Tag: FLSA

Understanding the New FLSA Overtime Rule: Texas v. United States Department of Labor

This article is an update to “Understanding the New FLSA Overtime Rule: What Employers Need to Know.”

As you know, on April 23, 2024, the Department of Labor (DOL) issued a Final Rule modifying nationwide overtime rules under the Fair Labor Standards Act (FLSA). The Final Rule increased the salary thresholds in the salary level test for highly compensated and white-collar employees. Under the new Final Rule, salary thresholds for both highly compensated and white collar employees increased in two stages, with the first increase already occurring as of July 1, 2024, and the second increase set to occur on January 1, 2025.

On November 15, 2024, in State of Texas v. Dep’t of Labor, 24-cv-468-SDJ, the United States District Court for the Eastern District of Texas vacated the April 2024 Final Rule.

The district court’s ruling vacates the Final Rule in its entirety on a nationwide basis, including the portion of the rule that went into effect on July 1, 2024, as well as the further increase set for January 1, 2025. This effectively reverted the FLSA minimum threshold for white collar employees back to $35,568 and highly compensated employees back to $107,432.

In its decision, the district court recognized a two-month-old decision by the Fifth Circuit in Mayfield v. United States Department of Labor, 117 F.4th 611 (5th Cir. 2024), which upheld the 2019 increase. In Mayfield, the Fifth Circuit concluded that Congress had “explicitly delegated authority to define and delimit the terms of the [e]xemption.” However, while the Eastern District acknowledged Mayfield, it nevertheless concluded that, while the DOL has the power to impose some limitations on the scope of terms identified in the white collar exemption, it does not have the authority to “enact rules that replace or swallow the meaning those terms have.”

Significantly, the court also relied upon the recent U.S. Supreme Court decision in Loper Bright Enterprises v. Raimondo, stating that “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” 144 S.Ct. 2444, 2273 (2024). Loper Bright is the much-publicized case that overturned the Chevron doctrine, which required courts to defer to an agency’s interpretation of the law. As such, Texas may just be the tip of the iceberg when it comes to battles between courts and agencies.

The Texas court reasoned that while the DOL can use a minimum salary threshold, it cannot do so in a manner that disrupts the other factors considered for the above-described exemptions. Under the court’s interpretation, the April 2024 Final Rule disturbed the balance of other factors, effectively making “salary predominate over duties for millions of employees.”

While this decision may have national implications, it is unclear whether the DOL will appeal the decision. In the meantime, the April 2024 Final Rule sits in limbo. Now, the question on everyone’s mind is simple: “What do we do with employees whose salary we changed in order to comply with the July 1, 2024 increase?”

©2024 Strassburger McKenna Gutnick & Gefsky
For more on the FLSA Overtime Rule, visit the NLR Labor Employment section

Department of Labor’s New Overtime Rule Overturned by Federal Court in Texas

On November 15, 2024, in State of Texas v. Dep’t of Labor, the US District Court for the Eastern District of Texas overturned a Department of Labor rule that would have increased the number of employees subject to the Fair Labor Standards Act (FLSA). The rule established by the Department of Labor in April of 2024 increased the minimum salary at which executive, administrative, and professional (EAP) employees are exempt from minimum wage and overtime pay under the Fair Labor Standards Act (FLSA). In their opinion, the court held that the Department of Labor’s 2024 rule should be overturned because it was an unlawful exercise of agency power that went beyond the scope of the authority granted to them by Congress.

Impact of the Ruling

The ruling in State of Texas v. Dep’t of Labor impacts the entire nation because it prevents the Department of Labor’s 2024 rule from going into effect. As a result, the minimum salary threshold reverts back to $35,568 per year for executive, administrative, and professional employees to be exempt from overtime pay. The Department of Labor can still appeal this decision but with the impending change of administration, they are unlikely to do so.

Still, employers should keep in mind that despite this ruling, states are allowed to set a higher minimum salary for exemption than the ones set by federal law. In Massachusetts, an employee has a right to overtime pay if they work more than forty hours in one week and are not on the list of exempted workers. In Rhode Island, the minimum weekly salary for exempt executive employees is $200 per week. However, employers cannot use the exemption unless the employees are paid at least the standard minimum wage if their salaries are computed on an hourly basis.

Practical Takeaways

In light of the court’s ruling law, employers should:

  • Review the job descriptions and salaries of your employees to see if they are exempt from the federal standards set forth in the Fair Labor Standards Act.
  • Review your state laws regarding overtime pay.
©2024 CMBG3 Law, LLC. All rights reserved.
For more on the DOL, visit the NLR Labor Employment section

Understanding the New FLSA Overtime Rule: What Employers Need to Know

Changes to overtime rules under the Fair Labor Standards Act (FLSA) announced on April 23, 2023 affect most U.S. employers. The Final Rule substantially increases the number of employees eligible for overtime pay. It is critical that employers understand the rule and its implications for their business.

Current FLSA Overtime Regulations: The Basics

The FLSA requires employers to pay overtime pay of at least 1.5 times an employee’s standard pay rate for hours worked in excess of 40 hours per week. However, “white collar” and “highly compensated” employees are exempt from this overtime pay requirement if they meet a three-part test:

  • Salary Basis Test – an employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
  • Salary Level Test – the amount of salary paid must meet a minimum specified amount. (Spoiler Alert: The new rules change the salary level.)
  • Duties Test – the employee’s job duties must primarily involve executive, administrative, or professional duties.

THE WHITE COLLAR EXEMPTION

The white-collar exemption applies to employees who perform primarily executive, administrative, and professional tasks. Workers who perform these tasks are considered to have more autonomous, managerial, or specialized roles justifying exemption from overtime. Therefore, if an employee’s duties are executive, administrative, and professional, and they satisfy the salary basis and salary level tests in the FLSA, they are not entitled to overtime pay under the FLSA.

HIGHLY COMPENSATED EMPLOYEES

A highly compensated employee (HCE) is someone who earns a high annual compensation (according to salary thresholds in the FLSA) and whose role includes one or more executive, administrative, or professional duties. The FLSA exempts “highly compensated employees” from the overtime pay requirement.

Key Changes to the FLSA Overtime Rules

The new rule increases the salary thresholds in the salary level test for highly compensated and white collar employees. As a result of the changes, less employees will be considered exempt and employers will be liable for significantly more overtime pay. Notably, the types of duties eligible for exemption are not impacted.

The new salary thresholds are introduced in two phases with the first increase becoming effective on July 1, 2024, and the second occurring on January 1, 2025. Importantly, the new rule also includes a mechanism for automatically updating these salary thresholds every three years based on current wage data. This means employers will need to stay vigilant for future increases.

THE NEW SALARY THRESHOLDS

In general, the minimum annual salary to qualify for the white collar exemption is increasing from $35,568 to $58,656 and the total annual compensation requirement for the highly compensated employee exemption is increased from $107,432 to $151,164. Here’s a detailed breakdown of the higher salary thresholds and their effective dates:

New FLSA Overtime Rule - The New Salary Thresholds

Why This Rule Matters: Essential Steps for Employers

This rule will have a significant impact on Pennsylvania employers, potentially reclassifying millions of currently exempt employees as non-exempt and eligible for overtime pay. Employers who fail to comply risk costly back pay, penalties, and lawsuits.

There are practical steps that employers can consider to ensure compliance with the new FLSA rule:

  • Review Current Employee Salaries, Hours, and Duties: Audit current salaries, hours, and job duties. This review will help identify which employees’ status may be affected by the new salary thresholds for exempt status under the FLSA.
  • Reclassify Employees as Non-Exempt as Necessary: Based on the review, determine which employees will need to be reclassified from exempt to non-exempt, or awarded a salary increase, to comply with the new rules. This reclassification will make them eligible for overtime pay, altering how their work hours are managed and compensated. It is advisable to consider an employee’s perception of this reclassification when taking this step.
  • Time Recording Policies and Processes: For employees who are reclassified as non-exempt, implement or update timekeeping procedures to accurately track hours worked. This may also require training employees on time-keeping systems. Effective and accurate time recording is essential for managing overtime and ensuring compliance.
  • Update Overtime Policies: Revise company overtime policies to reflect changes in employee classifications. Include clear procedures for overtime approval to manage overtime work more effectively and ensure it aligns with budget constraints and business needs.
  • Bonuses, Incentive Pay, Commissions: Evaluate how non-salary forms of compensation will factor into the new salary thresholds for exempt status. The FLSA determines how this compensation should be treated in determining total annual compensation, which could influence exemption status.
  • Remember Contractual Obligations: The FLSA is a federal law which applies to all U.S. employers. However, any additional salary commitments in an employment contract still legally bind the employer. These should not be ignored.

Despite the quickly approaching compliance date, we also anticipate legal challenges to this rule, which could delay or change the rules. For now, though, employers should proceed on that basis that the updated regulations will take effect on July 1, 2024. Preparing for this deadline ensures that employers will not be caught off guard and can avoid any potential legal and financial repercussions.

©2024 Strassburger McKenna Gutnick & Gefsky
For more news on FLSA Regulations, visit the NLR Labor & Employment section.

New Department of Labor Rule Restores Multifactor Analysis for Classifying Workers as Employees or Independent Contractors

Effective March 11, 2024, a new administrative rule will modify how the Department of Labor (DOL or Department) classifies workers as either employees or independent contractors under the Fair Labor Standards Act (FLSA). The 2024 rule will rescind the 2021 rule currently in place, which focused the Department’s classification analysis on two “core factors,” and restores the multifactor analysis that previously had been in use by courts for decades.

Given the procedural uncertainty surrounding the 2021 rule, its impact on FLSA jurisprudence has been minimal-to-nonexistent. In this sense, the 2024 rule merely codifies an analysis that federal courts never really stopped using, in the first place. But it also sends an important signal to employers operating in the modern economy: even if workers have significant autonomy over their day-to-day work lives, they should be classified as employees if, as a matter of economic reality, they are dependent on their employer’s business for work.

Background on the FLSA and Pre-2021 Classification Analysis

Under the FLSA, employers generally must pay employees at least the federal minimum wage for all hours worked and at least one and one-half times the employee’s regular rate of pay for every hour worked over 40 in a single workweek. The FLSA does not, however, extend these and other workplace protections to workers who are classified as independent contractors. Employees who are misclassified as independent contractors therefore may incur substantial losses in unpaid overtime and other lost wages as a result of their status.

Prior to 2021, federal courts applied flexible, multifactor tests rooted in Supreme Court precedent to determine whether workers should be classified as employees, and thus covered by the FLSA, or independent contractors, and thus excluded from FLSA coverage. The “ultimate inquiry” was whether, as a matter of economic reality, the worker was economically dependent on the business entity for work (employee) or was in business for herself (independent contractor).

Though the specific factors varied somewhat by circuit, the tests generally took into consideration (1) workers’ opportunity for profit or loss; (2) the amount of investment in the business by the worker; (3) the permanency of the working relationship; (4) the business’s control over the worker; (5) whether the work constituted an “integral part” of the business; and (6) the skill and initiative required to do the worker’s job. Courts tended not to assign predetermined weight to any factor or factors and engaged in a “totality-of-the-circumstances” analysis.

Prior to 2021, DOL had issued only informal guidance on classifying workers as employees or independent contractors and other than some industry-specific guidance—for example, for sharecroppers and tenant farmers and certain workers in the forestry and logging industries—had not engaged in formal rulemaking on this topic. Rather, the Department allowed federal courts to develop and hone their own classification analyses on a case-by-case basis.

The 2021 Rule

On January 7, 2021, DOL promulgated a first-of-its-kind rule identifying a total of five factors, but prioritizing only two “core factors,” for federal courts to consider in conducting the classification analysis. DOL articulated the two “core factors” as (1) the nature and degree of the worker’s control over the work and (2) the worker’s opportunity for profit or loss based on initiative, investment, or both. It articulated the three remaining factors as (3) the amount of skill required for the work; (4) the degree of permanence of the working relationship between the individual and the business; and (5) whether the work is part of an “integrated unit of production.” If the two “core factors” weighed in favor of the same classification, it likely was the correct classification, and the Department deemed it “highly unlikely” the three non-core factors could outweigh the combined probative value of the other two.

By elevating the two “core factors” above the other factors traditionally considered by federal courts, the 2021 rule focused almost exclusively on workers’ control over when and on what projects they worked and their ability to earn more money based on how efficiently or for how long they worked. This approach ignored the reality that for many workers, their work is completely dependent on their employer’s business—and vice versa—even though they may have significant autonomy over their day-to-day work lives.

The Department’s articulation of some of the non-core factors also departed from longstanding court precedent and rendered them less, not more, compatible with the modern economy. For example, the 2021 rule considered only whether a worker’s job was part of an “integrated unit of production,” akin to a job on an assembly line, rather than its importance or centrality to the business, overall. This change risked misclassifying employees who performed work that was essential to but “segregable from” an employer’s process of production or provision of services, even though modern industry is much more sprawling than the traditional assembly line. The 2021 rule also combined the distinct “investment in the business” factor with consideration of a worker’s potential for profit and loss, which improperly shifted the focus of that factor from worker inputs to worker outcomes. This change likewise risked misclassifying employees who earned more profits because of greater “investment” in their employers’ businesses, even though the costs they bore might have been non-capital in nature, e.g., an existing personal vehicle, or imposed unilaterally by the employers.

Shortly after the change in administration that took place on January 20, 2021, the Department took steps to delay and ultimately withdraw the 2021 rule based on these and other concerns about its potential to misclassify employees as independent contractors. But legal challenges to the administrative process led a Texas district court to vacate the Department’s delay and withdrawal actions, ostensibly leaving the 2021 rule in effect. Though the Department appealed the district court’s order, the Fifth Circuit stayed the action pending promulgation of the new rule. In the interim, the uncertain legal status of the 2021 rule and impending new rule meant that few courts, if any, incorporated the “core factor” analysis into their jurisprudence.[1]

The 2024 Rule

After unsuccessful efforts to delay and withdraw the 2021 rule, the Department opted to rescind and replace it altogether with the new final rule it announced on January 10, 2024. The 2024 rule, effective March 11, 2024, identifies six equally-weighted factors for courts to consider in classifying workers as independent contractors or employees: (1) opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the potential employer; (3) degree of permanence of the work relationship; (4) nature and degree of control; (5) extent to which the work performed is an integral part of the potential employer’s business; and (6) skill and initiative. Each single factor should be considered “in view of the economic reality of the whole activity” and additional factors “may be relevant” to the analysis.

Notably, the 2024 rule reverts to the “integral to the business” formulation of that factor; treats “investment in the business” as a distinct factor; differentiates between capital and non-capital investments by workers; and takes into consideration whether a particular cost was incurred based on entrepreneurial initiative or was imposed unilaterally by the employer. In these ways, the 2024 rule is much more compatible with the growing and increasingly diffuse economy than was the 2021 rule.

Ongoing and prospective legal challenges to the 2024 rule, plus the looming possibility that the Supreme Court will overturn or modify Chevron v. Natural Resources Defense Council—the 1984 decision applying deference to a federal agency’s interpretation of the statutes it administers—mean the 2024 rule may have a limited impact on FLSA jurisprudence. But it nevertheless conveys the Department’s position that employers should err on the side of classifying workers as employees, not independent contractors, and therefore subject to FLSA protections.

Given this changing landscape, employers may struggle to classify workers who were considered independent contractors under the 2021 rule but will be considered employees under the 2024 rule. If your employer has misclassified you as an independent contractor instead of an employee, you may be entitled to benefits and protections under the FLSA or state equivalents, like time-and-a-half pay for overtime work, that you are not currently receiving. If you believe you have been misclassified, consider contacting an attorney to discuss your legal options.

[1] The Fifth Circuit remanded the Texas case to the district court in light of the 2024 rule on February 19, 2024. Coal. for Workforce Innovation v. Walsh, No. 22-40316 (5th Cir. Feb. 19, 2024).

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For more on Classifying Workers, visit the NLR Labor & Employment section.

New Year, (Potentially) New Rules?

SOMETIMES, THE ONLY CONSTANT IS CHANGE. THIS NEW YEAR IS NO DIFFERENT.

In 2023, we saw several developments in labor and employment law, including federal and state court decisions, regulations, and administrative agency guidance decided, enacted, or issued. This article will summarize five proposed rules and guidance issued by the Department of Labor (“DOL”), the National Labor Relations Board (“NLRB”), the United States Equal Employment Opportunity Commission (“EEOC”), and the Occupational Safety and Health Administration (“OSHA”), which will or may be enacted in 2024.

DOL’s Proposed Rule to Update the Minimum Salary Threshold for Overtime Exemptions

In 2023, the DOL announced a Notice of Proposed Rulemaking (“NPRM”) recommending significant changes to overtime and minimum wage exemptions. Key changes include:

  • Raising the minimum salary threshold: increasing the minimum weekly salary for exempt executive, administrative, and professional employees from $684 to $1,059, impacting millions of workers;
  • Higher Highly Compensated Employee (HCE) compensation threshold: increasing the total annual compensation requirement for the highly compensated employee exemption from $107,432 to $143,988; and
  • Automatic updates: automatically updating earning thresholds every three years.

These proposed changes aim to expand overtime protections for more employees and update salaries to reflect current earnings data. The public comment period closed in November 2023, so brace yourselves for a final rule in the near future. For more information: https://www.federalregister.gov/documents/2023/09/08/2023-19032/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and

DOL’s Proposed Rule on Independent Contractor Classification under the Fair Labor Standards Act

The long-awaited new independent contractor rule under the Fair Labor Standards Act (“FLSA”) may soon be on the horizon. The DOL proposed a new rule in 2022 on how to determine who is an employee or independent contractor under the FLSA. The new rule will replace the 2021 rule, which gives greater weight to two factors (nature and degree of control over work and opportunity for profit or loss), with a multifactor approach that does not elevate any one factor. The DOL intends this new rule to reduce the misclassification of employees as independent contractors and provide greater clarity to employers who engage (or wish to engage) with individuals who are in business for themselves.

The DOL is currently finalizing its independent contractor rule. It submitted a draft final rule to the Office of Management and Budget (OMB) for review in late 2023. While an exact date remains unknown, the final rule is likely to be announced in 2024. More information about the rule can be found here: https://www.federalregister.gov/documents/2022/10/13/2022-21454/employee-or-independent-contractor-classification-under-the-fair-labor-standards-act

NLRB’s Joint-Employer Standard

The NLRB has revamped its joint-employer standard under the National Labor Relations Act (“NLRA”). The NLRB replaced the 2020 standard for determining joint-employer status under the NLRA with a new rule that will likely lead to more joint-employer findings. Under the new standard, two or more entities may be considered joint employers of a group of employees if each entity: (1) has an employment relationship with the employees and (2) has the authority to control one or more of the employees’ essential terms and conditions of employment. The NLRB has defined “essential terms and conditions of employment” as:

  • Wages, benefits, and other compensation;
  • Hours of work and scheduling;
  • The assignment of duties to be performed;
  • The supervision of the performance of duties;
  • Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
  • The tenure of employment, including hiring and discharge; and
  • Working conditions related to the safety and health of employees.

The new rule further clarifies that joint-employer status can be based on indirect control or reserved control that has never been exercised. This is a major departure from the 2020 rule, which required that joint employers have “substantial direct and immediate control” over essential terms and conditions of employment.

The new standard will take effect on February 26, 2024, and will not apply to cases filed before the effective date. For more information on the final rule: https://www.federalregister.gov/documents/2023/10/27/2023-23573/standard-for-determining-joint-employer-status

EEOC’s Proposed Enforcement Guidance on Harassment

A fresh year brings fresh guidance! On October 2023, the EEOC published a notice of Proposed Enforcement Guidance on Harassment in the Workplace. The EEOC has not updated its enforcement guidance on workplace harassment since 1999. The updated proposed guidance explains the legal standards for harassment and employer liability applicable to claims of harassment. If finalized, the guidance will supersede several older documents:

  • Compliance ManualSection 615: Harassment (1987);
  • Policy Guidance on Current Issues of Sexual Harassment(1990);
  • Policy Guidance on Employer Liability under Title VII for Sexual Favoritism (1990);
  • Enforcement Guidance on Harris v. Forklift Sys., Inc. (1994); and
  • Enforcement Guidance on Vicarious Employer Liability for Unlawful Harassment by Supervisors(1999).

The EEOC accepted public comments through November 2023. After reviewing the public comments, the EEOC will decide whether to finalize the enforcement guidance. While not law itself, the enforcement guidance, if finalized, can be cited in court. For more information about the proposed guidance: https://www.eeoc.gov/proposed-enforcement-guidance-harassment-workplace

OSHA’s Proposed Rule to Amend Its Representatives of Employers and Employees Regulation

Be prepared to see changes in OSHA on-site inspections. Specifically, OSHA may reshape its Representatives of Employers and Employees regulation. In August 2023, OSHA published an NPRM titled “Worker Walkaround Representative Designation Process.” The NPRM proposes to allow employees to authorize an employee or a non-employee third party as their representative to accompany an OSHA Compliance Safety and Health Officer (“CSHO”) during a workplace inspection, provided the CSHO determines the third party is reasonably necessary to conduct the inspection. This change aims to increase employee participation during walkaround inspections. OSHA accepted public comments through November 2023. A final rule will likely be published in 2024.

For more information about the proposed rule to amend the Representatives of Employers and Employees regulation: https://www.federalregister.gov/documents/2023/08/30/2023-18695/worker-walkaround-representative-designation-process

Preparing for 2024

While 2023 proved to be a dynamic year for Labor and Employment law, 2024 could be either transformative or stagnant. Some of the proposed regulations mentioned above could turn into final rules, causing significant changes in employment law. On the other hand, given that 2024 is an election year, some of these proposed regulations could lose priority and wither on the vine. Either way, employers should stay informed of these ever-changing issues.

© 2023 Ward and Smith, P.A.. All Rights Reserved.
       
For more news on 2024 Labor and Employment Laws, visit the NLR Labor & Employment section.

Out with the Old? Not So Fast! A Quick Review of 2023 Highlights

2023 has brought many updates and changes to the legal landscape. Our blog posts have covered many of them, but you may not remember (or care to remember) them. Before moving on to 2024, let’s take a moment to review our top five blog posts from the year and the key takeaways from each.

VAX REQUIREMENT SACKED IN TN: MEDICARE PROVIDERS LOSE EXEMPTION FROM COVID-19 LAWS

Our most read blog of 2023 covered the federal COVID-19 vaccination requirement that applied to certain healthcare employers, which was lifted effective August 4, 2023. (Yes, in 2023 we were still talking about COVID-19). However, keep in mind that state laws may still apply. For example, Tennessee law generally prohibits employers from requiring employee vaccination, with an exception for entities subject to valid and enforceable Medicare or Medicaid requirements to the contrary (such as the federal vaccine requirement). However, now that the federal vaccine requirement is gone, there is no exception for these Medicare or Medicaid providers, and they are likely fully subject to Tennessee’s prohibition.

INTERPRETATION OF AN INTERPRETER REQUEST? 11TH CIRCUIT WEIGHS IN ON ACCOMMODATION OF DEAF EMPLOYEE

In this blog post, we covered a recent Eleventh Circuit case in which the court addressed ADA reasonable accommodation requests . The employee requested an accommodation, and the employer did not grant it—but the employee continued to work. Did the employee have a “failure to accommodate” claim? The Eleventh Circuit said yes, potentially. The court clarified that an employee still must suffer some harm—here, he needed to show that the failure to accommodate adversely impacted his hiring, firing, compensation, training, or other terms, conditions, and privileges of his employment. So, when you are considering an employee’s accommodation request, think about whether not granting it (or not providing any accommodation) could negatively impact the employee’s compensation, safety, training, or other aspects of the job. Always remember to engage in the interactive process with the employee to see if you can land on an agreeable accommodation.

POSTER ROLLERCOASTER: DOL CHANGES FLSA NOTICE REQUIRED AT WORKPLACES

If your business is subject to the FLSA (and almost everyone is), you probably know that you must provide an FLSA poster in your workplace. In this blog post, we reported that there is an updated FLSA “Employee Rights” poster that includes a “PUMP AT WORK” section, required under the Provide Urgent Material Protections (PUMP) for Nursing Mothers Act (more information on the PUMP Act here).

HOLIDAY ROAD! DOL WEIGHS IN ON TRACKING FMLA TIME AGAINST HOLIDAYS

In this now-timely blog post from June 2023, we discussed new guidance on tracking FMLA time during holidays. The DOL released Opinion Letter FMLA2023-2-A: Whether Holidays Count Against an Employee’s FMLA Leave Entitlement and Determination of the Amount of Leave. When employees take FMLA leave intermittently (e.g., an hour at a time, a reduced work schedule, etc.), their 12-week FMLA leave entitlement is reduced in proportion to the employee’s actual workweek. For example, if an employee who works 40 hours per week takes 8 hours of FMLA leave in a week, the employee has used one-fifth of a week of FMLA leave. However, if the same employee takes off 8 hours during a week that includes a holiday (and is therefore a 32-hour week), has the employee used one-fourth of a week of FMLA leave? Not surprisingly, the DOL said no. The one day off is still only one-fifth of a regular week. So, the employee has still only used one-fifth of a week of FMLA leave. Review the blog post for options to instead track leave by the hour, which could make things easier.

OT ON THE QT? BAMA’S TAX EXEMPTION FOR OVERTIME

Alabama interestingly passed a law, effective January 1, 2024, that exempts employees’ overtime pay from the 5% Alabama income tax. In this blog post, we discussed the new exemption. It is an effort to incentivize hourly employees to work overtime, especially in light of recent staffing shortages and shift coverage issues. The bill currently places no cap on how much overtime pay is eligible for the exemption, but it allows the Legislature to extend and/or revise the exemption during the Spring 2025 regular session. If you have employees in Alabama, be sure to contact your payroll department or vendor to ensure compliance with this exemption.

As always, consult your legal counsel with any questions about these topics or other legal issues. See you in 2024!

© 2023 Bradley Arant Boult Cummings LLP
For more news on 2023 Legal Landscape Updates, visit the NLR Labor & Employment section.

Time Is Money: A Quick Wage-Hour Tip on … the Tip Credit

Gratuities are often helpful for both employees and their employers: tips supplement a worker’s income, and federal law and the laws of most states allow employers to credit a portion of a worker’s tips toward the company’s minimum wage obligations. But what exactly is a tip and how do employers take this so-called “tip credit?”

What is a tip or gratuity?

The Fair Labor Standards Act (“FLSA”) defines a tip as “a sum presented by a customer as a gift or gratuity in recognition of service performed[.]” 29 C.F.R. § 531.52. Tips are separate from the payment due for the service, and whether to tip and in what amount is in the sole decision of the customer. If a customer provides a tip, it is generally the property of the tipped employee. Employers, including supervisors, may not take any portion of employee tips, except employers may offset reasonable processing fees from a tip provided by credit card so long the deduction does not reduce the employee’s hourly wage below the minimum wage. 29 U.S.C. § 203(m)(2)(B); 29 C.F.R. §§ 531.52, 531.53.  However, note that some states (e.g., California) prohibit employers from deducting credit card processing fees from employee tips.

Tips a should not be confused with mandatory service or administrative charges (“service charges”) that an establishment imposes on customers, and which are increasingly common in the restaurant industry. Service charges are not tips because they do not involve customer discretion. Further, service charges are the employer’s property and part of its taxable gross receipts.

If the employer distributes all or some portion of the charges to its employees, the amount distributed is treated as employee wages and not gratuities. Although service charges distributed to employees can help satisfy an employer’s minimum wage requirements under the FLSA, service charges cannot count as tips for the purposes of satisfying the tip credit. See 29 C.F.R. § 531.55.

What is a tip credit?

The FLSA allows employers to pay “tipped employees” a reduced hourly wage (currently $2.13 per hour) so long as the cash wage plus tips received by an employee satisfy the federal minimum wage (currently $7.25 per hour). The “tip credit” is the portion of an employee’s tips the employer can apply toward its minimum wage obligations. 29 U.S.C. § 203(m); 29 C.F.R. § 531.59(b).

What is a tipped employee?

Employers may take a tip credit for employees who work in an occupation in which they customarily and regularly receive more than $30 per month in tips. 29 U.S.C.A. § 203(t). These “tipped employees” can be full-time, part-time, permanent, or temporary employees. and usually include wait staff, bartenders, and hairdressers, but not dishwashers, cooks, or janitors. 29 C.F.R. §§ 531.56(a), 531.57.

The “customarily and regularly” standard provides some flexibility for employers to account for slow months. Tipped employees can sometimes receive less than $30 in tips in a particular month but still meet the standard, so long as they receive the required amount in tips more than occasionally. See 29 C.F.R. § 531.57.

What if the tipped employee performs multiple roles?

Tipped employees are considered to have “dual jobs” if they are employed in two occupations for the same employer (e.g., a janitor who is also a bartender). If an employee has dual jobs, the FLSA’s regulations permit employers to take a tip credit for only those hours the employee spends working in their tipped occupation (e.g., the time spent working as a bartender). 29 C.F.R. § 531.56(e).

However, work that is part of an employee’s tipped occupation is not strictly limited to tip-producing work such as making and serving a drink. In December 2021, the Department of Labor promulgated a rule clarifying that employers may take a tip credit for tip-producing work and directly supporting work (e.g., restocking the bar or rolling silverware), provided the employee does not perform the directly supporting work for a substantial amount of time. The rule defines “substantial” as either more than 20% of the employee’s workweek or a continuous period of more than 30 minutes. In other words, according to this regulation, employers cannot take a tip credit for any directly supporting work that exceeds the 20% threshold or exceeds 30 continuous minutes.  This regulation is currently facing a challenge in the courts, with restaurant associations contending that the rule is contrary to the FLSA.

What are the employer’s notice and recordkeeping obligations?

Before taking a tip credit, the FLSA’s regulations require employers to notify all tipped employees of the following:

  • the amount of cash wage the employer is paying the tipped employee;
  • the additional amount claimed by the employer as the tip credit;
  • the tip credit claimed by the employer cannot exceed the amount of tips actually received by the employee;
  • that all tips received by the tipped employee are to be retained by them except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and
  • that the tip credit will not apply unless the employee has been informed of these provisions.

29 C.F.R. § 531.59(b). Employers may provide the tip credit notice orally or in writing but should require employees to sign an acknowledgement that they received and understood the notice and maintain copies of the signed acknowledgment in employee personnel or payroll files to document compliance. Generally, employers should provide the tip credit notice to new employees upon hire and to existing employees whenever there are changes to the minimum wage, cash wage, tip credit, or mandatory tip pool requirements (if appliable). Employers who take a tip credit without providing the proper advanced notice may be required to pay tipped employees the difference between the cash wage and the minimum wage for all hours worked before the employer provided the notice.

In addition to providing advanced notice, employers who take a tip credit must maintain and preserve payroll records that contain all the information required for non-exempt employees under 29 C.F.R. § 516.2(a), and:

  • a symbol, letter, or other notation in their pay records that identities each employee receiving a wage determined in part by tips;
  • the weekly or monthly amount of tips reported by each employee to the employer;
  • the amount of any tip credit taken, up to the maximum permitted by the FLSA (note: employers must notify employees in writing each time the tip credit amount changes);
  • the number of hours worked each workday in which the employee does not receive tips (i.e., worked in any non-tipped occupation) and the total daily or weekly straight-time pay for such hours; and
  • the hours worked each workday in any tipped occupation and the total daily or weekly straight-time earnings for such hours.

29 C.F.R. § 516.28(a).

States Laws on Tip Credit

State and local laws may have different rules when it comes to tip credits. For example, some states allow employers to take a tip credit, but require them to pay a higher cash minimum wage to employees. Other states may provide different definitions for a tipped employee or permit tip credits under different circumstances than the FLSA.

Currently, seven states prohibit employers from taking a tip credit: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. Further, in November 2022, District of Columbia voters approved Initiative 82, which will phase out the tipped minimum wage by July 2027. Although the D.C. Council recently postponed the initial increase to the minimum regular cash wage (and decrease to the maximum tip credit) from January 1, 2023, until May 1, 2023, the rest of the schedule remains unchanged.

©2023 Epstein Becker & Green, P.C. All rights reserved.
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DOL Issues Guidance on Handling Telework Under FLSA, FMLA

The U.S. Department of Labor (DOL) has issued guidance on the application of the Fair Labor Standards Act (FLSA) and Family and Medical Leave Act (FMLA) to employees who telework from home or from another location away from the employer’s facility.

The Field Assistance Bulletin (FAB) 2023-1, released on February 9, 2023, is directed to agency officials responsible for enforcement and provides employers a glimpse into how the DOL applies existing law and regulations to common remote-work scenarios. FAB 2023-1 addresses FLSA regulations governing “hours worked,” rules related to break time and privacy for nursing employees, and FMLA eligibility factors.

Hours Worked

In the FAB, the DOL reviews the rules governing compensability of work time, explaining that, regardless of work location, short breaks (typically, 20 minutes or less) generally are counted as compensable hours worked, whereas, longer breaks “during which an employee is completely relieved from duty, and which are long enough to enable [the employee] to use the time effectively for [their] own purposes[,] are not hours worked.” Examples of short breaks, whether at home or in the office, include when an employee takes a bathroom or coffee break or gets up to stretch their legs.

Longer rest breaks and periods of time, when employees are completely relieved from duty and able to use the time for their own purposes, are not considered work time. Just as would be the case when an employee is working in the office, if during remote work an employee’s 30-minute lunch break is interrupted by several work-related phone calls, that 30-minute period would be counted as hours worked. Conversely, if an employee working from home takes a three-hour break to pick up their child or to perform household chores, that time does not count as work time under the FLSA. In short, the FAB reiterates the telework guidance set forth by the DOL in a Q&A series published during the height of the COVID-19 pandemic.

The FAB emphasizes that, regardless of whether an employee performs duties at home, at the worksite, or at some other location, if the employer knows or has reason to believe that work is being performed, the time must be counted as hours worked. Importantly, the FAB notes that an employer may satisfy its obligation to exercise reasonable diligence to acquire knowledge regarding employees’ unscheduled hours of work by providing a reasonable reporting procedure for employees to use when they work non-scheduled time and paying employees for all hours worked. This guidance was addressed in greater detail in FAB 2020-5.

Guidelines for Nursing Employees

The FAB further clarifies that, under the FLSA, an employer’s obligation to provide employees “reasonable break time,” as well as an appropriate place to express breast milk, extends to employees who are teleworking or working at an off-site location. Just as an employer has an obligation to provide an “appropriate place” for an employee to express milk while working at a client site, the employer should ensure a teleworking employee has privacy from a “computer camera, security camera, or web conferencing platform” to express milk.

Employers are not required to pay employees for otherwise unpaid breaks simply because the employee is expressing breast milk during the break, but if an employee is working while pumping (or if the pumping occurs during an otherwise paid break), they must be paid for that time. For example, in most cases, if a remote employee attends a call or videoconference off camera while pumping, that employee would be considered on duty and must be paid for that time.

The recently enacted PUMP Act expanded existing employer obligations under the FLSA to cover exempt employees, as well as non-exempt employees. The DOL has published more guidance on breast milk pumping during work.

Eligibility Under FMLA

The DOL also addresses FMLA eligibility requirements for remote employees both in terms of hours worked (employee must work 1,250 hours in the previously 12 months) and the small worksite exception (employee must work at a worksite with at least 50 employees in a 75-mile radius).

As with the FLSA, it is important for employers to have a system to track their remote workers’ hours. With respect to hours worked, the FAB reiterates that the 1,250 hours determination for remote worker is based on compensable hours of work under FLSA principles.

With respect to the worksite size determination, the FMLA regulations explain that an employee’s personal residence is not a worksite. Instead, whether a remote employee is FMLA-eligible is based on the size of the worksite from which “they report to” or “their assignments are made.” If a remote employee reports into or receives assignments from a site with 50 or more employees working at that site (or reporting to or receiving assignments from that site) or within 75 miles, then that employee would meet that eligibility factor.

The DOL provided two examples of this rule:

  • When both a store employee and their supervisor are working from their homes temporarily due to a weather emergency, for FMLA eligibility purposes, the store remains their worksite.

  • When remote employees are working in various cities more than 75 miles away from the company headquarters but receiving assignments from a manager working at the headquarters, for FMLA-eligibility determination, the company’s headquarters would be considered the workplace for the remote employees.

Employers are reminded to review state and local wage and hour laws, paid and unpaid leave laws, and lactation accommodation laws.

Article By Jenifer M. Bologna, Justin R. Barnes, and Jeffrey W. Brecher of Jackson Lewis P.C.

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Jackson Lewis P.C. © 2023

SCOTUS Takes a Pass on “Gap Time” Dispute

It’s two months into argument season at the Supreme Court, and we’re always keeping our fingers crossed that the justices will take up a wage and hour issue and clear up some ambiguities in the law or a circuit split.

Top billing this SCOTUS term goes to Helix Energy Solutions Group, Inc. v. Hewitt, in which the Court will address whether a supervisor who earned more than $200,000 a year but was paid on a daily basis is exempt from the overtime laws as a “highly compensated employee” under 29 C.F.R. § 541.601, notwithstanding the salary basis rules in 29 C.F.R. § 541.602 and 29 C.F.R. § 541.604.  The Court held arguments on October 12, and you can read the transcript here.  We’ll report on that decision as soon as it’s published.

This week’s news is a denial of a petition for a writ of certiorari in Cleveland County, North Carolina v. Conner, a case about gap time.  The plaintiff in the case—an EMT worker—was paid under a fairly complex set of ordinance-based and contractual terms, but the gist of her claim was that the county shorted her on straight-time pay she was owed under her contract, and by doing do violated the Fair Labor Standards Act.  The district court dismissed the claim, on the ground that the FLSA governs minimum wage and overtime pay, but not straight-time pay (assuming no minimum wage violation).  On appeal, however, the Fourth Circuit noted that “there are situations … that fall between [the minimum wage and overtime] provisions of the FLSA.  It explained:

In addition to seeking unpaid overtime compensation, employees may seek to recover wages for uncompensated hours worked that fall between the minimum wage and the overtime provisions of the FLSA, otherwise known as gap time ….  Gap time refers to time that is not directly covered by the FLSA’s overtime provisions because it does not exceed the overtime limit, and to time that is not covered by the FLSA’s minimum wage provisions because … the employees are still being paid a minimum wage when their salaries are averaged across their actual time worked.  (Internal citations and alterations omitted.)

The Court of Appeals differentiated between two types of gap time—“pure gap time” and “overtime gap time”—with the former referring to unpaid straight time in a week in which an employee works no overtime, and the latter referring to unpaid straight time in a week in which the employee works overtime.  The court noted, correctly, that no provision of the FLSA addresses gap time of either type, and that there is no cause of action under the FLSA for “pure gap time” absent a minimum wage or overtime violation by the employer.  Such claims would arise, if at all, under state law.

On the other hand, the circuit court noted that courts are divided on whether an employee can bring an “overtime gap time claim” under the FLSA.  While the statute itself is silent on the issue, the U.S. Department of Labor’s interpretation of the FLSA—set forth in 29 C.F.R. § 778.315—states that:

[C]ompensation for … overtime work under the Act cannot be said to have been paid to an employee unless all the straight time compensation due him for the nonovertime hours under his contract (express or implied) or under any applicable statute has been paid.

In its simplest sense, the argument for recognizing “overtime gap time” claims under the FLSA is this:  Say an employer promises an overtime-eligible employee base pay of $1,000 per week for up to 40 hours of work, and the employee works more than 40 hours in a given week.  In that scenario, the employee’s hourly overtime rate would by $37.50 ($1000 ÷ 40 yields a regular rate of $25, and time-and-a-half on $25 is $37.50).  But if the employer only pays the employee $800 in base pay for the week and not the promised $1,000, the regular rate becomes $20 ($1000 ÷ 40) and the hourly overtime rate becomes $30 (time-and-a-half on $20).  So the employee is short-changed $7.50 on each overtime hour, which the Fourth Circuit found violates 29 C.F.R. § 778.315 and the spirit, if not the letter, of the FLSA.

“Pure gap time” is different, in this important sense:  it only arises when the employee has not worked any overtime in the week.  So there is no possibility of short-changing the employee on overtime pay, and—assuming the employee has, on average, received the minimum wage for all hours worked that week—no other provision of the FLSA that provides any relief.  (The employee is ostensibly free to seek relief under an applicable state wage payment law or common law for failure to pay promised compensation.)

The Fourth Circuit concluded that 29 C.F.R. § 778.315 has the “power to persuade,” and therefore is entitled to “considerable deference” under Skidmore v. Swift & Co., 323 U.S. 134 (1944).  As such, the court held that “overtime gap time claims” are indeed cognizable under the FLSA, and that “courts must ensure employees are paid all of their straight time wages first under the relevant employment agreement, before overtime is counted.”  The court acknowledged a circuit split on the issue, with the Second Circuit declining to afford deference to 29 C.F.R. § 778.315 and rejecting “overtime gap time” claims as lacking a statutory basis (“So long as an employee is being paid the minimum wage or more, [the] FLSA does not provide recourse for unpaid hours below the 40–hour threshold, even if the employee also works overtime hours the same week.”).

The county filed a petition for a writ of certiorari with the Supreme Court, presenting not only the question of whether the FLSA permits “overtime gap time” but also seeking clarification on how federal courts should apply the Skidmore doctrine to agency interpretations such as 29 C.F.R. § 778.315.  The Supreme Court denied the petition on December 12, leaving both questions for another day.

© 2022 Proskauer Rose LLP.
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An Updated Federal Overtime Rule: When’s It Coming?

Twice a year (in the spring and the fall), each federal agency publishes a “Regulatory Agenda” that discloses the proposal and final rules it has recently issued, together with those that it plans to issue.  Back in the fall of 2021, the U.S. Department of Labor’s Wage and Hour Division noted in the agenda that it was reviewing the regulations for exemption of executive, administrative, and professional (“EAP”) employees from the Fair Labor Standards Act’s minimum wage and overtime requirements codified in 29 C.F.R. Part 541.

One of the “primary goals” of the planned rulemaking is to update the minimum salary level requirement for employees who, by virtue of their duties, would qualify for an EAP exemption under section 13(a)(1) of the FLSA.  You may recall that in May 2016, the Obama DOL issued a new overtime rule, to take effect on December 1 of that year, that would have—among other things—required the DOL to update (i.e., increase) the salary threshold for EAP exemptions every three years.  In November 2019, before it could take effect, a federal judge in Texas enjoined the new overtime rule on a nationwide basis, declaring it “unlawful.”

In September 2019, the Trump DOL issued a new overtime rule, which took effect on January 1, 2020, raising the weekly minimum salary for EAP exemptions from $455 per week ($23,660 per year) to $684 per week ($35,568 per year).  The increase was the first in 15 years, but nowhere near the boost the Obama administration tried to roll out in 2016 (to $913 per week, or $47,476 per year).

Cut to the Biden administration.  The DOL noted in the fall 2021 Regulatory Agenda that “[r]egular updates [to the minimum salary for EAP exemption] promote greater stability, avoid disruptive salary level increases that can result from lengthy gaps between updates and provide appropriate wage protection.”  The agency listed a timetable for issuance of a proposed overtime rule update (a Notice of Proposed Rulemaking, or NPRM) as April 4, 2022.  Seven months later, we’ve seen no proposed rule.

If and when issued, the public will have the opportunity to comment on the proposed rule.  (Back in 2016, the Obama DOL received more than 293,000 comments to its proposed overtime rule.)  Stay tuned.

Article By Allan S Bloom of Proskauer Rose LLP

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© 2022 Proskauer Rose LLP.