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Additional Employees Are Eligible for Overtime in 2020

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As of September 24, 2019, an estimated 1.2 million employees will be eligible for overtime in 2020. This came about with an increase in the “white collar” exemption by the U.S. Department of Labor. It supports the mandate for overtime pay included in the Fair Labor Standards Act. It becomes effective January 1, 2020.

Which employees are eligible for overtime in 2020?

The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.

However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees. These exemptions are often called the “white-collar” or “EAP” exemptions. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $684 per week. Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations.

Once implemented, the minimum annual salary threshold for the “white-collar” exemption will be $35,568, increasing eligibility for an additional 1.2 million more workers. Currently the threshold for the exemption applied to white collar workers making at least $23,000 annually.

The result will be that employees making less than $35,568 (as opposed to only $23,000), even if salaried, will be entitled to overtime pay.   The adjustment by the Department of Labor is aimed at increasing overall compensation in the work force by increasing the number of workers eligible for overtime pay and also increasing the minimum salary required for employers to take advantage of the “white collar” exception.   

What employees are exempt from overtime pay?

Employers must reevaluate employees, currently exempt, who are earning an annual salary under or slightly over the new threshold. To be given a “white-collar” exemption, there are tests. 

Executive exemption

The employee’s primary duty must be managing the enterprise or a department or subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two employees and have the authority to hire or fire workers (or the employee’s suggestions and recommendations as to hiring, firing or changing the status of other employees must be given particular weight).

Administrative exemption

The employee’s primary duty must be office or non-manual work that is directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty also must include the exercise of discretion and independent judgment with respect to matters of significance.

Professional exemption

The employee’s primary duty must be work requiring advanced knowledge in a field of science or learning that is customarily acquired by prolonged, specialized, intellectual instruction and study.

Training needed for employers and employees

Employees in the pay gap between the current pay threshold of $23,000 and the new limit of $35,538 may not be tracking their work time. Under the new plan, all work time and overtime must be tracked. For employers, this may mean training for affected employees on time-keeping procedures.

Both employers and employees need awareness training on other features of the plan. Employers may count up to 10% of annual non-discretionary bonuses, incentives, and commissions toward an employee’s salary – sometimes bumping them above the $35,538 threshold and disqualifying them from overtime.

Employers may restructure by increasing the salary of some and reclassifying others to nonexempt. They may also create ways to limit overtime hours – especially for the newly nonexempt employees who are not familiar with tracking hours.

This will take some time for both sides to adapt to the new rules, but awareness of the rules and how they apply to your particular situation, will go a long way toward a smoother transition and less frustration. The timing of the new rule gives everyone three months to adjust and be ready for the new year.

In 2016, the Department of Labor under the Obama Administration previously set an even higher minimum salary requirement to qualify for one of the white collar exemptions.  The $47,476.00 minimum requirement established by the Obama Department of Labor would have protected even more workers (an estimated 4.2 million) by dramatically increasing the number of workers eligible for overtime pay and significantly increasing the minimum salary required for white collar exemptions from the overtime pay requirement.  

However, a US District Court ruling stopped implementation of the 2016 rule before it became final.   During the pendency of the appeal, the Department of Labor under the Trump administration decided to dismiss the appeal previously initiated by the Obama Department of Labor – thus ending final implementation of the even higher salary threshold.

Nevertheless, the current Department of Labor has made the current rule change to the $35,538 threshold which is an improvement under the previous number established in 2004. Overall, this is good news for both “white collar” exempt employees as well as employees who work over 40 hours as they can be assured they will be more fairly paid for time worked.

Contractor or Employee? California Legislature Decides.

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Is your Uber driver a contractor or employee? What about the person delivering your favorite meal through DoorDash? California legislators passed a bill, called AB 5, on September 11 requiring employers that utilize contract workers to perform ‘gig’ type work, to change the status from contractor to employee. Governor Gavin Newsom has not signed the bill, though it is expected he will after current negotiations are resolved. Primarily this includes ride-hail drivers (like Uber and Lyft) and delivery couriers (like DoorDash) but could become more far-reaching. Other possible occupations include nail salon workers, janitors, construction workers, home repair, and telemarketers. Some exemptions* in California already exist.

Contractor or employee – ABC guidelines

There are ABC guidelines that establish the classification of an independent contractor. These workers would not be considered employees:

(A)  free from the control and direction of the hiring entity – in fact as well as by contract;

(B) the work performed by the person is outside the usual course of the hiring entity’s business; and

(C) the person hired is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. 

This definition of an independent contractor does not generally fit ride-hail and delivery drivers.

Worker benefits

Currently California contract workers do not receive employee benefits such as vacation time, paid sick days, overtime, and reimbursement of expenses. As employees, they would receive these plus the ability to unionize and eligibility for unemployment insurance and workers’ compensation. They would have the security they currently lack. 

Employer objections to AB 5

Some employers, such as Uber, have proposed similar benefits without the classification as employees. They stress the flexibility workers currently have that they may lose as employees. Some small, often family businesses such as vineyards, or auto shops, are fearful of the effect it could have on their businesses.

The larger companies, such as Uber, threaten that this law can lead to eliminating many drivers – especially those in low traffic areas that would not justify the benefits of an employee. They also suggest schedules might need to be initiated, ridding drivers of the flexibility they desire. Experts, however, say the bill does not require set shifts, with Uber and Lyft entitled to continue letting drivers make their own schedule decisions. In fact, it would be strategic to use incentives, such as bonuses, to ensure there are sufficient available drivers at certain times and in certain places.

Current status

  • In last minute ammendments, California legislators gave larger cities the right to sue if companies don’t comply.
  • Uber, Lyft, and DoorDash pledged $90 million to support a ballot initiative that exempts them from the new law.
  • Though most drivers support the bill, many oppose it from fear it will limit their flexible schedules.
  • In July and August, Uber and Lyft worked on an agreement between labor groups and the governor’s office to establish a new category between contractor and employee while giving a minimum wage and the right to organize. The negotiations disintegrated, but company officials are optimistic a deal can be negotiated after the bill is passed.

Beyond California

New York, Alaska, and Oregon – and almost half the states –  already determined ride-hailing drivers were employees under current state laws for specific purposes. However, these findings could be overturned by new state laws clearly identifying drivers as contractors. 

There are still hurdles to make this a law across the country. For now, California with AB 5 is setting the standard, and it will be an example to other states as they deal with this massive change in the current working environment of millions of workers in California alone.

When this bill becomes law, we anticipate a law that gives security, benefits, and confidence to all contract workers in California.

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Exemptions

Specific categories of workers:

Includes (i) individuals licensed by the Department of Insurance; (ii) real estate licensees; (iii) physicians, surgeons, dentists, podiatrists, psychologists and veterinarians licensed by the State; (iv) licensed lawyers, architects, engineers, private investigators and accountants; (v) securities broker-dealers and investment advisors and their agents/representatives registered with the SEC or FIRA or licensed by the State; (vi) direct salespersons who otherwise meet Unemployment Code conditions;  and (vii) certain commercial fishermen.

Six-part test for exemption in the fields of graphic design, marketing, writing, editing, freelance photography, and human resources:

  1. Maintain a separate business location (which can be their home);
  2. Have a business license in addition to any required professional licenses;
  3. Have the ability to set or negotiate their own rates;
  4. Set their own hours (other than project deadlines);
  5. Customarily engage in the same kind of work with another entity or holds themselves out to other potential customers for the same kind of work; and
  6. Customarily and regularly exercises discretion and independent judgment in the work.

The Construction Industry Under the Fair Labor Standards Act (FLSA)

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Businesses involved in the construction industry are engaged in the activities of new construction or reconstruction. The repair or renovation of existing commercial and/or residential structures, as well as roadway and bridge construction, are also a part of this industry. The following work activities are included in the construction industry: painting, sandblasting, tuckpointing, roofing, guttering, spouting, water well drilling, installation of flooring and landscaping. 

Requirements for construction industry 

Employers who are covered under the FLSA must comply with the recordkeeping requirements of Regulations, 29 CFR Part 516.

Also, an employer must establish a workweek (7 consecutive 24-hour periods) and must pay overtime when hours worked exceed 40 in the workweek. The practice of paying overtime only after 80 hours in a bi-weekly pay period is illegal since each workweek must stand alone. 

For non-exempt employees, covered employers must pay the Federal minimum wage and time and one half the regular rate of pay for time worked over 40 hours in a workweek. These businesses must also be aware of the potential for violations of the youth employment requirements of the FLSA. This is especially critical due to the dangerous nature of both the work performed and the tools used in this industry.

If the employer performs work on a federally financed project or a project in which the Federal government has provided assistance in financing the project, a different and somewhat stricter set of labor standards applies. Typically, this would require that employees performing on such contracts be paid a “prevailing wage rate”.

Youth Minimum Wage: The 1996 Amendments to the FLSA allow employers to pay a youth minimum wage of not less than $4.25 an hour to employees who are under 20 years of age during the first 90 consecutive calendar days after initial employment by their employer. The law contains certain protections for employees that prohibit employers from displacing any employee in order to hire someone at the youth minimum wage.

Typical Problems

(1) Failure to record all hours actually worked to include time spent working before or after the shift. (2) Shorting of hours by using terms such as down time or rain delay. (3) Failure to compensate for meal breaks where the employee is not completely relieved of all duties to enjoy uninterrupted time for the meal. (4) “Banking” of overtime hours or payment of overtime in the form of “comp time”. (5) Failure to combine the hours worked for overtime purposes by an employee in more than one job classification for the same employer within the same workweek. (6) Failure to segregate and pay overtime hours on a workweek basis when employees are paid on a bi-weekly or semi-monthly basis. (7) Failure to pay for travel from shop to work-site and back. 

Other Pertinent Labor Laws

(1) The Immigration Reform and Control Act requires employers to complete and maintain I-9 forms to verify the employment eligibility of all individuals hired after November 6, 1986. (2) The Wage Garnishment Law limits the amount of an individual’s income that may be garnished and prohibits firing an employee whose pay is garnished for a single debt. (3) The Employee Polygraph Protection Act prohibits most private employers from using any type of lie detector test either for pre-employment screening or during the course of employment. (4) The Family and Medical Leave Act requires covered employers to provide eligible employees up to 12 weeks of unpaid, job-protected leave each year for specified family and medical reasons. (5) The Davis-Bacon and Related Acts require payment of prevailing wages on federally funded or assisted construction projects.

Supreme Court Considers Class Arbitration in Employment Law Claims

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On October 29, 2018, the Supreme Court heard oral argument concerning class arbitration in employment law claims in Lamps Plus, Inc. v Varela. What’s on the line? Whether general arbitration clauses in employment contracts preclude the right to a collective or class arbitration.

Cases affecting class arbitration in employment law claims

Dallas employment law attorney, Ben DuBose, says “Last year, the Supreme Court’s Epic Systems ruling struck a big blow by holding that arbitration clauses in employment papers override a worker’s rights to bring Fair Labor Standards Act claims in the court system.” Now, DuBose says, “Lamps Plus could further whittle down worker rights.”

The lower appellate court found against Lamps Plus by holding that the general arbitration clause, which did not expressly state it prevented collective or class arbitration, because of its ambiguity permitted class or collective arbitration.

While Lamps Plus does not directly involve Fair Labor Standards Act (FLSA) claims, its impact could apply to a broad range of employment law based claims.

The combination of last year’s Epic Systems ruling which held that forced arbitration clauses are enforceable in employment contracts, coupled with an adverse ruling in Lamps Plus would result in employees only being able to bring individual cases in arbitration – absent express language in an arbitration clause consenting to class arbitration.

Employee rights at stake

In an arbitration, the parties give up their 7th Amendment right to a trial by jury as well as their right to appeal on substantive grounds to a court of law. Instead, arbitration takes place outside of the court system with a private arbitrator, often selected by the employer per the terms of the arbitration clause.

Questioning from the Court during oral argument suggests the Court will be closely divided on what standard should be applied to determine parties have agreed to class arbitration. The Lamps Plus decision will be issued during the spring or early summer of 2019.

Sex Discrimination in the Workplace – An Ongoing Fight

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The Equal Pay Act of 1963 was enacted to prevent sex discrimination in employee wages. Signed into law on June 10, 1963, the Equal Pay Act was part of John F. Kennedy’s New Frontier. After signing the bill into law, President Kennedy remarked: “While much remains to be done to achieve full equality of economic opportunity – for the average woman worker earns only 60 percent of the average wage for men – this legislation is a significant step forward.”

As an amendment to the Fair Labor Standards Act (FLSA), the Equal Pay Act was part of the same legal framework that establishes federal wage and hour laws.

Equal Pay Act provisions

The EPA provides that the employer may not pay lower wages to employees of one gender than it pays to employees of the other gender, employees within the same establishment for equal work at jobs that require equal skill, effort, and responsibility, and that are performed under similar working conditions.

Significantly, the EPA does not contain an intent requirement within the statutory language. Liability under the EPA is established by meeting the three elements of the prima facie case:

1. different wages are paid to employees of the opposite sex;
2. the employees perform substantially equal work on jobs requiring skill, effort, and responsibility; and
3. the jobs are performed under similar working conditions

If an employee can establish these elements, then the EPA imposes strict liability on employers who engage in wage discrimination on the basis of gender.

1972 broadening of the Equal Pay Act

In 1972, the Education Amendments to the EPA broadened the Act to cover executives, outside salespeople and professionals. This short Bat Girl video from the Department of Labor illustrates the issue.

Current sex discrimination for equal pay status

Despite the progress of the last half-century since passage of the EPA, there hasn’t been much improvement in the last decade in closing the gap further between genders. The most recent research shows women in the United States still make only 80%, on average, of their male counterparts. A host of factors are attributed to the slowing of improvement on this issue.