President flexes executive muscles to increase workers’ wages

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by Brian Farrington, esq, Cowles & Thompson

President Obama has announced that as part of his effort to increase job protections for workers, he will ask the Department of Labor to propose revisions to the rules on who can be a salaried exempt employee, exempt from the payment of overtime. This follows an Executive Order the President issued in February 2014 directing the executive branch to increase the minimum wage to $10.10 per hour for employees on new federal contracts starting in January 2015.

A little bit of background

The federal wage hour law is the Fair Labor Standards Act, 29 USC 201, et seq. (“FLSA”). The Act requires that employees who work more than 40 hours per week get time and a half for their overtime hours. There are a number of exemptions from the overtime requirements, however, and the most important is the exemption for certain classifications of (typically) salaried employees—executive, administrative, and professional employees, and outside salespeople.

Unlike the minimum wage, which cannot be raised for employees other than federal contractors except by an Act of Congress, the FLSA delegates to the Secretary of Labor the duty to define by regulation who is an executive, administrative, or professional employee, or outside salesperson. This means that it doesn’t take an Act of Congress to change the exemption rules. It only takes a regulatory change by the US Department of Labor.

In order to be exempt under the terms of 29 CFR 541, employees generally have to be paid on a salary basis (there are some exceptions, such as outside salespeople, and doctors, lawyers, and teachers).  Exempt employees also have to meet some duties tests, which are laid out in the Regulation.

The current minimum salary for exemption is $455 per week, or $23,660 per year. (The current poverty threshold for a family of 4 is $23,550 per year). This rate has been in effect since 2004, and is 156% of the current minimum wage for 40 hours.

Since salaried exempt employees often work more than 40 hours, it’s clear that the current salary level is fairly minimal. This is particularly so in light of the fact that the President would like to increase the minimum wage to $10.10 per hour, which for a 40 hour week would be $404.

How exempt employee rules may change

  • The weekly salary test.  The simplest and most obvious change in the current rules is an increase in the minimum salary exempt employees are required to be paid. At least one progressive think tank has proposed $984 per week, which seems unlikely. But a significant increase is certainly possible.
  • The duties test.  Another area rankling employee groups is the duties tests under the current regulation. Until the Bush administration changed the Regulation in 2004, employees had to have exempt work as their “primary duty,” and the term “primary duty” generally meant that duty in which employees spent over half their time.  Under the Bush Administration, the definition of     “primary” was changed from the most consuming to the most important. As a result, courts have routinely allowed the exemption for employees who spend 60, 70, even 80% of their time in routine duties; as long as they can make a plausible argument that the exempt work they do is the most important.

For example, store managers who spend 75% of their time in stocking, waiting on customers, etc., have still been found to be exempt managers. This is an area where a return to the previous standard would be anticipated. That is, it’s likely that the Department of Labor will propose changing the regulations to require that employees spend over half their time in exempt work in order to be exempt from overtime pay.

  • Learned professionals’ definition.  Also possible is a change involving the definition of learned professional employees. Under the current regulation, a college degree is not required in meeting the learned professional exemption. Instead, an employee must merely show that the work requires that level of knowledge, and that he/she has achieved the ability to do that kind of work through a combination of education and experience. Employee groups would like to see the regulation changed to require formal academic credentials as a prerequisite for exemption as a learned professional.

 The wheels of change will be slow to turn

Any changes to 29 CFR 541 won’t happen overnight.  First, the Department of Labor must draft the changes and issue a notice of proposed rulemaking in the Federal Register. A public comment period would follow. Once the comment period is closed, the Department would have to review and take into consideration the public’s comments, and then issue a final rule.

In a nutshell, even if the President is able to make the changes he wants, there’s a long road ahead to implement them. Further, the oversight committees in Congress, particularly the relevant sub-committees of the Committee on Education and the Workforce in the Republican-controlled House of Representatives, are certain to be vehemently opposed.

About Brian Farrington

Brian Farrington is an experienced employment law attorney who previously served as Assistant District Director with the US Department Labor, Wage and Hour Division and is a contributing editor to EY’s Payroll Perspectives and EY’s Principles of Payroll Administration published by Thomson Reuters.  He is currently with the Dallas-based firm COWLES & THOMPSON, where he assists employers with employment law issues. Brian can be reached at bfarrington@cowlesthompson.com

E-Verify Unavailable During Shutdown – What you should do

It was announced that as a result of the government shutdown, E-Verify is unavailable.  The US Department of Homeland Security points out that during this time, the following policies are implemented:

  • The ‘three-day rule’ for E-Verify cases is suspended for cases affected by the shutdown. The Department will provide additional guidance once it reopens. This does NOT affect the Form I-9 requirement—employers must still complete the Form I-9 no later than the third business day after an employee starts work for pay.
  • The time period during which employees may resolve TNCs will be extended. Days the federal government is closed will not count towards the eight federal government workdays the employee has to go to SSA or contact DHS. The Department will provide additional time once we reopen.
  • For federal contractors complying with the federal contractor rule, please contact your contracting officer to inquire about extending deadlines.
  • Employers may not take any adverse action against an employee because of an E-Verify interim case status, including while the employee’s case is in an extended interim case status due to a federal government shutdown (consult the E-Verify User Manual for more information on interim case statuses).

For more information go to https://e-verify.uscis.gov/emp/vislogin.aspx?JS=YES

EY’s 2013 Direct Deposit/Pay Card Survey

Can you m162545364 (low)andate that employees receive their pay electronically?  This question has received a great deal of media focus this year, and the subsequent attention of governmental regulators.

The survey below conducted this year by Ernst & Young LLP answers this question based on information available before the current controversy arose.  Since that time, federal and state agencies have been issuing advisories that clarify the restrictions governing employer use of pay cards.  Employers should monitor these developments closely.

For related articles on our blog, see http://wp.me/p3RWNG-4x and http://wp.me/p3RWNG-3v.

The following information was obtained during the course of informal telephone, email and website surveys with the state government agencies noted below. Although these surveys are useful in determining how governmental departments currently treat an issue, answers and positions derived from such surveys are not binding upon the state, cannot be cited as precedent, may change over time and hence cannot be relied upon.

State Government agency Direct deposit requires employee’s voluntary   consent Pay card requires employee’s specific voluntary consent
Alabama Department of Labor No No administrative position available
Alaska Department of Labor, Workforce and Development Yes Yes
Arizona State Labor Department, Industrial Commission No (conditions apply) No (conditions apply)
Arkansas Department of Labor, Labor Standards Division Yes Yes
California Department of Industrial Relations, Division of   Labor Standards Enforcement Yes Yes
Colorado Department of Labor and Employment Yes Yes
Connecticut Department of Labor, Division of Wage and Workplace   Standards Yes No administrative position available
Delaware Department of Labor, Office of Labor Law Enforcement Yes Yes
District of Columbia Department of Employment Services, Office of Wage   Hour No (for public employees of the District)Yes (for private employers) Yes
Florida Department of Business and Professional Regulation;   Department of Economic Opportunity Yes Yes
Georgia Department of Labor Yes Yes (administratively allowed if other   payment option is available)
Hawaii Department of Labor & Industrial Relations, Wage   Standards Yes Yes
Idaho Department of Labor, Wage and Hour Section Yes Yes
Illinois Department of Labor Yes Yes
Indiana Department of Labor, Wage & Hour Division No No
Iowa Workforce Development, Division of Labor Services No (for new hires after July 1, 2010) Yes
Kansas Department of Labor, Employment Standards No No (conditions apply)
Kentucky Labor Cabinet, Department of Workplace Standards No No
Louisiana Workforce Commission No No administrative position available
Maine Department of Labor, Wage-Hour Division No, if no fee is involved No, if no fee is involved
Maryland Department of Labor, Licensing and Regulation,   Division of Labor and Industry Yes (with respect to private sector employees)No (with respect to state government employees) Yes
Massachusetts Attorney General’s Office, Fair Labor and Business   Practice Division No No (conditions apply)
Michigan Department of Licensing and Regulatory Affairs, Wage   and Hour Division No (following 30-day notice) No (following 30-day notice)
Minnesota Department of Labor & Industry, Labor Standards   Division Yes Yes
Mississippi None No administrative position available No administrative position available
Missouri Department of Labor & Industrial Relations,   Division of Labor Standards No No
Montana Department of Labor & Industry Yes Yes
Nebraska Workforce Development, Department of Safety and   Labor Standards No No
Nevada Office of the Labor Commissioner Yes Yes
New Hampshire Department of Labor, Wage & Hour Division Yes Yes
New Jersey Department of Labor and Workforce Development,   Division of Wage and Hour Compliance Yes except for state, county and municipal employees, effective July 1, 2014, under A. 720 Yes
New Mexico Department of Workforce Solutions, Wage-Hour Bureau Yes Yes
New York Department of Labor Yes except for salaried employees paid $900 or more per week Yes
North Carolina Department of Labor, Wage and Hour Bureau No No
North Dakota Department of Labor, Wage and Hour Division No Yes
Ohio Department of Commerce, Bureau of Wage and Hour   Administration No No
Oklahoma Department of Labor, Employment Standards Wage &   Hour Unit No Yes
Oregon Bureau of Labor and Industries, Wage and Hour   Division No, but employee may request in writing to be paid by check (effective January 1, 2014) No, but employee may request in writing to be   paid by check (effective January 1, 2014)
Pennsylvania Department of Labor & Industry, Labor Law   Compliance  Yes Yes
Puerto Rico Department of Labor and Training, Division of Labor   Standards Yes Yes
Rhode Island Department of Labor and Training, Division of Labor   Standards Yes Yes
South Carolina Department of Labor, Licensing and Regulation,   Division of Wages and Child Labor No No
South Dakota Department of Labor and Regulation, Division of   Labor & Management No No
Tennessee Department of Labor & Workforce Development,   Division of Labor Standards No No (conditions apply)
Texas Texas Workforce Commission, Labor Law Section No (following 60-day notice) Yes
Utah Labor Commission of Utah No (under certain circumstances) No
Vermont Department of Labor & Industry, Wage and Hour   Division Yes Yes
Virgin Islands Department of Labor No administrative position available No administrative position available
Virginia Department of Labor & Industry, Labor and   Employment Law No (for new hires after January 1, 2010) No (for new hires after January 1, 2010)
Washington Department of Labor & Industries No, if no fee is involved No, if no fee is involved
West Virginia Division of Labor, Wage and Hour Section Yes Yes
Wisconsin Department of Workforce Development, Equal Rights   Division, Labor Standards Bureau No No
Wyoming Department of Workforce Services, Labor Standards Yes Yes

Mandatory Pay Cards? Oh no you don’t says the feds

The API published a story on September 13, 2013 stating that under federal law employers cannot force employees to take plastic pay and that withdrawal fees also cannot be imposed on them.

For the full story go to http://bigstory.ap.org/article/agency-firms-cant-only-use-debit-cards-pay.

For a great read that debunks some pay cards myths, go to our previous post at  http://wp.me/p3RWNG-3v.

Payroll outsourcing is still an inside job

The movement to electronic filing and the increased complexity in the rules governing payroll have resulted in an understandable trend of outsourcing payroll and employment tax.  But, when it comes to outsourcing, out of sight does not mean out of mind.

Handing your payroll and employment tax processing to a third party is no different from hiring employees to do the work. The company’s executives continue to be liable for compliance, meaning, oversight of the work is still an inside job.

When it comes to payroll outsouring, out of sight should not be "out of mind"

When it comes to payroll outsouring, out of sight should not be “out of mind”

Occasionally, a big story hits the news about a less than upstanding payroll company absconding with their clients’ tax deposits. When this sort of new breaks, the importance of third-party oversight gets some focus. Recently, for instance, the IRS added a web page (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Third-Party-Arrangement-Chart) explaining the steps employers should take to confirm and review third-party returns and tax payments.

Invest in your internal resources

The job of supervising payroll/employment tax vendors requires substantial internal expertise.

Take earnings and deduction codes for instance.  The task of reviewing the plan or policy and choosing a preconfigured template requires an understanding of the federal, state and local employment tax rules.  Vendors are not responsible for choosing the wrong configuration templates, or correctly identifying exceptions that may apply.  (See the post, the ABC’s of FSA, HSA and HRA at http://wp.me/p3RWNG-29.)

Payroll vendors are frequently tasked with creating a general ledger interface; however, there are numerous transactions outside of regular pay data that must also be correctly recorded.  Analysis of general ledger codes and their balances are required too if there are changes in the company’s organization structure that reach to where and how  payroll transactions are booked. Accuracy of general ledger entries is not only important for financial statements–they may also come under close scrutiny for purposes of tax enforcement, workers’ compensation, and other employment related audits.

Having individuals within the organization who have cross-functional knowledge of accounting, payroll and employment tax is key to the effective and efficient management of human resources.   The rules governing payroll and employment are routinely evolving, as are the technologies necessary to comply with them.  That’s why investing in payroll training and informational resources is also important.

Falling into complacency is tempting when trusted payroll vendors are relied on for the heavy lifting.  That’s why the supervisory role should be carefully defined with  performance monitored and rewarded.

Do you outsource payroll/employment tax? 

Tell us what steps you take to supervise your vendors, and how your performance is measured. 

The Truth About Payroll Cards – They’re Here to Stay

Human Capital Management Channel

By Josh Davis

There has been a lot of buzz revolving around the payroll card industry after a recent lawsuit that sprung up, negative press articles appeared, and the start of an investigation by New York Attorney General, Eric Schneiderman, began. So, I sat down with Bernie Nolan from Global Cash Card to get both sides of the prepaid payroll card story and offer an overview for payroll providers still interested in or concerned about providing this as an option to clients. To read Bernie’s guest post on our blog about the benefits of providing paperless pay options to your clients, click here.

The Market for Payroll Cards is Growing… Fast
It is important to note as a provider of payroll services that the payroll card industry is continuing to grow at a steady rate. In fact, according to a report by the Aite Group, $34 billion…

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