New Department of Labor proposed rule addressing calculation of employee’s regular rate of pay

For the first time in 50 years, the Department of Labor is proposing a rule to address the calculation of an employee’s regular rate of pay; an employee’s regular rate is used to determine the applicable overtime rate, and the calculation of the regular rate can be an issue in DOL audits, and litigation.

The DOL’s proposed rule includes clarification that the following forms of compensation are not required to be included in the regular rate:

the cost of providing wellness programs

payments for unused paid leave

reimbursed expenses that are not “solely” for the employer’s benefit
certain reimbursed travel expenses

Employers will want to take this opportunity to review existing pay practices, and determine if changes can be made.

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Observations on LB400

LB400 was introduced in the Nebraska Unicameral, in January of this year to raise the minimum wage of tip earners.  The current minimum wage in Nebraska for tip earners is $2.13 an hour with restaurants ensuring tipped staff obtain at least $9.00 per hour combined standard wage and tips.  The bill was to raise the minimum wage to $4.50 an hour, without indexing the wage to the regular minimum wage.

The bill includes raises the following questions to assure compliance with wage laws:

  1. Are the restaurants actually ensuring that the employees receive the $9.00 an hour combined standard wage plus tips or are they “gaming” the system to ensure more profits for the company?
  2. Can the employees genuinely rely on the tips of the patrons?
  3. Can “standard tips” accurately be reflected in the $9.00 per hour combined minimum standard wage plus tip?

As business owners, employers should consider reviewing current pay policies, including the often-used practice of tip pooling and/or tip splitting, in order to remain in compliance. Another compliance approach to consider would be the modification and reclassification of employees to non-tipped personnel.

 

https://trackbill.com/bill/nebraska-legislative-bill-400-change-the-minimum-wage-for-persons-compensated-by-way-of-gratuities/1636386/

 

The legislation is not finalized so there will be updates on the status of this bill.

SSA Updates Social Security Taxable Wage Base for 2018

By Joshua A. Diveley

In October, the Social Security Administration (SSA) announced an adjustment to the Social Security taxable wage base to take effect in January based on an increase in average wages. Based on the wage data Social Security had as of October 13, 2017, the Social Security taxable wage base was set to increase to $128,700 in 2018, from $127,200 in 2017. Based on newly released data obtained by SSA, the new Social Security taxable wage base for 2018 is $128,400.

This lower taxable amount is due to corrected W2s provided to Social Security in late October 2017 by a national payroll service provider. Approximately 500,000 corrections for W2s from 2016 were received by SSA and resulted in the downward adjustment for 2018.

For more information about the updated 2018 taxable maximum amount, please visit www.socialsecurity.gov/oact/COLA/cbb.html

 

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Department of Labor Clarifies Stance on Still-Pending Overtime Rule

By James Pieper

In 2016, a dramatic overhaul of the rules for eligibility and payment of overtime under the Fair Labor Standards Act (FLSA) was on the verge of taking effect before being halted by an injunction issued by a federal judge.

With a new administration taking over the Department of Labor, the status of the overtime revisions has been uncertain.  Nor was it known whether the Department would defend its authority to revise the rules in the subject litigation.

In a brief filed on June 30, the Department’s new leadership finally provided some clarity.  The Department defended its legal authority to adopt a new rule (as had been challenged by the plaintiffs), but did not defend the actual changes proposed by the prior administration.

Accordingly, although the rule remains in legal and administrative limbo, it is clear that it will not take effect in the form proposed in 2016.  Should the courts conclude that the Department does have authority to set the earning threshold (under which overtime must be paid to non-exempt employees) by administrative rule, then the new Department leadership will adopt a threshold lower than the amount of $47,476 that was set prior to the injunction.

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Department of Labor Withdraws 2016 Guidance on “Joint Employment”

By James Pieper

On June 7, 2017, new Secretary of Labor Alexander Acosta withdrew guidance provided under the prior administration by the Department of Labor’s Wage and Hour Division that had staked out a broader interpretation of when “joint employment” exists pursuant to the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

When two or more employers “jointly” employ an employee, the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when “joint employment” is found to exist, all of the joint employers are jointly and severally liable for compliance with the FLSA and MSPA.

Under a traditional “common law” approach to employment, such “joint employment” would only exist if both employers are able to exercise “control” over the employee’s work.  The 2016 guidance sought to recognize “broader economic realities of the working relationship” and thus “cover some parties who might not qualify as [employees] under a strict application of traditional agency law principles.”

Accordingly, the guidance indicated that a number of scenarios that have not been historically considered “joint employment” – including, particularly, franchisee, staffing-agency and subcontractor relationships – might give rise to “joint employment” under the FLSA and MSPA, thus broadening the potential legal exposure for entities that had in the past not been considered joint employers.  The intent of the Department of Labor to implement such a broader interpretation is now withdrawn.

Although the action reduces some of the potential legal risk, particularly for franchisors and franchisees – who had actively sought the withdrawal of the guidance – the potential for “joint employment” remains a complex area requiring careful attention to potential penalties.

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New Minimum Wage Law in Iowa

Iowa enacted a new law, Iowa House File 295, that prohibits counties and cities from regulating certain employment matters that are regulated by the state. On a practical level, for employers, this will reduce some compliance burdens, including eliminating different minimum wage rates across the state. The law, which took effect on March 30, 2017, preempts city and county rules pertaining to minimum wage, employment leave, hiring practices, employee benefits, and similar matters that pertain to terms of employment. For example, Johnson County, Iowa, had a minimum wage of $10.10 an hour, but that has preempted with the new state law, which means the minimum wage in Johnson County is now $7.25 an hour. Now, regardless of the action taken by county or city government, including actions taken prior to the new Iowa law, the state law will preempt and govern practices by employers.

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Employers in Nebraska and Iowa Should be Aware of Changes in Pay Discrimination Lawsuits

A recent court case, stemming from an Iowa employer, may have a significant impact on how employers throughout Nebraska and Iowa view pay differential between employees. On April 3, 2017, the Eighth Circuit Court of Appeals ruled in Dindinger v. Allsteel, Inc., a case pertaining to gender based pay discrimination. In the ruling, the Court suggested that market forces and economic conditions, often used as an affirmative defense in pay discrimination claims, may not be sufficient as a defense without a clear connection. The result is that an employer may not be able to assert that economic conditions are the reason for pay differential between men and women without being able to show how the economic conditions caused the pay differential for the specific employees in question.

 

This case stems from an Iowa furniture manufacturer, where three female employees claimed gender based pay discrimination. As an affirmative defense, the business argued that market forces and economic conditions were the reason for the pay differential, not gender discrimination. This affirmative defense is often raised by employers and, generally, does not require a specific correlation between the economic condition and the employee. However, the Court in this case noted that to successfully argue the “factor other than sex” defense, the business must show how economic conditions directly resulted in the pay differential. For employers in the Court’s jurisdiction, including those in Nebraska and Iowa, an increased burden may exist when asserting the market forces affirmative defense and could necessitate taking action before any potential pay discrimination claims arise.

 

Employers should recognize the added challenge of defending pay discrimination lawsuits and, potentially, take preemptive action by auditing current pay and employment practices. A copy of the opinion can be found at the following link:  http://media.ca8.uscourts.gov/opndir/17/04/161305P.pdf

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