-qualifying leave or designate more than 12 weeks of leave . . . as FMLA leave,” even if doing so benefits the employee. Employers have five days from when they have “enough information” to determine whether an employee’s leave is for a “FMLA-qualifying reason” to designate that leave as FMLA leave. The catch-22? The DOL also considers it a violation of the FMLA for an employer to not provide FMLA eligible employees “any employment benefit [provided for in a company policy] . . . that provides greater family or medical leave rights to employees than the rights established by the FMLA.” In other words, employers who provide more than 12 weeks of unpaid leave to employees need to make sure their leave policies are properly drafted and implemented, or their generosity could get them into hot water.

Encouraging Volunteer Work – The DOL also determined that employer generosity can be a violation of the law when employers provide bonuses for employees who engage in company sponsored volunteer work. According to the DOL, employers who encourage employee participation in volunteer activities may have to treat that volunteer time as “hours worked” under the FLSA unless they are very careful. Don’t want to pay overtime for your employees’ weekend housebuilding activities? Follow these (not so) simple rules…

Employers cannot “direct or control the employees’ activities” during these volunteer activities.
Employers cannot “guarantee a bonus for volunteering.”
Employers cannot require participation in the volunteer program or even “unduly pressure its employees to participate.”
And employees cannot suffer any “adverse effect” on “working conditions or employment prospects” because they do not participate.

Again, the takeaway is clear – if you encourage volunteer activities by your employees, this encouragement must be through a policy that is effectively drafted and administered to ensure compliance with the DOL’s new list of “do not”s.

OT Exemption Threshold Salary: Take 2 2019-03-08T09:55:15-07:00

Posted on March 8, 2019

By Bill Wright

The news is everywhere: the DOL has issued its new proposal for the salary threshold for executive, administrative, and professional exemptions. Don’t panic – the announcement concerns a Notice of Proposed Rulemaking. The DOL still has to take public comments and prepare a final set of regulations.

The proposal (this time) is to increase the salary threshold from the current $455 per week (annualized to $23,660) to $679 per week (annualized to $35,308). If the proposal makes it to the final form, executive, administrative and professional employees who make less than $35,308 annually will no longer be “exempt.” Employers would have to pay these lower-paid employees overtime premium pay for hours worked over 40 each week. The proposed rulemaking also includes an increase for the highly compensated employee exemption from $100,000 to $147,414. Instead of proposing that the thresholds would increase automatically, the DOL is now proposing scheduling period reviews of the thresholds. The full proposal appears at https://www.dol.gov/whd/overtime/overtime2019-nprm.pdf

For anyone who would like to respond to the DOL’s proposals, comments will be accepted electronically or by mail. Check out the instructions at http://www.regulations.gov/

Should Employers Keep Wage and Hour Records for Independent Contractors? 2018-10-04T10:23:12-06:00

Posted on October 4, 2018

By Bill Wright

The Department of Labor successfully stated a claim for record-keeping violations against a franchisor, because the franchisor failed to keep records on the hours worked by the specific individuals actually performing work under the franchise agreements. Using a franchise agreement, a janitorial company engaged corporations – and only corporations – to provide services to the company’s clients. The franchisees were typically one or two person operations, and the owners of the franchisees typically did the actual work themselves. The DOL sued the franchisor janitorial company, alleging that it failed to keep required records for those individuals who actually performed work for the company’s clients. At first, its use of franchise agreements protected the janitorial company; the case was dismissed by the trial court. But the Circuit Court reinstated the suit. The DOL’s allegations that the individuals performing the work were economically dependent on the janitorial company were enough to allege that those individuals were, by law, employees of the franchisor janitorial company, and therefore enough to allege the janitorial company was required to keep the FLSA records. Acosta v. Jani-King of Oklahoma, Inc., No. 17-6179 (10^th Cir. Oct. 3, 2018)

Beware! An employer’s corporate structure – including even arguably proper use of independent contractors – might not protect you from record-keeping requirements. This suit will continue and might result in increased record-keeping requirements for all employers who use independent contractors. To be safe, you should know who is doing the work and the hours they keep.

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