The new year ushered in a variety of changes in the area of employment law, most notably with respect to wages. Whether you need to get up to speed or could just use a refresher, these are the recent developments with which you will want to evaluate compliance—and why compliance is becoming more important as we move into the 2020s.
Overtime Rule (2.0)
January 1 brought a new salary threshold for the Fair Labor Standards Act’s (FLSA) white-collar exemptions.
The U.S. Department of Labor issued its final overtime rule, estimated to make 1.3 million additional American employees eligible for overtime pay under the FLSA. When the final rule took effect on January 1, 2020, the salary threshold (just one of the requirements) for most federal overtime exemptions increased from $455/week, a level set in 2004, to $684/week, equating to $35,568 for a full-year employee.
On average, the convenience and fuel retailing industry already paid store managers more than the federal minimum threshold. Long before the increase was announced, the average salary for c-store managers was $45,179, according to NACS State of the Industry Compensation Report of 2018 Data. Still, some employers, particularly small establishments in the south or in rural areas, have felt this change. Indeed, at the assistant manager level, where the average salary was $29,533, the increased salary threshold is leading members to increase salaries or treat more employees as non-exempt and eligible for overtime.
Regular Rate
Taking effect next, provisions regarding the “regular rate” went into place on January 15.
Under the FLSA, non-exempt employees must be paid “at a rate of not less than one-and-one-half times the regular rate” for any hours the employee works in excess of 40 hours in a workweek. The “regular rate” in turn, is a workweek-by-workweek calculation that takes into consideration “all remuneration for employment paid to, or on behalf of, the employee,” subject to eight categories of exclusions. For the first time in more than 60 years, the U.S. Department of Labor (DOL) updated its interpretative guidance with respect to these permissible exclusions.
These eight categories of exclusions have provided ample ground for extensive and costly litigation in recent years, as the decision to exclude a certain sum may have considerable impact on an employee’s “regular rate.” The changes were meant to harmonize the agency’s position with the compensation and benefits practices of the modern workforce.
The final rule also addresses a variety of other miscellaneous issues. For example, it reiterates that bonuses that merely label the payment as “discretionary” do not guarantee that the pay is truly optional in nature, one of the requirements for excluding bonuses from the regular rate. It also provides additional examples of excludable discretionary bonuses: employee-of-the-month bonuses; bonuses to employees who made unique or extraordinary efforts in unexpected circumstances; and traditional severance bonuses.
Joint Employment
Rounding out the early 2020 changes is the long-awaited position on joint-employer relationships under the FLSA.
The “joint employment” principles govern when one business may be legally responsible under federal wage and hour law for another company’s employee. The new rule, which takes effect March 16, largely followed comments filed by NACS and others urging a return to an analysis that focuses on the exercise of direct control over an individual in order to be deemed an employer or joint employer.
Notably, NACS members should keep in mind that, though far less publicized, another version of joint employment might be found in certain scenarios where an employee is performing work for two different employers. For example, a stock person working at more than one convenience store location might be jointly employed by both or even an individual providing shared services to different, unrelated businesses at adjacent locations.
On the Horizon
As the DOL continues to check off its agenda, it is expected to address two other areas.
First, it has proposed revisions to the “fluctuating workweek” pay plan, which permits employers to structure a non-exempt employee’s pay so that the employee receives the benefit of a static salary and still receives overtime, but the employer can better control its labor costs. We expect the department to publish a final version in the coming months.
Compliance is harder than ever, while the penalties for non-compliance are harsher than ever.
Second, the DOL intends to evaluate its position regarding the “7(i) commission overtime exemption,” which permits most retail establishments to exempt from overtime those employees meeting certain pay requirements. The thrust of the changes is expected to focus on what is deemed “retail” in today’s market, but even the current definition already encompasses most members. Nonetheless, all retail employers should be on the lookout for any changes regarding how commissions are analyzed.
State/Local Provisions
Across the country, numerous state wage and hour laws have been enacted or amended during the past 10 years to greatly expand employee rights and protections. There have been substantial increases in the state and local minimum wage, which are now commonplace in many states and cities throughout the country. In 2010, only a handful of states had minimum wage requirements above the federal rate.
Employers also can expect continued developments in the area of “predictable scheduling” laws that take reporting and call-in pay requirements to a new level. For the most part, these scheduling provisions are city or county specific and cannot be described sufficiently here. But be forewarned: Compliance is particularly difficult for employers with 24-hour businesses and/or a relatively small workforce.
Higher Stakes
During the past decade, employers have been forced to grapple with increasingly complex, overlapping and intersecting requirements with costly ramifications for non-compliance. Taken together, compliance is harder than ever, while the penalties for non-compliance are harsher than ever. Many states, especially the more progressive ones like California, New Jersey and New York, now have stringent laws aimed at punishing violations of the wage and hour laws, and they include severe remedies such as double or triple damages, lengthy statutes of limitation up to six years, criminal penalties and stringent anti-retaliation rules.
At the end of the day, perhaps the most concerning development in the 2010s was the marked proliferation of class and collective actions claiming violations of wage and hour laws. High-stakes lawsuits have unfortunately become commonplace, and the number of wage and hour lawsuits filed on a yearly basis has done nothing but increase during the past 10 years. Claims alleging violations of state and local laws have substantially increased both the volume and financial exposure that the average company faces, and we don’t see this changing in the 2020s.