LeapYear20004359.jpgWe all can recall the traditional Mother Goose rhyme to remember how many days each month had: “Thirty days hath September, April, June, and November. All the rest have 31….Except for February.” It always seemed odd that this supposed Mother Goose rhyme couldn’t figure out how to fit February in. The payroll calendar, at least for those employers with bi-weekly pay periods, doesn’t fit it in either. That means that while 2015 isn’t a leap year on the calendar, it will be a Pay Period Leap Year for many employers.

What is a Pay Period Leap Year?

Pay Period Leap Years are years with an extra payroll period. For employers with weekly pay periods, each year has 52 weeks (where each week is exactly 7 days) plus 1 or 2 additional days (if it is a leap year). Similarly, for employers with bi-weekly pay periods, 26 bi-weekly periods only account for 364 days each year, not 365 (or 366 in leap years). Those extra days add up, and employers periodically face an extra pay period for employees that they pay on a weekly or bi-weekly basis. Those are “Pay Period Leap Years.” If you pay employees weekly, your Pay Period Leap Year will occur every five or six years. If you pay bi-weekly, your Pay Period Leap Year will occur roughly every 11 years. Your exact cycle will also depend on the last day of your workweek, when you close your pay period and issue paychecks, and how you deal with payday holidays. This post will outline the most common situation, but please contact us if you need help determining whether the Pay Period Leap Year will apply to you in 2015.

How to Determine if 2015 is a Pay Period Leap Year for Your Business

If the year starts on a Thursday in a non-leap year, like 2015, you end up with 53 Thursdays. (If either of the first two days lands on a Thursday during a leap year, then you can also get 53 Thursdays). This means that for employers who pay employees weekly or bi-weekly, 2015 could be a Pay Period Leap Year! If your first weekly paychecks will issue on Thursday, January 1, 2015, you will have a fifty-third pay period on December 31, 2015. If your first bi-weekly paychecks will issue on Thursday, January 1, 2015, you will have a twenty-seventh pay period on December 31, 2015, depending on payday holiday processing rules.

2015 could also be a Pay Period Leap Year if your first payroll date will be Friday, January 2, 2015. If your first weekly or bi-weekly paychecks will issue on January 2, 2015, you will likely have a an extra pay period on December 31, 2015, because when a payday falls on a holiday (as it will on Friday, January 1, 2016), many employers issue paychecks on the business day before that holiday (Thursday, December 31, 2015).

Why is the Pay Period Leap Year a Big Deal? 

An extra pay period does not matter for hourly employees who are paid for the actual time they work. However, you probably have realized by now that Pay Period Leap Years mean paying salaried employees their annual salary over either 53 or 27 pay periods in a year. Some simple math might help. For instance, if you pay an employee $52,000 per year, you would pay him or her $1,000 in each of 52 weekly pay periods or $2,000 in each of 26 bi-weekly pay periods. If you change nothing, in a Pay Period Leap Year, you would pay the employee $53,000 over 53 weekly pay periods (a 2% raise) or $54,000 over 27 bi-weekly pay periods (a 4% raise).

Handling Pay Period Leap Years

Obviously, paying employees extra money over the course of a year could have a significant financial and cash flow impact for employers of all sizes. The changes raise wage and hour issues, too. Here are three options for handling Pay Period Leap Years if you pay employees on a weekly or bi-weekly basis (again, employers on monthly and semi-monthly pay periods never have Pay Period Leap Years):

  1. Pay the same amount in each pay period as you did in the non-Pay Period Leap Year. As discussed above, if you do nothing, employees will receive an effective increase of approximately 2% or 4% in Pay Period Leap Years. This is the simplest approach, and presents little legal or practical risk (who complains about getting more pay?). Paying 2% or 4% more in a year primarily impacts wage earners at the top of the income scale, since they may hit the withholding limit for Social Security earlier, and the extra pay may trigger additional Medicare tax withholdings. Paying additional salary may impact 401(k) or other retirement contributions, too. If you aren’t careful, you could exceed annual contribution limits, triggering either penalties for your employees or the need to issue refunds. Your existing payroll systems or accountants likely account for this, though. We would encourage you to notify employees of this decision for two reasons. First, you are providing employees with a pay increase, so take credit for it! Second, you need to remind employees that the pay increase is temporary and that their annual pay will go back to normal after the Pay Period Leap Year when they again have 52 (or 26) pay periods. 
  2. Divide the total salary by 53 (or 27) pay periods rather than 52 (or 26). This ensures that employees get the same compensation as in non-Pay Period Leap Years, but it also means employees would get slightly less per paycheck. Using our example above, a $52,000 per year employee would get $981.13 per week or $1925.93 every two weeks. Other than the potential employee morale issues, lowering the weekly or bi-weekly salary amount could put lower-paid employees below the current $455 salary threshold (sure to increase in 2015) and jeopardize their exempt status under the FLSA or state laws.
  3. Adjust only the last paycheck of the year. As with the second option, employees receive the same total pay for the year. However, this option only works for some salaried, exempt employees, since the reduction for salaried, non-exempt employees, among others, could result in violations of the FLSA’s minimum wage rules or state minimum wage and wage payment laws. This option is fraught with legal danger, and gives employees a nasty surprise at the end of the year, regardless of whether you advise them that this is the approach you plan to use. 

Before you select an option, though, you must first examine your employees’ employment agreements, offer letters, or collective bargaining agreements. If those documents specify an annual salary only, then you have a choice to make. However, if those documents provide for a specific weekly or bi-weekly salary only, then you have no choice to make: you must select the first option, even though this means employees receive an extra paycheck because of the Pay Period Leap Year.

If next year is a Pay Period Leap Year, plan now for how to handle it and notify employees as soon as possible. Due to the various ways that bi-weekly paychecks in particular can be calculated, not every employer will face a Pay Period Leap Year next year. Some may experience it the following year, and some may have experienced it this year. In any case, it’s worth checking with your friendly wage and hour counsel so you can plan ahead and ensure that you have your payroll schedule, benefit plans, and employee communications ready for the New Year.

Happy New Year—we’ll see you back here in 2015!

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This past spring (here and here), I discussed rounding time clock punches (usually automatically with a time clock system) at the beginning and end of a shift. To recap briefly, rounding is the practice of adjusting time clock punch times within specific bounds. For example, if your employees punch in for work at 7:57, 8:01, and 8:02, your rounding rules may treat all of those punches as occurring at 8:00 a.m. for payroll purposes.

Even if it isn’t something that we recommend employers do (absent special circumstances), this practice of rounding employees’ time up or down in increments is permissible under the Fair Labor Standards Act’s (FLSA) regulations under specific circumstances. Paying for actual time worked is always the best practice, but for those of you that can’t easily track time down to the exact minute, Section 785.48 of the FLSA’s regulations provides that employers may utilize time clocks that round up or down in increments of up to a quarter hour so long as the clock rounds both ways, occasionally in the company’s favor and occasionally benefitting employees. 29 C.F.R. §785.48(b). But what if the “rounding” effect isn’t due to the time clock, but access to the time clock? That’s essentially the question one reader sent me recently:

Q.  We do not use a time clock for some of our field employees. Instead, we have them log on to a remote system and send an e-mail when they arrive. Before they leave, they log on to the remote system again and send another e-mail. The e-mail timestamps serve as the punch-in and punch-out times. The problem is that logging onto our server to send this e-mail can take anywhere from 3 or 4 minutes to as long as 10 minutes, start to finish, for these employees. We then round to the nearest tenth of an hour, just for ease of payroll computations. This does not seem like a very accurate way to track time, I know, but is it legal?

While this method might be inefficient, it is nonetheless one practical way to track time for this group of employees that does not have access to a time clock. Ultimately, what our reader describes above is just “rounding” with a twist. Let’s take the easy part first. Rounding entries to the nearest tenth of an hour is one of the enumerated intervals specified in the regulations. 29 CFR § 785.48(b) actually gives you three standard increments you can use: five minutes, six minutes (1/10th of an hour), or 15 minutes (1/4 of an hour). By rounding to the nearest tenth of an hour, this calculation is likely to cut both ways: sometimes in the company’s favor and sometimes in the employees’ favor. Of course, remember to check your state laws and regulations, too, as they may impose additional limitations, or even provide additional incremental rounding options.

Continue Reading Adventures in Rounding: What if the “Rounding” Doesn’t Happen at the Time Clock? [Wage & Hour FAQ]

If you read this blog, attend presentations on wage and hour issues, or just shudder every time you read about another overtime or minimum wage lawsuit, you might assume that all employees are covered by the federal Fair Labor Standards Act (FLSA) and its regulations. However, in some rare circumstances, the FLSA may not cover very small and, importantly, local businesses, meaning that those businesses’ employees may not be entitled to the minimum wage or overtime pay under the FLSA. A quick warning before we start: as we have highlighted in the past, though, most states and an increasing number of local governments do not provide exemptions from state and local minimum wage laws, even for small businesses. With a very few exceptions, the fact that the FLSA does not apply only resolves one half of the question; you almost certainly still have to contend (and comply) with state and local laws, that may have different standards and penalties.

Setting aside state and local issues for a moment, the FLSA provides two different ways for coverage to apply: and “enterprise coverage” and “individual coverage.” Setting aside more complex corporate structures that can implicate “joint employer” or similar tests, both coverage tests are straightforward. For most businesses, the FLSA’s enterprise coverage provisions will apply if the business meets two tests. First, the business must be involved in interstate commerce. Second, the business’s gross annual revenue must be at least $500,000. If a business meets both tests, then all employees working for the business are covered, regardless of whether they ever engage in interstate commerce. Notwithstanding these limits, the FLSA also automatically covers some businesses, such as schools, hospitals, nursing homes, or other residential care facilities as well as all governmental entities (regardless of the level of government), no matter how big or small.

Continue Reading Not Every Employee is Covered by the FLSA, But You’re Not Off the Hook Just Yet

hair salon1405004.jpgIn the past, we’ve explained the DOL’s test for whether employers must pay their interns. Put simply, public employers and qualifying not-for-profit entities do not have to pay their interns. I hope that our more recent discussions of lawsuits that demonstrate the ever-narrowing segment of lawful unpaid internships have spurred some discussions and re-examination among readers of this blog who have internship programs. Judging by some of the calls and e-mails we have received since then, employers have begun seriously considering whether those unpaid internships are really free labor. However, hope is not lost—it is still possible to have unpaid interns under the right circumstances, as one recent New Jersey case demonstrated.

In this case, a beauty school student sued the for-profit beauty school under the FLSA for alleged unpaid wages she earned while providing services to paying customers at the beauty school. The student claimed that these services, along with cleaning duties and paperwork she completed, were essential to the beauty school’s operation. Because the duties were essential, the student claimed that she and other students qualified as “employees” under the FLSA and should have been paid at least the minimum wage for this “work.”

The beauty school countered that the services, clerical, and janitorial functions were simply required clinical work that the student had to complete to qualify for a cosmetology license in New Jersey. Under state law, an individual who wants a cosmetology license must attend a licensed beauty school and work a certain amount of hours in a clinical setting. In this clinical setting, members of the general public receive cosmetology services from registered students for a fee. According to the school, this fee covers the cost of materials used in the services, and is less than the market rate for such services. In return for providing the services, school students receive credit toward graduation and the clinical portion of the cosmetology license prerequisites.

The student claimed that she was an employee under the FLSA because the school operated as a for-profit business and actually profited from the services that she and other students provided, and because the school was the primary beneficiary of her “work.” However, the student’s first argument misstated the “economic realities” test, and the second was not persuasive in a clinical training session.

As the court found, the “profitability” of services or businesses alone does not dictate whether an employment relationship exists. The fact that the school also benefitted from the clinical work, and even the ancillary cleaning and clerical services, did not sway the court, either. As the court observed, the entire point of the clinical training portion of the school was to imitate the conditions in an actual salon, where students would have to provide services, clean, and do paperwork. Indeed, the supervised clinical program not only provided necessarily skills and experience, but was a requirement of licensure. In other words, the student could not provide cosmetology services without first completing this required clinical work per state law, not at the whim of the beauty school.

Other factors weighed against the student as well. The clinical work did not provide students with a livelihood. They trained at the school with the understanding that the clinical program had a definite end date with no continued employment. In reality, the court held, students at the beauty school were just that: students gaining professional clinical skills to meet a statutory requirement.

New school semesters start soon, which often means a new crop of interns. Even with this favorable outcome, given the continued focus by the DOL on unpaid internships, you should carefully review your unpaid internship or other clinical programs to ensure that they meet the FLSA’s requirements. As this case demonstrates, a clinical program (even ones not mandated by state law like this one) is most certainly going to be viewed differently than an everyday “office” internship.

wolf in sheeps clothing.jpgRecently, I read about a construction contractor in Los Angeles caught in the middle of litigation between its subcontractors and the city, on behalf of the subcontractor’s former employees. According to the employees, the subcontractors had allegedly promised to pay them the prevailing wage for that area of $49.00 per hour, but had only paid them $5.00 to $8.00 instead. Ultimately, the complaint focused on the subcontractors’ falsification of records and misclassification of employees, and related city and state law violations, rather than which rate was the real “regular rate” for FLSA purposes: the proper $49.00 per hour prevailing wage rate the subcontractors had promised, or the actual $5.00 to $8.00 rate they paid. But what if the employees had sought overtime based on the higher rate? Would dressing up a breach of contract claim as one for overtime under the FLSA have worked?

Recently, the Tenth Circuit answered this question in an FLSA collective action. Hundreds of current and former employees of the Jefferson County, Colorado Sheriff’s Department sued the county alleging that they did not receive the proper overtime rate under the FLSA. The dispute centered on what the employees’ true “regular rate” was for purposes of overtime calculations under the FLSA. According to the employees, they received a lower regular rate (from which the county then calculated their overtime rates) than the rate that the county promised to pay them in salary schedules it had posted. The employees claimed that their “regular rates” for the purposes of the FLSA were the promised rates, not the actual rates they received in their paychecks. The employees sued to recover the difference between the overtime payments they actually received and the overtime payments they would have received if they had received the higher, promised rate. The district court agreed with the employer that the promised rates were never made part of the budget the country had adopted and the plaintiffs had presented no facts to demonstrate some other promise to pay the higher rates, and dismissed the complaint.

On appeal, the Tenth Circuit saw through the breach of contract wolf in the FLSA sheep’s clothing, explaining that the FLSA is not “an all-purpose vehicle to resolve wage disputes between employers and their employees” and holding that the employees failed to state a claim for unpaid overtime. Back in 1944, in an early FLSA decision, the Supreme Court explained that the regular rate is based on “the hourly rate actually paid for the normal, non-overtime workweek.” Citing this case and its own precedent, the Tenth Circuit reasoned that even if the promised rates were relevant to an express or implied employment contract (perhaps to a breach of contract claim, though the court didn’t elaborate), they “are not controlling, because the regular rate is an ‘actual fact,’ rather than ‘an arbitrary label chosen by the parties.’”

Setting aside breach of contract or other equitable theories, this case illustrates the basic principle that under the FLSA, non-exempt employees are entitled to overtime pay based only on their “regular rates.” Absent a collective bargaining agreement or some other specific but rare situations, that regular rate will be based on the one an employer actually pays for straight time work, not some other promised rate.

 

Us_supreme_court_seal.pngIn October, we profiled Integrity Staffing Solutions, Inc. v. Busk, a case asking whether time spent in security screenings is compensable under the Fair Labor Standards Act (FLSA). Warehouse workers sued Integrity Staffing under the FLSA for uncompensated time they were required to spend in lengthy security screenings (lasting up to 25 minutes) at the end of their shifts during their assignments to work in Amazon warehouses. At the time, we suggested that it would be “hard to envision a result different” from last term’s Sandifer v. U.S. Steel case. This prediction came true, but from a unanimous Supreme Court, rather than a sharply divided one. The Court held that the employees at Integrity Staffing Solutions facilities in Nevada could not claim compensation for the time spent going through security screenings aimed at protecting against theft because these activities were not integral and indispensable to their principal duties.

In a short opinion written by Justice Thomas, the Court reversed the Ninth Circuit’s ruling that we discussed in October, and agreed with the district court’s original analysis, as well as the rationale in decisions from the Second and Eleventh Circuits, by finding that the screenings were not the principal activities the employees were employed to perform. As the Justices had hinted at during oral argument, the decision explained that Integrity Staffing did not hire employees to go through security screenings but to retrieve products from the Amazon warehouse shelves and package them for shipment. These security screenings were not integral and indispensable to the “performance of productive work,” as the FLSA regulations require. The Court observed that, unlike requiring pre-shift donning and doffing of protective gear, Integrity Staffing could have completely eliminated the security screenings altogether without impairing the safety or effectiveness of the employees’ principal activities.

Under the FLSA, as amended by the Portal-to-Portal Act, employers generally need not compensate employees for “preliminary” (pre-shift) and “postliminary” (post-shift) activities, unless the activities are “integral and indispensable” to an employee’s principal activities. To be “integral and indispensable,” an activity must be (1) “necessary to the principal work performed” and (2) “done for the benefit of the employer.” The FLSA distinguishes between activities that are essentially part of the ingress and egress process and those that constitute the actual “work of consequence performed for an employer.” Finding the security screenings were clearly part of the former, the Court cited an early Department of Labor opinion interpreting the Portal-to-Portal Act in 1951, where the Department had found non-compensable a pre-shift security search of employees in a rocket-powder plant “‘for matches, sparkproducing devices such as cigarette lighters, and other items which have a direct bearing on the safety of the employees,’” as well as a post-shift security search of the employees done “‘for the purpose of preventing theft.’” The Department of Labor had drawn no distinction between the two types of searches (employee safety versu theft prevention), finding them both non-compensable under the Portal-to-Portal Act.

The Court also expressly rejected the Ninth Circuit’s test, which had focused on whether an employer required an employee to engage in a particular activity. The Court explained that by failing to tie activities to the employee’s performance of productive work, the Ninth Circuit had broadened the definition of “principal activities” to include “the very activities that the Portal-to-Portal Act was designed to address” and exclude from compensation. The Court also dispatched the employees’ argument that Integrity Staffing violated the FLSA because it could have acted to reduce the time spent in the security screenings to a de minimis amount. The Court found this decision had no bearing on the FLSA analysis and was an issue “properly presented to the employer at the bargaining table, not to a court in an FLSA claim.” Justice Sotomayor, joined by Justice Kagan, wrote a separate concurrence.

What Does the Integrity Staffing Decision Mean for Employers?

Of immediate concern, the Supreme Court’s decision provides a clear, final answer for employers on security screenings, which have become more common. The decision also wipes out the spate of class and collective action lawsuits filed by employees seeking backpay for time spent undergoing pre- or post- shift security checks that were filed in the wake of the Ninth Circuit’s decision, eliminating some tremendous potential liability for those employers. More broadly, even though this case focused only on security checks, the decision could further limit the scope of what constitutes “integral and indispensable” activities. Over time, a more limited view of an employee’s principal activities should prove valuable to employers looking for certainty about the compensability of a host of pre- and post-shift activities (save for donning and doffing, which remains somewhat of an enigma).

lunch9568375.jpgAs you know, under the FLSA, “bona fide meal periods” are not regarded as work time and can be unpaid. For a break to qualify as a bona fide meal period, “[t]he employee must be completely relieved from duty for purposes of eating regular meals,” and the break must generally be at least 30 minutes or longer. The rules even allow periods shorter than 30 minutes to qualify as unpaid “under special circumstances.” For example, in a 2004 opinion letter, the Department of Labor found that an employer could permissibly reduce its 30-minute unpaid lunch break to 20 minutes and provide an extra 10 to 15-minute paid break, given that the employer and employees’ union agreed to the arrangement and that it took employees only one to one-and-a-half minutes to reach the break room once they were relieved from duty.

Often, questions about unpaid meal periods lead to questions about automatically deducting a meal period for non-exempt employees, like this one:

Q: When an hourly employee takes a 30-minute unpaid lunch break where they are completely relived of their job duties, do they have to record the actual time of day the lunch break was taken? Our time and attendance system allows employees to enter their start time and end time, and then to enter the length of the meal break, which by default is 30 minutes. The system automatically subtracts the length of the unpaid lunch entered by the employee (or 30 minutes, if the employee enters nothing). Does it matter that we do not record the actual start and end times of the lunch break?

Most employers in our experience have employees clock in and clock out for lunch and deduct this exact time from the paid portion of the workday. However, some employers—either because of the nature of the work or industry or because of historical practices—have implemented automatic deductions for meals. Under this approach, the employer simply deducts a set amount of time each day or shift for an employee’s meal break. As we discussed earlier this year with rounding breaks and meal periods, unless you are facing a unique challenge, requiring non-exempt employees to clock out and back in for meal periods is easy and avoids any of the ambiguity of automatic deductions. It’s also transparent to employees. For those of you who need or want to implement automatic deductions, though, you are not out of luck. The DOL does allow automatic deductions under the FLSA, like the system described above by our reader.

Here are a few pointers that will help you avoid some of the risks associated with automatic deductions under the FLSA. First, employers must remember that the FLSA requires them to compensate employees for all work “suffered or permitted,” even work the employer does not know about or even specifically authorizes in advance. That makes meal times potentially troublesome, such as when employees are eating at their workstations or using their smartphones during their lunch break.

In Quickley v. University of Maryland Medical System Corporation, a hospital automatically deducted 30 minutes from employees’ daily time records for scheduled meal breaks, just like the employer in our question above. Unlike our employer above, though, the employees who sued the hospital alleged that they had no way (either through their electronic time clock or manually) to adjust this deduction if they worked during their meal break. In denying the hospital’s motion to dismiss, the court explained that if an employer adopts an automatic deduction policy that shifts the burden to an employee to report deviations in standard meal breaks, the employer must clearly articulate its policy to employees and “make every effort to facilitate reporting opportunities.” The court explained that employers “cannot simply abdicate responsibility for adequate compensation by shifting the burden to employees.” To minimize wage and hour liability, an employer must “exercise its control and see that the work is not performed if it does not want it to be performed.”

Like our reader, employers who adopt automatic deduction policies for meal breaks must implement a policy and regularly train new hires, employees, and supervisors on how to use it. Importantly, the policy and the actual timekeeping system must provide ways (preferably more than one) for employees to override or adjust an automatic deduction if they work during some or all of their meal breaks. The best practice is to simply require employees to clock out and back in for meal breaks, but automatic deductions can be an option for you if you structure your policies and practices carefully. As always, make sure you talk to wage and hour counsel first before trying any of this at home!

Do you have a wage and hour question that you would like us to answer on this blog? If so, contact us! Leave a comment, or e-mail me at dah@franczek.com. We’ll get an answer to you about your situation if we can, and we even may use general and hypothetical questions here on the blog.

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UPDATE (5/27/2015): The DOL sent draft FLSA regulations to the Office of Management and Budget on May 5, 2015 for approval prior to their public release. For the most current updates on the status and content of these new regulations, please see our series of posts on this topic.

Late last month, the Department of Labor released its Fall 2014 Agency Rule List that included a range of proposed regulations covering everything from the FMLA definition of “spouse” to labor union annual reports and persuader rules. Most importantly for readers of this blog, though, the DOL added an entry to its list for a proposed rule to implement President Obama’s directive to modernize and streamline FLSA regulations for executive, administrative, and professional employees. The DOL now expects to publish the rule by the end of February 2015, according to this filing with the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA).

Like the required Semiannual Regulatory Agenda that we covered earlier this year, this list is not binding on the DOL. The Semiannual Regulatory Agenda had originally promised new draft regulations by November, but the Department delayed the release in October. The FLSA provides for overtime exemptions (and minimum wage exemptions, in some cases) for employees who are employed in a bona fide executive, administrative or professional capacity, or in the capacity of an outside salesperson. On March 13, 2014, President Obama directed the Secretary of Labor to modernize and streamline existing overtime regulations for executive, administrative, and professional employees.

As we have discussed in the past, any proposed changes to the overtime regulations are subject to the federal Administrative Procedure Act’s rulemaking process, which means the administration would need to complete a number of time-consuming steps before any rule change could take effect. These steps include the proposed February 2015 notice of proposed rulemaking followed by a public comment period. Then, the DOL would need to hear testimony, consider public comments, and have a final version of the revised regulations approved by OIRA. Typically, the public comment period will extend at least 30 days. After, the DOL drafts a final regulation that responds to any public comments, OIRA would then conduct a final review, approve the text of the regulation, and publish it in the Federal Register. The period for the Office to review a draft regulation is limited by an Executive Order to 90 days, with the possibility of a single, 30-day extension. While there is no minimum period for review, the average review time in past years has been approximately two months. Therefore, even with a short 30-day comment period and a quick turnaround on a final rule, the DOL is unlikely to have any new regulation in place before summer 2015. Even if the administration can push through the new regulations before the end of President Obama’s term, affected parties are likely to file legal challenges to any revisions, which could potentially delay their implementation further.

The Agency List contains some other interesting tidbits from the DOL as well. Other than the final rule on the FMLA definition of “spouse,” slated to be finalized in March 2015, the Wage and Hour Division also plans to finalize the implementing regulation for Executive Order 13658. On October 7, the DOL published a final rule on this Executive Order, which raised the minimum wage for federal contractors to $10.10 per hour, with future increases indexed to inflation. The rule takes effect on December 8. Notably, the “Right to Know Under the Fair Labor Standards Act” proposal that appeared on the Semiannual Regulatory Agenda does not appear on the Rule List, meaning that any potential action on this proposed regulation remains a long way off, if it will be released at all. The “Right to Know” regulation would “enhance the transparency and disclosure to workers of their status as the employer’s employee or some other status such as independent contractor, and if an employee, how their pay is computed.” The DOL has been delaying this proposed rule since early 2011. 

coins_20bill_14741128.jpgWith the election season behind us and 2015 fast approaching, employers need to start looking ahead to the new year when, traditionally, a host of new laws take effect. As we discussed after the election, 2014 was a busy year for wage and hour laws, and 2015 will be no different. Four states—Alaska, Arkansas, Nebraska, and South Dakota—voted to increase their minimum wages beginning as early as January 1, 2015. Those are not the only states that will see changes to the minimum wage in 2015, though.

As I have covered on Twitter in recent months, a number of states automatically adjust their minimum wages annually based on a number of factors. Employers in Arizona (10 cents to $8.05), Colorado (23 cents to $8.23), Florida (12 cents to $8.05), Missouri (15 cents to $7.65), Montana (15 cents to $8.05), New Jersey (13 cents to $8.38), Ohio (15 cents to $8.10), Oregon (15 cents to $9.25), and Washington (15 cents to $9.47) will all need to adjust wages on January 1.

Montana in particular has a quirk in its law. Unlike other states, such as Ohio, that provide complete exemptions from the minimum wage for small businesses, Montana employers with gross annual sales of $110,000 or less are required to pay a minimum wage of $4.00 per hour. Nevada employers can expect an increase, too, but the state’s Office of the Labor Commissioner does not have to publish its decision until April 1, 2015.

New York will jump the gun on all of those states. On December 31, 2014, the state increases its minimum wage to $8.75 per hour, though the minimum cash wage for various service employees will remain unchanged (only the tip credit maximums will adjust). New York is considering further changes in 2015 regarding tipped employees. Look for a specially convened Wage Board to make recommendations in 2015.

In Connecticut, the minimum wage will increase from $8.70 to $9.15 per hour. For hospitality employers, the state also provides various limits on tip credits. The maximum tip credit an employer can claim will be 36.8% of the minimum wage per hour for wait staff, 18.5% of the minimum wage per hour for bartenders, and $0.35 per hour for other tipped employees.

In Hawaii, the minimum wage will increase by 50 cents to $7.75 on January 1. Hospitality employers get an increase in the maximum tip credit, too, to $0.50 per hour. The bad news is that employers can only take the tip credit if the employee earns at least $7.00 an hour more than the minimum wage (at least $14.75 per hour, starting January 1).

In Maryland, employers will face not one but two minimum wage increases in 2015. On January 1, the rate jumps from $7.25 to $8.00 per hour. Then, on July 1, 2015, Maryland will increase its minimum wage again to $8.25 per hour. Tipped employees will continue to have a minimum cash wage of $3.63 per hour, meaning the maximum tip credit will increase.

Both Massachusetts and Rhode Island will increase their minimum wage on January 1, 2015 from $8.00 to $9.00 per hour, while Vermont will increase its minimum wage to $9.15 per hour. Finally, West Virginia’s minimum wage will jump from $7.25 to $8.00 per hour.

Later in 2015, Delaware will increase its minimum wage from $7.75 to $8.25 per hour effective June 1, while Washington, D.C. will move from $9.50 to $10.50 on July 1. Finally, on August 1, Minnesota will increase its two tier minimum wage from $8.00 to $9.00 per hour for employers with gross sales over $500,000 and from $6.50 to $7.25 per hour for employers whose gross sales fall under that threshold. In all, a total of 23 states, and the District of Columbia, have established a minimum wage above $7.25, the current federal rate.

Over the past few months, we have also highlighted the increasing number of local ordinances that apply to employers around the country. For instance, Los Angeles recently enacted a “living wage” ordinance for hotel employees. Oakland, Seattle, San Francisco, San Jose, and Santa Fe, among others, enacted local rates for all employers in those cities that exceed federal and state minimum wage requirements. Of course, this doesn’t capture paid sick leave initiatives or other non-wage and hour changes, either. Suffice to say, 2015 will be another busy year on the wage and hour and employment law front.

The myriad of changes in minimum wage thresholds at the state and local level in 2015 mean that employers must be vigilant in monitoring legislation and adopting changes. Remember that these changes not only mean adjusting payroll but also displaying new wage and hour posters and, potentially, providing notices to employees about the new wage rates. More of these initiatives are on the horizon. Next up? Both Chicago and Philadelphia will consider minimum wage increases in spring 2015 elections. Stay tuned!

Turkey iStock_000001827125XSmall.jpgWith the Thanksgiving holiday ahead of us, we have reached the time of year where some employers start handing out Thanksgiving turkeys, holiday hams, and other gifts to employees, while others provide free or discounted lunches or other meals. You will find plenty of articles extolling the productivity virtues of well-fed employees. Employers in various industries—from hospitality to high technology to manufacturing—often have many good business reasons to provide meals, from cutting back on waste to teambuilding.

You can file this in the “no good deed goes unpunished” category, but this year’s turkeys, hams, and sandwiches have an additional complication that might give employers some indigestion: wage and hour laws and the hot new liability theory spurred by the IRS and some enterprising employees and attorneys.

I hinted at this topic last month when we discussed how the IRS had announced tighter tax enforcement of employer-provided meals and other fringe benefits. As I noted then, employees at Anheuser-Busch recently sued the company because, among other claims, it allegedly failed to include the value of “various forms of non-cash compensation, such as discounted and/or free beer” in calculations of those employees’ regular rates of pay. Whether you’re an employer or an employee, you might be shaking your head in amazement, but stick with me and don’t cancel those Omaha Steaks orders yet. Employers do need to understand the wage and hour implications of providing meals and fringe benefits to employees, but at the same time, not every turkey, dozen donuts, or Jimmy Johns run will lead to a lawsuit if you take some easy steps to limit your risk.

How do wage and hour laws impact those Thanksgiving turkeys you hand out? Take a look at the broad definition of “wages.” For instance, Florida statutes define wages as “all compensation paid by an employer or his or her agent for the performance of service by an employee, including the cash value of all compensation paid in any medium other than cash.”

As in the Anheuser-Busch case, non-exempt employees can argue that their hourly wages do not reflect the value of the free beer. In other words, beer is “compensation paid” in a “medium other than cash” that employers must factor into the regular rate of pay. The free beer, or the value of the discount in the employee cafeteria, or that Thanksgiving turkey “bonus” increases the per-hour regular rate! To take a simple example, if the employee receives a $5 daily credit in the company cafeteria, those meals add up to an extra $25 per week in compensation paid in a “medium other than cash.” For an employee earning $9/hour and working 50 hours per week, that extra $25 would increase the straight-time rate to $9.50/hour and the overtime premium to $14.25/hour. That’s only $7.50 per week, but if you multiply that by roughly 50 workweeks each year, and again by the number of employees eating in the cafeteria, you’ll have more than enough to buy your local plaintiff’s attorney a lot of Thanksgiving turkeys.

As I suggested earlier, don’t cancel your free meal programs yet. Cancelling these policies is the easy way out. What about all of that camaraderie and productivity? Those benefits aren’t illusory, and there are ways to carefully draft free/discounted meal policies or other fringe benefit policies to avoid liability for claims that those benefits should be included when calculating overtime rates for your non-exempt employees.

The first step is to look to federal law. The FLSA regulations explain that meals furnished to employees as a “convenience to the employer” are excluded from the regular rate of pay. Employers may exclude the value of meals and similar benefits in payroll calculations when (1) the meals are furnished on the employer’s premises, and (2) the meals are furnished for the convenience of the employer. The first element is easy, but what about the second element? This regulation also provides a list of those “convenient” circumstances, such as meals furnished to ensure that employees are available for emergency calls or where business reasons dictate that employers must be kept to short (“30 or 45 minutes”) meal periods. In two different places, the FLSA regulations allow employers and employees to agree to exclude from overtime calculations “the cost of a free daily lunch or other single daily meal furnished to the employees.” Ideally, this agreement should be in writing, but the regulations are silent on this point.

While every situation—and potential solution—will depend on your specific circumstance, don’t let wage and hour fears keep you from handing out those turkeys and opening the company cafeteria. Get good advice in advance on how to structure fringe benefits like these and you can rest easier that the latest en vogue wage and hour lawsuit won’t darken your door this holiday season.

Happy Thanksgiving!