Tag: U.S. Department of Labor

August 31, 2023

DOL Proposes Increased FLSA Exemption Threshold

On August 30, 2023, the Wage and Hour Division of the U.S. Department of Labor announced its intention to propose significant increases in the compensation required for several common minimum wage and overtime exemptions. If adopted following public review and comment, the FLSA exemption threshold for the administrative, executive, and professional exemptions would increase by more than 50% over the current salary requirement. The proposal also seeks an automatic adjustment every three years. In addition, the pay required to qualify for the FLSA’s “highly compensated employee” exemption would also increase substantially.

FLSA Minimum Wage and Overtime Requirements

The Fair Labor Standards Act applies to most employers across the United States. It generally requires that employees receive a minimum wage of at least $7.25 per hour and then receive overtime at time-and-a-half the employee’s regular rate for hours worked beyond 40 in a week. However, there are various exceptions and exemptions from those requirements.

Note that many states and some localities have additional minimum wage and overtime requirements. Employers are often subject to and must comply with both the FLSA and the applicable state/local standards.

“White-Collar” Exemptions

The FLSA permits a series of so-called “white-collar” exemptions that employers commonly rely on in structuring compensation for certain, typically non-manual, workers. The most generally applicable of these are known as the administrative, executive, and professional exemptions.

Under the FLSA, each of these exemptions has a salary basis requirement. To qualify for the exemption, an employee must be paid a salary that usually doesn’t vary based on how much the employee works in a given week.

Currently, the minimum salary for these exemptions is $684 per week ($35,568 annualized).

Proposed FLSA Exemption Threshold

The U.S. DOL has the authority to issue regulations interpreting the FLSA, including its exemptions. The salary requirement has historically been implemented through such administrative rulemaking.

The DOL has now proposed to base the salary requirement on the 35th percentile of weekly earnings of full-time salaried workers in this lowest-wage U.S. Census Region. The South is traditionally and currently the lowest-wage region.

Based on this method, the new FLSA exemption threshold would be $1,059 per week ($55,068 annualized). However, the DOL’s proposal indicates in a footnote that the actual threshold upon adoption of a final rule could be higher. Since some time will pass before the rule is finalized, the 35th percentile earnings in the South may increase. The DOL notes that given its current projection for future quarterly earnings data, the new weekly salary threshold could be up to approximately $100 higher than $1,059 upon adoption.

The proposal would also impose automatic updates to the salary requirement. The DOL would change the amount every three years to maintain the 35th percentile standard.

Highly Compensated Employee Threshold

The administrative, executive, and professional exemptions are not based solely on compensation. Employees’ duties must also meet particular standards. However, the FLSA recognizes an alternative potential exemption for some employees who do not fully meet the duty requirements of the other white-collar exemptions.

Currently, the “highly compensated employee” exemption could apply to an employee who makes a salary of at least $684 per week and overall qualifying annual compensation of at least $107,432.

As proposed, the new DOL rule would tie the overall annual compensation requirement to the 85th percentile of full-time salaried workers nationally. Based on current earnings statistics, that would initially be $143,988. Like the standard exemption salary threshold, this bar would also be subject to automatic updates every three years.

Rulemaking Process

Once the DOL’s proposal is formally published in the federal register, the public will be afforded at least 60 days to submit comments. After the comment period ends, the DOL can move forward with a final rule change. The new rule could be exactly what is currently proposed or include some revisions.

Given the necessary rulemaking timeline, it is unlikely the FLSA exemption threshold would change before 2024.

Potential Litigation

The last time the DOL tried to include automatic indexing of the FLSA exemption threshold, it was challenged in the courts and ultimately never took effect. Similar lawsuits will presumably be filed in response to the DOL’s current attempt to increase the salary requirement. The outcome of those cases cannot be as reliably predicted.

Impact of Proposals

The practical impact of the potential increases will vary depending on an employer’s circumstances. Some states already have higher exemption thresholds than what the DOL seeks here. Some companies already pay most exempt employees beyond this level. Nonetheless, many would need to either re-classify employees as non-exempt or increase their salaries, potentially significantly.

Even where the initial jump to $1,059 (or more) per week is not particularly problematic, the prospect of automatic indexing could be more so. This approach would almost certainly result in meaningful increases every three years. Notwithstanding other economic factors, some employers would raise salaries to meet the new higher thresholds, putting upward pressure on average weekly wages nationwide (and perhaps especially in the South, where fewer states currently impose thresholds beyond the FLSA level). As a result, it almost necessarily will become more expensive over time to maintain these exemptions.

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April 4, 2020

U.S. DOL Issues Temporary COVID-19 Leave Regulations

On April 1, 2020, the U.S. Department of Labor put out “temporary regulations” interpreting two federal employee leave laws that took effect on that date. Both laws are part of the Families First Coronavirus Recovery Act (FFCRA). The Emergency Paid Sick Leave Act grants many employees up to two weeks of paid leave related to COVID-19. The Emergency Family and Medical Leave Expansion Act allows FMLA leave, with partial pay, to care for a child whose school closed due to the coronavirus crisis. Despite the “temporary label,” it does not appear the DOL intends to issue “permanent” COVID-19 leave regulations. These rules are effective immediately and will remain in effect only until December 31, 2020, when these leave laws expire.

The hastily drafted emergency legislation has created unfortunate complexity in applying these new COVID-19 leave laws. Through its temporary regulations, the U.S. DOL repeatedly emphasizes the goal of interpreting the two separate leave laws “to ensure consistency”. To do this, the DOL has, in some cases, literally ignored the actual words Congress used in the laws themselves. It has also “relaxed” some existing FLSA regulations that might otherwise seem to guide the application of these new laws.

For the basic requirements of these laws, read Congress: Some Employers Must Give Paid COVID-19 Leave.

Covered Employers

The laws generally apply to private companies with under 500 employees working in the United States and all government entities.

How Many Employees Do We Have?

The temporary COVID-19 leave regulations provide some explanation of how to count employees to determine coverage.

Companies should look at their employee count as of the date any employee would begin paid sick leave or expanded FMLA leave under the FFCRA. Accordingly, coverage can change from day to day. For example, businesses that lay off employees for economic reasons during the coronavirus crisis could fall below 500 employees, and then remaining employees would become eligible to take these leaves. Indeed, the regulations explain that employees on furlough or temporary layoff do not count in determining coverage.

On the other hand, employees on “any kind of leave” do count toward the 500-employee threshold. Unfortunately, the regulations don’t further distinguish “leave” from “furlough”. Most likely, any employee being paid is on leave and counts. But what about employees receiving severance or other separation pay? Or employees on unpaid leave as a disability accommodation?

The DOL relies on existing regulatory guidance under the FLSA and FMLA to evaluate whether separate entities are “joint employers” or could constitute an “integrated employer.”

Small Business Exemption

Companies with fewer than 50 employees can elect an exemption from the FFCRA leave requirements by concluding that one or more of the following conditions applies:

the leave requested would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;
the absence of the employee requesting leave would entail a substantial risk to the financial health or operational capabilities of the business because of their specialized skills, knowledge of the business, or responsibilities; or
there are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee requested leave, and these labor or services are needed for the small business to operate at a minimal capacity.

Employers who adopt this exemption can only deny leave to otherwise eligible employees whose leave would specifically contribute to the corresponding condition above. The small employer must specifically document the denial of leave for each employee who requests it.

Exempt Employees

Otherwise-covered employers may choose not to provide leave under the FFCRA to health care providers or emergency responders. The COVID-19 leave regulations interpret these exemptions broadly, but the DOL encourages employers to allow such employees leave as “judiciously” as possible.

Health Care Providers

The DOL defines health care provider for this purpose as “anyone employed at”:

any doctor’s office,
hospital,
health care center,
clinic,
post-secondary institution offering health care instruction,
medical school,
local health department or agency,
nursing facility,
retirement facility,
nursing home,
home health care provider,
any facility that performs laboratory or medical testing, or
any similar institution, employer, or entity.

The exemption applies to any permanent or temporary site “where medical services are provided that are similar to such institutions.”

It also includes:

any individual employed by an entity that contracts with any of these institutions described above to provide services or to maintain the operation of the facility where that individual’s services;
anyone employed by an entity that provides medical services, produces medical products, or is otherwise involved in the making of COVID-19 related medical equipment, tests, drugs, vaccines, diagnostic vehicles, or treatments; and
any individual that the highest official of a State or territory, including D.C., determines is a health care provider necessary for that State or territory’s response to COVID-19.

Emergency Responders

The DOL intentionally interpreted “emergency responder” broadly “to complement–and not detract from–the work being done on the front lines to treat COVID-19 patients, prevent the spread of COVID-19, and simultaneously keep Americans safe and with access to essential services.”

Based on various existing regulatory definitions, “emergency responders” include employees who are “necessary for the provision of transport, care, healthcare, comfort and nutrition of such patients, or others needed for the response to COVID-19.”

The COVID-19 leave regulations specify that this includes (but is not necessarily limited to):

military or national guard,
law enforcement officers,
correctional institution personnel,
firefighters,
emergency medical services personnel,
physicians,
nurses,
public health personnel,
emergency medical technicians,
paramedics,
emergency management personnel,
911 operators,
child welfare workers and service providers,
public works personnel; and
persons with skills or training in operating specialized equipment or other skills needed to provide aid in a declared emergency.

It also includes:

individuals who work for such facilities employing these individuals and whose work is necessary to maintain the operation of the facility; and
any individual that the highest official of a State or territory, including D.C., determines is an emergency responder necessary for that State or territory’s response to COVID-19.

Additional Clarifications

If an employer chooses not to treat an employee as exempt, then the employee is subject to all the other leave parameters. That includes the employer’s ability to receive a corresponding tax credit.

The regulations emphasize that the law only gives individuals a right to two weeks of leave under the Emergency Paid Sick Leave Act. This is a per-employee entitlement, not a per-employer one. Thus, an employee who has used two weeks of paid sick leave for one employer can’t take it again for another job, such as with a subsequent employer. However, the regulations don’t explain how separate employers would effectively monitor that scenario.

School Closings

Both paid sick leave and expanded FMLA may be available to employees whose children are home due to school closing or child care unavailability. However, the DOL recognizes limits on this leave condition.

To qualify on this basis, the employee must actually care for the child(ren) while off of work. Moreover, the employee would not be eligible if another suitable individual is available to care for the child(ren).

The DOL interprets the FFCRA to allow such leave, where applicable, to care not only for children under 18 years old. Employees could also take the leave to care for children older than 18 who are incapable of self-care because of a mental disability. The adult child’s school or usual place of care would still have to be unavailable due to COVID-19.

Amount of Leave and Compensation

The DOL acknowledges ambiguity in the use of mixed references to days and weeks in these leave laws. Generally, its COVID-19 leave regulations interpret references to 10 days to mean two weeks. Congress apparently used 10 days on the simple assumption of full-time employees working 5 days per week. But the DOL recognizes that many other work schedules exist. Thus, specifically, the unpaid portion of expanded FMLA runs for two weeks rather than just 10 workdays.

The regulations also seek to simplify the calculation of the normal hours worked and “regular rate” for determining how much pay employees receive while on these leaves. Typically, employers should look to the past 6 months before leave to calculate these. However, for employees who have worked less than 6 months, the FFCRA states that employers should use the employee’s “reasonable expectation” at the time of hiring of the number of hours they would receive per week to determine the number of hours a part-time employee receives in leave. The DOL interprets this to mean either an express agreement between the employer and employee or, if none, the average number of hours the employee has worked per week since the beginning of employment.

Once the employer determines which weeks to use in calculating the employee’s regular rate of pay, they must take the weighted average of compensation for those weeks. You do this by dividing the total compensation for the time period by the total number of hours worked during the period.

Remember that no employee is eligible to receive more than $511 per day for sick leave due to the employee’s medical condition or more than $200 per day for other qualifying circumstances under the FFCRA.

Quarantine or Isolation Orders

The DOL takes a broad view of quarantine or isolation orders in determining who may take paid sick leave. The regulations interpret this to include “quarantine, isolation, containment, shelter-in-place, or stay-at-home orders issued by any Federal, State, or local government authority that cause the Employee to be unable to work even though his or her Employer has work that the Employee could perform but for the order.”

Generally, an employee under such an order could not take the leave if they are still able to work, either onsite or remotely. However, if a governmental authority has advised individuals in specific categories (e.g., certain age ranges or medical conditions) not to go into work, then an employee in such a category who cannot work from home would qualify for leave.

The DOL also clarifies that employees cannot take paid sick leave if the employer does not have work for the employee. Thus, if the quarantine or isolation order causes the employer to cease operations, even temporarily, the employee cannot take leave, but may instead be able to apply for unemployment benefits.

Teleworking

Employees who can telework are not entitled to paid sick leave or expanded FMLA leave under the FFCRA.

The regulations define “telework” to mean “work the Employer permits or allows an Employee to perform while the Employee is at home or at a location other than the Employee’s normal workplace.”

An employee is able to telework if:

their employer has work for them;
their employer permits the employee to work from the employee’s location; AND
there are no extenuating circumstances (such as serious COVID-10 symptoms) that prevent the employee from performing the available work.

The DOL notes that existing FLSA regulations include “continuous workday” guidelines with respect to paying minimum wage and overtime. Typically, the DOL would consider all time between the performance of the first and last principal activities in a day to be time worked. However, the agency expressly relaxes that requirement for employees working sporadic at-home schedules for COVID-19 related reasons.

Intermittent Leave

The temporary COVID-19 leave regulations declare that intermittent leave is only available under FFCRA if both the employee and employer agree to it. They must also agree to the time increments for any intermittent leave.

Moreover, unless the employee is teleworking, intermittent leave is only permissible when the employee is using it to care for a child whose school is closed or care provider is unavailable. The DOL expresses concern that allowing intermittent leave for other circumstances under the paid sick leave law would pose too much of a risk of spreading COVID-19 to other employees.

Overall FMLA Leave

The regulations confirm that expanded FMLA leave due to children being home because of COVID-19 is still subject to the annual total of 12 weeks of FMLA leave for any purpose (except military servicemember caregiver leave, which may allow additional unpaid leave). Thus, an employee who has already used any FMLA leave within the applicable 12-month period set by the employer will not get a full 12 weeks of COVID-19 FMLA leave. Conversely, an employee who uses COVID-19 FMLA leave will have less leave, if any, available for the traditional FMLA circumstances.

The regulations also indicate that an employee may only take a maximum of 12 weeks of FMLA leave because of their child’s school closing or child care being unavailable. This clarification could be important, as an employer’s standard 12-month FMLA leave period could start over during 2020. Then, an employee might be able to take additional FMLA for other qualifying reasons, but no more than 12 weeks of the new leave under the FFCRA between April 1 and December 31, 2020.

Notices

Employee Rights Poster

The FFCRA requires employers to post an employee rights notice in conspicuous places in the workplace. The regulations allow that employers can meet this requirement by posting the notice electronically on an employee information website or by emailing it to them. However, the regulations do not specify that employers must do so even where employees can’t currently access the worksite.

The regulations specify that even a small company that finds it is exempt from providing leave must satisfy this posting requirement.

FMLA Forms

The DOL is not requiring employers to satisfy the regular FMLA notification requirements regarding the expanded FMLA leave under FFCRA. Employers accustomed to providing the FMLA paperwork, including notices of eligibility, rights and responsibilities, and written designations, may continue to do so for this new form of leave. But they do not have to (unless an employee may also qualify for another type of FMLA leave).

Employee Notice of Need for Leave

Employees do not have to notify their employer before beginning leave under the FFCRA. Employers can require employees to follow reasonable notice procedures as soon as practicable after the first workday for which an employee needs paid sick leave. They can also require employees to comply with usual notice procedures and requirements. However, the regulations add that if the employee fails to give proper notice, the employer should notify the employee of failure and give them a chance to provide the appropriate documentation before denying the leave.

Documentation Supporting Leave Requests

Because employers will need documentation to support the FFCRA tax credits, employees must provide a signed statement containing the following information:

employee’s name;
date(s) for which leave is requested;
the COVID-19 qualifying reason for leave; and
a statement representing that the employee is unable to work or telework because of the COVID-19 qualifying reason.

The employee must also provide additional documentation corresponding to the nature of the qualifying reason. As applicable, this documentation could include the identity of the government entity or healthcare provider ordering a quarantine or the name of the child and their school that is closed. In the latter situation, the employee also must provide a statement that no other suitable person is available to care for the child during the requested leave.

Leave Before April 1, 2020

Employers cannot deduct time employees took off before April 1, 2020, from these new federal leave requirements. Nor can employees be required to use other employer-provided leave simultaneously with these leaves.

The DOL recognizes that some employers proactively put new leave policies in place before April 1, 2020, to help employees through this coronavirus emergency. The COVID-19 leave regulations permit these employers now to cancel such policies prospectively in light of the new federal requirements.

Leave After December 31, 2020

The temporary COVID-19 leave regulations confirm that no employee has a right to leave under the FFCRA after December 31, 2020. An ongoing leave that began before then will automatically end on that date.

Administration Costs

DOL estimates covered employers will spend over $550,000,000 familiarizing themselves with and preparing to apply these leaves to employees. Based on the assumptions the Department of Labor used in their calculations, the actual costs will probably be much higher. And this doesn’t even factor in the additional time and expense of processing leave requests from employees or lost productivity due to their absences.

Navigating the COVID-19 Leave Regulations

Many small businesses that are not already subject to the FMLA may find it particularly difficult to apply these new requirements. The law and regulations are complex and not necessarily intuitive. Even determining whether your company must comply could be a challenge.

Some questions and issues will seem to be straightforward, but may involve an unexpected wrinkle. And, unfortunately, there are significant built-in penalties for making mistakes in either direction–either granting leave too generously or denying it improperly. On the one hand, violating employees’ new rights could result in litigation or administrative fines. On the other hand, paid leave not covered by the law won’t earn a tax credit. Or, if one is taken, it may constitute a violation of tax laws.

Thus, it is critical to thoroughly understand the law and regulations, including corresponding tax provisions. Most employers should work with experienced employment lawyers and tax professionals to determine what they must do to apply these federal leave laws correctly and avoid costly penalties.

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January 17, 2020

U.S. DOL Revises FLSA Joint Employer Standard

On January 13, 2020, the U.S. Department of Labor issued a new rule revising its test for evaluating joint employer status under the Fair Labor Standards Act. Among other situations, joint employer analysis is often critical to work arrangements involving staffing agencies and other outsourcing companies. The FLSA joint employer rule change takes effect on March 16, 2020.

Previous Joint Employer Test

In 2016, the U.S. Department of Labor under the Obama administration issued interpretative guidance that promoted greater scrutiny of joint business relationships. That guidance essentially created a standard whereby employers jointly employ workers whose work for one company “is not completely disassociated” from their work for the other company. This action prompted many businesses to change their traditional business practices for fear of incurring additional and unwanted liability for another party’s employees.

Despite this change in “guidance,” the DOL had not formally changed its joint employer rule since 1958.

Joint Employer Scenarios

The 2020 joint employer rule identifies two possible scenarios where joint employment could exist:

Where the employee has an employer who employs the employee to work, but another person/entity simultaneously benefits from that work.
Where one employer employs a worker for one set of hours in a workweek, and another employer the same worker for a separate set of hours in the same workweek.

The most significant revisions to the DOL’s standard relate to the first of these situations. The most common example arises when one company places its workers at the jobsite of another independent business to perform services. This could be a temporary placement by a staffing agency or a consulting firm, among other arrangements.

New Joint Employer Test

The primary thrust of the rule change lies in a new four-factor balancing test for evaluating joint employer status in the first type of scenario identified above.

The four factors ask whether the potential joint employer:

Hires or fires the employee?
Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree?
Determine the employee’s rate and method of payment?
Maintains the employee’s employment records?

While emphasizing these four factors, the new rule allows that:

“Additional factors may be relevant for determining joint employer status in this scenario, but only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.”

Irrelevant Factors

The rule also specifically disregards the question of whether the employee is “economically dependent” on the potential joint employer. That subject is now expressly irrelevant to liability under the FLSA.

The DOL identifies the following as factors that assess economic dependence and hence cannot be considered:

Whether the employee is in a specialty job or a job that otherwise requires special skill, initiative, judgment, or foresight;
Whether the employee has the opportunity for profit or loss based on his or her managerial skill;
Whether the employee invests in equipment or materials required for work or the employment of helpers; and
The number of contractual relationships, other than with the employer, that the potential joint employer has entered into to receive similar services.

The full text, with DOL commentary, of the new FLSA joint emlpoyer rule is available here.

Impact of Joint Employer Status

When two companies qualify as joint employers under the FLSA, they both share responsibilities under the law for workers’ wages. These obligations include the requirement to pay proper minimum wage and overtime.

How Will the New FLSA Joint Employer Test Affect Businesses?

In today’s economy, companies commonly outsource certain facets of their business. This trend has increased the number of outsourcing companies in the market that are willing to take on various services. Companies outsource a range of functions, such as information technology, payroll, or even marketing.

Parties who are outsourcing might want to re-evaluate whether they have joint employer status under the new DOL rule. However, the new standards only govern joint employer determinations under the FLSA. Companies must also consider joint employer status under other state and federal laws, including the Occupational Safety and Health Act, the National Labor Relations Act, and Title VII of the Civil Rights Act of 1964. While many federal agencies are moving toward less restrictive joint employer standards, the opposite is true in some states. Many states have their own minimum wage and overtime laws, for example, and some might trigger joint employer liability even where the FLSA, under the new rule, would not.

As a further caution, and beyond possible legal challenges to the validity of the DOL’s new interpretation of FLSA joint employer status, the 2020 rule’s longevity likely depends on the outcome of the next Presidential election. If a Democrat wins the White House, there is a strong possibility that this rule would be among a substantial package of workplace regulations that the next administration would revise once again.

For the above reasons, your company should not overreact to this single development. If potential joint employer liability is material to your operations, the new FLSA rule warrants further evaluation. But again, it would likely not be the only legal parameter affecting your approach to outsourcing and similar business strategies.

Best Practices Regarding Outsourced Staffing Arrangements

Though specific situations might justify alternative allocations of responsibility, here are some standard rules of thumb as a starting point for setting up or maintaining staffing transactions.

Whenever possible, the employer of record should be making all decisions with respect to conditions of employment, pay and method of payment, schedule, disciplinary actions, employee onboarding, and the maintenance of a personnel file. To the extent practical, that entity should also have direction and control over the work being performed. Almost every joint employer test used by government agencies focuses on those components. To reduce potential liability, companies should work together to modify any factors in the business relationship that raise red flags.

Businesses that are linked and jointly (or arguably jointly) employ workers should use this development as an impetus to review current contracts between the parties to make sure their respective responsibilities are in proper alignment. This review should include ensuring that liability and indemnity for claims have been addressed properly and fairly. Doing so can reduce exposure for both companies. You may want to engage the assistance of an attorney with co-employment experience to review the terms of your current contracts or assist with drafting an agreement to be used moving forward.

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