On August 27, 2020, the U.S. Department of Labor (“DOL”) updated its FFCRA guidance and “Questions and Answers” in an FAQ, addressing some “Return-to-School” issues which may be helpful to nonprofit organizations and businesses covered by the FFCRA.

As set forth more fully in the FAQ, the DOL stated that if the school of an employee’s child only allows for remote learning and an employee is unable to work—including telework—because they do not have another person to care for their child due to COVID-19-related reasons, that employee may be eligible for FFCRA expanded paid family leave.   If, however, an employee chooses to have their child attend school remotely 100% of the time even when there is an option for “in-person” or “hybrid” learning, then an employer is not obligated to pay for that employee’s leave in order to provide childcare.

By way of background, the FFCRA is a law which requires covered employers to provide job-protected paid sick leave and extended paid family and medical leave due to COVID-19 to employees of employers with fewer than 500 employees (unless those employers qualify for and have sought a small business exception).  The FFRCA took effect on April 1^st and remains in effect through December 31, 2020.

If Congress does not extend the end date of the FFCRA past December 31^st, then employers will need to consider how or if they will allow employees to continue to take paid (or unpaid) leave  to address parents’ ongoing need to care for children continuing remote school past December 31^st.

Organizations and businesses should keep in mind that State and local anti-discrimination laws, including recently passed COVID-19 specific laws, may offer job protection to employees out on leave due to COVID-19 to care for their children.

Employers should also be mindful that some State and/or local jurisdictions prohibit discrimination against employees because of an employee’s caregiver status or obligations.

What Should Employers Do Now?

• Review and update employee policies as needed regarding paid leave and the interplay between federal, State and local laws relating to paid or unpaid sick, family leave, other leaves of absence and COVID-19. Consider now how paid sick and family leave policies will need to be modified depending on whether FFCRA is extended beyond December 31, 2020, and ways in which your organization can support its employees in order to retain them.
• Train managers on their legal obligations with respect to the various COVID-19- and other paid leave-related laws at issue and ensure that managers are not treating caregivers less favorably than others seeking to take leave for other reasons (as certain jurisdictions have laws prohibiting discrimination based on caregiver status).
• Confer with employment counsel before deciding not to provide a leave of absence to an employee due to a care-giving need.

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What Change Would the Rule Bring?

The U.S. Department of Labor (DOL)’s proposed new rule would:

• Adopt an “economic reality” test to determine whether a worker is an employee or an independent contractor under the FLSA. That is, whether a worker is economically dependent on an entity for work and would be an employee, or conversely, whether the individual is in business for him/herself (independent contractor);
• Identify and explain two “core economic reality factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. The DOL would weigh these two factors more heavily than any others to help determine if a worker is economically dependent on an entity’s business or is in business for themselves. The DOL believes that taking this approach will likely encourage the creation of independent contractor jobs that provide autonomy and satisfying entrepreneurial opportunities;
• Identify three other factors that the DOL will consider: 1) amount of skill required for the work; 2) degree of permanence of the working relationship between the worker and the potential employer (the more permanent, the more likely there is an employee status); and 3) whether the work is part of an integrated unit of production and if so, that would weigh in favor of finding employee status (meaning where a worker is a component of a potential employer’s integrated production process that “requires the coordinated function of interdependent subparts working toward a specific unified purpose.” For instance, if a worker depends on the overall process to perform work duties as would a computer programmer on a software development team, that person would be more likely to be classified as an employee.
• Advise that the actual practice of what the parties are doing is more relevant to determining whether the worker is an independent contractor or an employee than what may be contractually or theoretically possible.

What Should Employers Do Now?

Nonprofit organizations and businesses have an opportunity to provide public comment on the proposed rule until October 26, 2020.  Even if the final rule is substantially unchanged from the proposed rule, organizations should remain mindful that their respective State Departments of Labor and court rulings relating to State labor laws and wage orders may impose stricter definitions or interpretations of “independent contractor” than under the FLSA.  Therefore, employers should speak with their legal counsel before determining whether a worker is properly classified as an independent contractor rather than an employee to help minimize legal risk.

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Employers may exclude the following from an employee’s regular rate of pay:

• the cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance;
• payments for unused paid leave, including paid sick leave or paid time off;
• payments of certain penalties required under state and local scheduling laws;
• reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit; and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments;”
• certain sign-on bonuses and certain longevity bonuses;
• the cost of office coffee and snacks to employees as gifts;
• discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples; and
• contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

The Final Rule provides fact-based examples of discretionary bonuses that may be excluded from an employee’s regular rate of pay. In addition, the DOL provides additional clarification concerning other compensation types, including meal period payments and “call back” pay.

Employers should be reviewing how they are calculating regular rate of pay for employees and making appropriate adjustments to comply with the updated regulations.

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• updated the salary thresholds to exempt executive, administrative, and professional employees from the FLSA’s minimum wage and overtime pay requirements, by increasing the “standard salary level” from $455 per week (equivalent to $23,660) to $684 per week (equivalent to $35,568 per year for a full-year worker);
• increased the total annual compensation level for “highly compensated employees (HCE)” from $100,000 to $107,432 per year (they must be receiving $684 weekly on a salary or fee basis);
• allows employers to now use nondiscretionary bonuses and incentive payments, including commissions, that are paid at least annually to satisfy up to 10% of the standard salary level*; and
• revised special salary levels for workers in U.S. territories and in the motion picture industry.

Significantly, 10% of the $684/week can be comprised of nondiscretionary bonuses and commissions to reach the $684/week salary threshold needed to be considered exempt from overtime pay requirements (if the job duties test is also met).

What Should Employers Do Now?  Nonprofits would be well advised to:

• Review salaries of those classified as “executive” and “administrative” exempt positions to determine whether the employee’s weekly salary needs to be increased to meet the new salary thresholds or determine whether the position should be reclassified as non-exempt.  (The professional exemption does not have a salary threshold under New York State law).  Remember that if the State salary threshold is higher than the federal salary threshold, the organization must exceed the State’s salary threshold for that employee to maintain his/her exempt status.
• Review primary duties for positions classified under the executive, administrative, and professional exemptions to ensure that those duties are met to qualify for exemption and update job descriptions to ensure the positions are indeed properly classified as exempt.
• Conduct a regular review of primary duties tests for the executive, administrative, and professional exemptions because meeting the salary threshold alone does not confer exempt status upon employees.

Highly Compensated Employee Standard Updated

The updated regulations contain a special rule for “highly compensated” employees who are paid total annual compensation of $107,432 or more.  A highly compensated employee is deemed exempt under FLSA Section 13(a)(1) if:

1. The employee earns total annual compensation of $107,432 or more, which includes at least $684* per week paid on a salary or fee basis;
2. The employee’s primary duty includes performing office or non-manual work; and
3. The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.  For example, an employee may qualify as an exempt highly compensated executive if the employee customarily and regularly directs the work of two or more other employees, even though the employee does not meet all of the other requirements for the “executive” exemption.

As noted above, the final regulations take effect January 1, 2020.  Employers should be reviewing their worker classifications now and making any needed adjustments to worker classification status.

The post New Federal Overtime Regulations Take Effect January 1, 2020 appeared first on Perlman & Perlman.

December 1, 2016– the date that the U.S. Department of Labor (DOL)’s new overtime pay rules under the federal Fair Labor Standards Act (FLSA) take effect– is next week. [1]   The new rules are one of the most significant changes affecting U.S. employers in more than a decade. The DOL estimates that more than 4 million workers will need to be reclassified from exempt to non-exempt as a result.

As you may already know, wage and hour lawsuits are the largest category of lawsuits filed in the U.S. and one of the fastest-growing.   Last year, according to the DOL, 8,871 FLSA wage/hour lawsuits had been filed, as of September 30, 2015.  In 2016, employers paid hundreds of millions of dollars in FLSA lawsuits.  With the new rule taking effect, compliance with the FLSA and other wage/hour laws is more crucial to employers’ survival than ever.

These rules affect non-profits in a unique way.  Unlike employers in the private sector, non-profits do not have a way to pass on the increased cost of labor to a customer.  In some cases nonprofits may be bound to provide services at a contractually agreed upon rate, or may be constrained by their dependence on donations.

II.        Are You Covered?

Before implementing changes to employee pay or classification, a nonprofit organization should first determine whether it is covered by the FLSA.  Under the FLSA, there are two types of coverage: enterprise or named enterprise coverage, and individual coverage.

Enterprise Coverage

The FLSA applies to businesses with annual sales or business of at least $500,000, and two or more employees engaged in interstate commerce.  With respect to non-profit organizations, FLSA “enterprise coverage” applies only to the activities performed for a business purpose that are in substantial competition with other businesses such as operating a gift shop or providing services for a fee. The DOL states:  “[The FLSA’s enterprise coverage] does not apply to the organization’s charitable activities that are not in substantial competition with other businesses so income from donations used for charitable activities or membership fees do not count toward the $500,000 threshold.”

Revenue generated by a nonprofit organization that is used in furtherance of charitable activities is not considered for purposes of determining enterprise coverage.   Note that under the FLSA, individuals generally may not lawfully volunteer in commercial activities run by a non-profit organization such as a gift shop.

Certain “named enterprises” are covered by the FLSA regardless of the total of their annual sales or business done or their non-profit status.  These are hospitals, schools and preschools, government agencies, and businesses providing medical or nursing care for residents.

Individual Coverage

Even if your organization is not covered as an “enterprise,” your organization’s employees may be entitled to FLSA protections if any of them is “engaged in interstate commerce or in the production of goods for interstate commerce,” a very broad term. For example, an individual is covered if the employee makes or receives interstate telephone calls, ships materials to or receives materials or goods from another state, or transports persons or property to or from another state.  Thus an employee, who calls donors in other states or orders supplies online, may be individually covered under the FLSA and entitled to its protections.

Employees at a nonprofit food bank whose job it is to sort donated goods received from out-of-state would also be considered as “individually covered” even if the organization itself is not a “covered enterprise” because it does not have commercial revenue.

Once the organization has determined whether it or any of its employees may be covered under the FLSA, it should heed the impending changes.  Even if not covered by the FLSA, employers will still be covered by their state’s wage/hour laws.

III.       What Changes Take Effect December 1, 2016?

Here are the key provisions employers covered by the FLSA need to be aware of:

New Salary Threshold

The Final Rule updates the salary threshold for determining whether an employee is exempt from the FLSA’s overtime pay requirements under the executive, administrative or professional “white collar” exemptions to:  $913 per week, or $47,476 annually (note that the salary level test does not apply to teachers, doctors and lawyers).  The prior salary threshold was $455 per week, or $23,600 annually.

Nondiscretionary Bonuses May Count Toward Salary Level

Employers may use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10% percent of the new standard salary level, if those payments are made on a quarterly or more frequent basis. (Remember that, even if an employee’s salary exceeds the salary threshold, he/she must still meet a “duties” test to fit within one or more of the “white collar” exemptions from overtime pay under the FLSA).

Higher Salary Threshold for Highly Compensated Employees

The total annual compensation requirement for workers classified as exempt under the “highly compensated employee (HCE)” exemption is now $134,004, up from $100,000 annual compensation.  To qualify, the HCE must be paid on a salary or fee basis of at least $913/week, their primary duty must include performing office or non-manual work; and they must customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.  Nondiscretionary bonuses will not count towards reaching the salary of at least $913/week.

Automatic Salary Update Every 3 Years

The above salary thresholds in item #1 and #2 will be automatically updated every three years, beginning on January 1, 2020.

IV.          What Nonprofits Should Do Now

Conduct a self-audit of all worker classifications

This self-audit should include a review of the salaries of “exempt” employees who are earning less than $913 per week ($47,476 annually) to determine whether the positions associated with those salaries will need to be reclassified. It is also a good idea to review those “exempt” employees above the new salary threshold of $913/week to ensure they meet the “job duties” test of one of the “white collar” exemptions.  This self-audit should also include a review of anyone currently classified by the organization as an “independent contractor,” “consultant,” or “volunteer” to ensure they are properly classified as such.  Misclassification of employees as independent contractors is one of the areas of greatest legal risk to employers at this time.

Update job descriptions

Ensure that your current job descriptions accurately reflect worker classifications of “exempt.”  Remember, even if an employee is earning a salary at or above the salary threshold, he/she may still be entitled to overtime pay.  The employee still needs to meet the duties tests of one of the “white collar” exemptions in order to be exempt from overtime pay.

Although the DOL decided not to make changes to the standard job duties tests, employers would be well-advised to pay particular attention to the job duties of workers classified as “managers” and “assistant managers” because much litigation has been brought by workers with those titles, claiming that they were actually performing non-exempt duties, notwithstanding their lofty titles.

Review Your Highly Compensated Employees

You must ensure that the highly compensated positions still qualify for the exemption (i.e., they are earning annual compensation of $134,004 which includes at least $913/week on a salary or fee basis; their primary duty includes performing office or non-manual work; and they customarily and regularly perform at least one of the exempt duties of the “white collar” administrative, executive or professional exemptions).

Determine the financial and budgetary impact on your organization.

If you determine that you must convert some “exempt” employees to non-exempt status, decide how you will address it.

Ask yourself these questions:

• Will the organization need to staff differently, hire more people working fewer hours, restrict the use of overtime, issue or re-issue policies and procedures addressing off-the-clock work to ensure that workers converted to non-exempt are no longer working before and after scheduled hours (i.e., sending and responding to emails and texts on weekends), train managers on new practices, and/or make other staffing adjustments?
• Will you seek to renegotiate or reopen government contracts or grant amounts to obtain higher reimbursement rates in view of anticipated increased costs?
• Will you conduct targeted solicitations of donors for additional staff funding?

Decide how you are going to implement these changes.

• Are you going to reclassify some or all currently exempt employees earning salaries below $913/week as non-exempt?
• Are you going to increase the salaries of currently exempt employees who meet the job duties test for a “white collar” exemption up to the salary threshold to maintain their exemption?
• Will you limit overtime pay?
• Will you reduce staff, hire more part-time staff to avoid overtime pay, or readjust workloads?
• Will you convert salaried non-exempt employees to hourly?
• Will you reduce a non-exempt employee’s base pay, by using a lower regular rate of pay and paying expected overtime pay?
• Will you implement other measures?

Ensure proper time records are maintained for all non-exempt staff.

A failure to keep proper time records is an independent FLSA violation.  Consider expanding time-keeping systems if needed to address a potentially much larger group of nonexempt employees than before.

Determine whether employees to be reclassified to nonexempt will no longer be eligible for certain benefits.

Consider how you are going to communicate the changes to employees to be reclassified as nonexempt to mitigate the impact on employee morale when employees previously classified as exempt may view a reclassification to non-exempt status as a demotion.

Consider how to address to wage compression issues.

If you raise the salaries of currently exempt employees to the new salary threshold, what is the rippling effect on higher salaries in the organization? Must any of those salaries of higher paid employees now be bumped up to fairly compensate the supervisors of the employees whose salaries have just been brought up to the salary threshold?

Determine how State laws will affect any changes you plan to implement.

Regardless of whether an organization or its employees is covered by the FLSA, employers must still also comply with their own States’ labor laws.  Confer with your employment counsel about your State’s laws.  Does your State require employers to provide advance notice to employees before making changes to wages?  In New York, for instance, employers must provide at least 7 days’ notice before making any changes to the written notice of pay rate unless the paystub will reflect that change, and must notify an employee in writing before reducing wages.  Many States’ minimum wages will increase in 2017 so employers need to be alert to those developments as well.

V.     DOL Guidance for Not-for-Profits on Final Overtime Rules

The U.S. Department of Labor has issued two pieces of guidance specifically for not-for-profits, including a reminder about the federal law concerning the use of volunteers.  Note that States may also have their own laws regarding the use of volunteers, as New York does, and employers will need to comply with State laws and court decisions in those jurisdictions.

Links to the U.S. DOL guidance sheets are attached here:

https://www.dol.gov/sites/default/files/overtime-nonprofit.pdf https://www.dol.gov/whd/overtime/final2016/nonprofit-guidance.pdf.

VI.     Will Change in Political Winds Affect Rule?

On November 22, 2016, a federal court judge in the United States District Court for the Eastern District of Texas, an Obama appointee, is expected to rule on injunctions in two separate, now consolidated lawsuits, challenging the Department of Labor’s new overtime rule and seeking to prevent it from taking effect on December 1st.  One lawsuit was brought by 21 States and the other was brought by more than 50 business groups.

In September, the U.S. House of Representatives passed a bill that would delay implementation of the final overtime pay rule for six months (see H.R. 6094, the Regulatory Relief for Small Businesses, Schools and Nonprofits Act).  Notwithstanding such pending action by the House and a similar bill introduced recently in the Senate, President Obama is likely to veto any such legislation.

Even assuming the Judge denies the injunction and President Obama vetoes the proposed legislation, it is anyone’s guess whether the Final Rule will later be reversed or modified in some respect, including the automatic salary increases every three years, with a Republican President in 2017.  However, for now, employers must hunker down and implement changes to be compliant with the December 1^st deadline.

VII.      Some Final Thoughts

A number of non-profits have voiced objections to this new rule on the grounds that increased staffing costs will make it more difficult for them to execute their mission and provide contractually mandated programs.   At least one commentator, however, has questioned whether nonprofit organizations that underpay or do not pay their workforce are undermining their own missions of helping those in need.  See, e.g., http://www.theatlantic.com/business/archive/2016/08/the-plight-of-the-overworked-nonprofit-employee/497081/.  The current federal salary threshold of $23,660 is below the poverty line for a family of four.  Is it incongruous for a non-profit to oppose an increase in wages for its own staff above the poverty line while promoting the betterment of the world or a particular group as part of its mission?  Or put another way, how can the shoemaker provide shoes to others when he cannot provide shoes for his own children?  This is a point for all non-profits to consider while they seek to better the world in some way.

[1] * Note that the DOL has carved out a limited-time, non-enforcement policy exception for Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds.  With respect to those facilities, the DOL will delay enforcement of the Final Rule until March 18, 2019.

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Adding juice to the initiative is DOL’s  increased coordination between federal and state labor agencies. Ms. Smith announced that the DOL has established partnerships with various states, including approximately 13 memoranda of understanding that allow for the sharing of information between federal and state authorities. A determination at the state level could now bring an action by the DOL, significantly raising the stakes.

The DOL has also started to file amicus briefs supporting claims by individuals against employers over exempt classification and overtime payments. Plaintiff attorneys have been having a field day filing suits against unsuspecting employers.

The use of unpaid interns is also under scrutiny.  The fragile economy has made the practice of using unpaid interns more common. Although not necessarily unlawful, the DOL considers a series of factors when assessing the legality of such arrangements. In particular, the criteria include whether the internship provides training similar to that provided at an academic or vocational school; displaces a regularly paid worker; and whether the employer derives any immediate advantage from the intern’s activities.

Nonprofits certainly could be subject to the DOL enforcement efforts and should therefore exercise caution about their employment and contracting practices.  The DOL, along with State Labor commissions, have issued rules and guidelines for companies and organizations that employ unpaid interns. Organizations that offer unpaid internships to young workers should consider creating written policies incorporating the federal DOL criteria. In addition, the IRS has been running an amnesty program called the Voluntary Classification Settlement Program that provides partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat workers as employees. (see our post IRS Continues Amnesty Program for Misclassified Workers).

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