Presentation for Arts Services Initiative of Western New York

1. Presentation for Arts Services Initiative of Western New York Surviving the DOL Vice Grip: Practical Insight for Managing the Flood of New Employer Regulations

2. Tough Time To Be An Employer

3. The DOL Vice Grip: Topics to Cover USDOL • Proposed Fair Labor Standards Act (FLSA) White-Collar Regulations • Independent Contractor “Misclassification” Guidance NYSDOL • Proposed “Wage Payment” Regulations • Industry-specific Minimum Wage Increases

4. Why all the Change? A “dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain that if you work hard, you have a chance to get ahead” . . . is the defining challenge of our time.” President Obama December 4, 2013

5. USDOL Proposed FLSA White-Collar Regulations

6. FLSA: The Basics FLSA has two fundamental requirements: • Minimum Wage; and • Overtime for Hours > 40/week

7. FLSA Overtime Exemptions • Overtime need not be paid if the employee meets one of several statutory exemptions • Most common are the “white-collar” exemptions: • Executive • Administrative • Professional

8. Qualifying For The White-Collar Exemptions • Three Tests: • Salary Basis • Salary Level • Duties Test • A “short-cut” test also applies to “highly compensated” executive, administrative or professional employees

9. Nonprofit FLSA Coverage • Per USDOL, most employees of nonprofits are entitled to MW and OT protection under FLSA • Two bases for employees to be covered: • Enterprise coverage • Individual coverage • Municipal agencies, hospitals, residential care facilities, and preschools/schools/colleges are also generally subject to FLSA

10. Enterprise Coverage • Generally, a covered “enterprise” is one with ≥ $500,000 in annual business or sales revenue • Nonprofits are not covered unless they engage in “ordinary commercial activities” that meet $500,000 threshold • Only employees engaged in commercial activities are covered by FLSA • Employers engaged in charitable activities are not covered on enterprise basis

11. Individual Coverage • Employees may still be covered on “individual basis” if they engage in interstate commerce • Make out-of-state phone calls (e.g., fundraising) • Mail/conduct business by U.S. mail • Order/receive goods from out-of-state • Handle credit card activities • Perform bookkeeping for above activities Note:USDOL says that it will not assert individual coverage if covered work is for insubstantial amount of time

12. Proposed FLSA Regulations • 3/13/14 – Obama directs USDOL to “modernize and streamline” white-collar exemptions • 7/6/15 – USDOL publishes proposed rule • 9/4/15 – Public comment period closed (nearly 250,000 comments) • ?/16 – Final rule to be published • ?/16 – Final rule to take effect

13. Reasons for Changing the Exemption Regulations • “Overtime is a pretty simple idea. If you have to work more, you should get paid more.” President Obama (March 13, 2014) • USDOL shall “… simplify the regulations to make them easier for both workers and businesses to understand and apply.” President Obama (March 13, 2014)

14. Simplify? Really? • 2004: USDOL last revised white-collar exemptions to make compliance easier • Duties test for administrative employees required that individuals exercise independent judgment and discretion over “matters of significance” • Resulted in substantial litigation over meaning of the phrase “matters of significance”

15. Since 2004: Explosion of FLSA Actions • More FLSA actions filed in 2014 than any prior year • Frequency of FLSA class and collective actions continues to trend upward • Overwhelming number of FLSA claims concern whether employee(s) satisfy the duties test

16. USDOL’s Response …

17. Proposed Changes to Salary Level • Current Salary Level: • $455 per week ($23,660 per year) • $100,00 per year (highly compensated) Note: NY’s current salary level is $656.25/week and is scheduled to increase to $675/week on 12/31/15 • Proposed Salary Level: • $970 per week ($50,440 per year) • $122,148 per year (highly compensated)

18. Proposed Annual Indexing or Automatic Increases • Current salary level is fixed • USDOL proposes either: • Automatic annual updating based on 40th percentile of weekly earnings for full-time salaried workers), or • Pegging to consumer price index • Proposed regulations would require annual adjustments by employer to ensure exempt status of workers

19. Non-Discretionary Bonuses • Currently, non-discretionary bonuses (e.g., production, attendance, referral, etc.) cannot be counted towards salary level • USDOL’s proposal sought comments on whether to allow non-discretionary bonuses to satisfy a portion of the salary level test

20. So What About the Duties Test??? • USDOL states that it views salary level test as the “initial bright line test” for the white-collar exemptions • However, it also recognizes that salary level works “in tandem” with the duties test • No change to duties test proposed… But…

21. Duties Test • USDOL requested comments so it could assess whether changes to the duties test might be appropriate • For instance: • Possible adoption of a “California-style” duties test • Possible modification of the “concurrent duties” standard for executive employees

22. Proactive Risk Management Step 1: Self Audit • Review salary levels and duties • Examine job descriptions, evaluations, etc. • Identify and evaluate part-time “exempt” employees • Document reclassification decisions • Consider benefits of attorney-client privilege

23. Proactive Risk Management Step 2: Roll-Out Changes • Determine timing of re-classification decision • Develop action plan and employee communications • Educate supervisors • Be prepared to answer questions and address complaints

24. Proactive Risk Management Step 3: Training & Compliance • Recordkeeping • Requirements of exempt vs. non-exempt • WTPA • Meal periods (NYLL) • Restrictions on working outside of normal work hours • Overtime restrictions

25. Making The Classification Decision If keeping exempt: • Must satisfy new salary level • Budget issues (revisit on annual basis) • Pay compression • Morale problems • Must satisfy whatever duties test exists • Significant misclassification problems will be caused by a “California-style” test or change to the concurrent duties standard

26. Making The Classification Decision If exempt  non-exempt: • Must set the new pay rate (including overtime) • Must enforce record-keeping policies • Must take steps to avoid unauthorized overtime and “off-the-clock” work • Must be prepared for morale problems

27. USDOL: New Independent Contractor “Misclassification” Guidance

28. FLSA & Independent Contractors • 7/15/15 – USDOL recently issued new “Administrator’s Interpretation” addressing “problematic trend” of independent contactor “misclassification” • Problems with misclassification: • Employees denied workplace protections (minimum wage/OT, UI, WC, non-discrimination, etc.) • Loss of tax revenue • Unfair competition

29. FLSA & Independent Contractors USDOL Position • “Most workers are employees” under the FLSA • Scope of “employment” under FLSA is very broad • Must use multi-factor “economic realities” test to determine if worker is employee or IC: • No one factor determinative • Should not be “mechanically” applied • Liberally construed to provide expansive coverage of FLSA

30. USDOL “Economic Realities” Test • Is work an integral part of employer’s business? • Does worker’s opportunity for profit or loss depend on his or her managerial skill? • What is worker’s investment compared to employer’s? • Does work performed require special business skills, judgment, and initiative? • Is relationship permanent or indefinite? • How much control is exercised by putative employer over the worker?

31. USDOL “Economic Realities” Test • Fundamental Question per the USDOL: Is the worker “economically dependent” on the business? Or is the worker “in business” for herself/himself?

32. Some “Actual Realities” About the USDOL’s Interpretation… • USDOL: • predisposed to find employment relationship • has extreme discretion to weigh certain factors (and marginalize others)

33. Recommendations • Consider “independence” of contingent workers ● separate business ● performance for others ● advertisements ● right to refuse work ● investment ● own insurance (WC, UI, ● profitability/risk of loss liability, etc.) • Importance of an “independent contractor” agreement

34. NYSDOL: New Proposed Wage Payment Regulations

35. Proposed Wage Payment Regulations: The Basics • 11/27/15 – Comment period on proposed regulations closed • Under proposed regulations, employer may pay wages to employees by: • Cash • Check • Direct Deposit • Payroll Debit Card majority of changes

36. Payment By Payroll Debit Card & Direct Deposit • Proposed regulations establish very specific requirements for: • Employee consent • Employer notice obligations • Document retention • Other technical requirements (e.g., employee access to funds, fees, ATM locations)

37. NYSDOL: Industry-specific Minimum Wage Increases

38. Fast Food Industry • General minimum wage increase: • $9.00 (eff. 12/31/15) • Fast food industry: • $9.75/$10.50 (eff. 12/31/15) • Scheduled to increase to $15 (by July 2021/January 2019) • Governor Cuomo pushing for state-wide minimum wage of $15

39. Questions?

40. Presentation for Arts Services Initiative of Western New York Surviving the DOL Vice Grip: Practical Insight for Effectively Managing the Flood of New Employer Regulations 156956