On March 13, 2014, President Barack Obama issued a presidential memorandum directing the Secretary of Labor to “modernize and streamline the existing overtime regulations”.  The Department of Labor (DOL) took action and, in new rules set to become effective Dec. 1, 2016, raised the minimum salary threshold for exempt workers in many categories.  Since then, employers have been gearing up for the change — modifying pay rates, altering job responsibilities, switching formerly exempt employees to hourly and restructuring their workforce.

In response to the new regulations, 21 states and a coalition of business groups filed a federal lawsuit in Texas seeking to prevent the regulations from going into effect. On Tuesday, their wish was granted. The judge (an Obama appointee) issued a nationwide preliminary injunction halting the implementation of the new overtime regulations.

What Does This Mean for Business Owners and HR Professionals? 

It means you can hold off on implementing any changes you planned for compliance for the moment. Though the DOL could file an emergency appeal, the states were smart by suing in Texas. The appeal must go before the conservative judges of the 5th Circuit Court of Appeals who we expect will be unlikely to disturb the District Court’s ruling in the short run.

President-elect Trump is vehemently against these regulations and, with a Republican Congress that largely agrees, he has promised to repeal them. Assuming an emergency appeal is unsuccessful, the preliminary injunction then affords Congress and President-elect (then President) Trump a window of opportunity to stop the new regulations from ever taking effect.

Is This Outcome Guaranteed?

Not at all, but it is likely given the views expressed by the incoming administration. If for some reason the new administration does not act and the 5th Circuit chooses to reinstate the regulations they would only  go into effect after the decision is made. If the 5th Circuit does not take on the emergency appeal, the decision will be left to the District Court at a trial some time from now.

For more information on the now halted overtime regulations, click here.

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Businessman working late signing a document or contract in a dark office with a fountain pen by the light of a lamp, close up view of his hands.

For the last year, the U.S. Department of Labor (DOL) has been working on proposed rule changes related to overtime exemptions. These changes are designed to substantially decrease the number of employees who are exempt from overtime. Today, the Department of Labor released the final rule changes. Employers are required to be compliant with these changes by December 1, 2016.

Below are the key points to the changes in the law employers should know and address:

Higher Minimum Salary for Overtime Exemptions

In addition to the other requirements for an employee to be exempt from overtime, the minimum salary requirement is increasing. What used to be a minimum of $455 per week will now be $913 per week or $47,476 per year. This doubles the current salary threshold level, but is slightly lower than that proposed in the rule. This is the primary reason many currently exempt employees will lose their exemption.

Automatic Updates to Salary Levels Every 3 Years

In an effort to maintain a salary level that is equal to the 40th percentile of full-time salaried workers in the lowest-wage Census region, the minimum salary to be exempt will be increased every three years. This is better than what the DOL originally proposed which was annual increases. The first of these updates will go into effect on January 1, 2020.

Duties Test Unchanged

Though the DOL discussed changing the other specific requirements associated with exemptions from overtime, it decided not to make any changes to those requirements.

Change to Highly Compensated Employee Exemption

One of the exemptions from overtime relates to highly compensated employees. The threshold for this exemption was set at $100,000 per year. The new threshold is set at the 90th percentile of full-time salaried workers nationally, $134,004 per year.

If you have questions or concerns about complying with the new law, Gray Reed’s employment team will be glad to audit your present practices and ensure you are compliant before the December 1, 2016 deadline.

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This month, our e-notification linked to the blog rather than the PDF of our Employer Handbook article.  Sorry.  If you are saving copies of the PDFs (hint, hint), please click here

 

Who, What, Why . . .

Who does it apply to: It is up to you. A business with two employees might benefit from an employee handbook. A business with 100 might function fine without one. There are no legal rules about when a handbook must be created.

Can I do it myself: Yes, certainly, but there are many pitfalls and many things to consider. Whatever an employer does, they must be careful to make policies that are consistent with their practices, and, of course, the law. Nothing is worse than downloading something off the internet that might follow the laws of another state and which is inconsistent with your goals and practices.

What policies should I include: That also is up to you, but I would consider these the most important:

  • Discrimination, Harassment, Disability, and EEO. The most legally significant issue a small business can address is the prohibition of discrimination among employees. Some of the discrimination laws don’t kick in until an employer has 15 or 20 employees, but at least one kicks in with just one employee. The policy needs to address both the prohibition and reporting.
  • Holidays, Vacation, Sick, or PTO. This issue is not as legally significant as it is practically important. The first couple of employees may be handled one way, but after a while, many businesses seem to struggle with consistency.
  • Family Medical Leave. This topic is only third because it doesn’t apply to a business with under 50 employees. Family medical leave is complicated to get right, and a written policy is the first step toward doing so.
  • Employee Dating. This is always a hot topic. I generally recommend employees not be permitted to fraternize and insist that supervisors, at least, not be permitted to date subordinates.
  • Employment At-will. If you employ people on an at-will basis (see the EH edition on this topic) it is important to confirm that nothing in the handbook creates a contract of employment for a period of time and that all employees are still at-will unless otherwise notified in writing.
  • Performance and Discipline. Consistency in these areas is important to protect against discrimination claims. Employers should lay out their disciplinary policy so there are no questions about the employer’s rights to terminate. I recommend leaving yourself the right to terminate for any issue if you feel it is important rather than using a regimented progressive policy.
  • Privacy. Make sure employees know that you can install video cameras, and search anywhere you like, including their desks, phones, and company email accounts.
  • Worker’s Comp. Whether you are a subscriber or not, consider addressing what employees need to do if they are injured on the job. You have legal obligations to report injuries within a certain period whether you are covered by the act or not.
  • Exceptions and Revisions. Always reserve the right to make changes without warning and clarify that there may be policies of the business which are not covered by the handbook – otherwise it would be as thick as a phone book.
  • Wage Deductions. Clarify in advance what deductions may be made from pay so the employees cannot cry foul. Examples include uniforms, damage to company property, theft, and repayment of loans.

What else should I address: Beyond these key topics the second tier policies are:

  • Military Leave. It is important to let employees know you follow the law regarding time off for deployment or for National Guard or Reserve duty.
  • Benefits. Provide an explanation of the types of benefits you offer employees including insurance and 401(k).
  • Bereavement. Let employees know what they can expect if they lose a relative. Who are they entitled to take time off for and what time do they get.
  • Jury Duty and Voting. Employees are legally granted the right to participate in both without losing their job. Define your policy and whether the employee’s time away from work for either is paid.
  • Accidents Involving Employees and Others. Cover what employees should do if they, a co-worker, or a third-party are injured in the workplace or while working.
  • Tracking Hours, Lunches, and Breaks. Let employees know when they are expected to be at work, when they get breaks, and how to keep track of their hours so that you stay out of overtime trouble.

Is a full handbook necessary: No. In fact, I imagine the first employee handbooks were collections of policies that someone decided to organize into a book. A business can get along with individual key policies set out in a way that all employees can find them.

Do I need employees to sign that they read it: It is a good idea to have employees sign a document acknowledging receipt of the handbook and confirming they have read it. This will help in the event the employee makes a claim about something covered by the handbook.

Are paper copies necessary: I advise clients that an electronic copy handbook is preferred. Store the handbook on an intranet or send a copy out to every employee by email. Using an electronic handbook makes editing the handbook much easier – no need to print a whole new copy for everyone or send out an addendum.

What should I do:
Good: Create policies that are important until you feel a handbook is necessary. Cover the basics.

Better: Build an employee handbook that meets your needs and reflects your actual practices. A handbook that reflects your ideal workplace (as opposed to how you actually do business) may be more hurtful if you find yourself in a dispute with a former employee.

Best: All of the above and go beyond a basic acknowledgement of receipt. Have the employees confirm their agreement to searches of their space, drug testing, employment-at-will, patent rights, their worker’s compensation election, and wage deductions. It may also be a good document to use for getting an agreement for periodic driving record checks and release of liability for references.

Who, What, Why . . .

Who does it apply to: All Texas employers are required to respond to garnishment requests. There is no minimum employee exception for child and spousal support.

What are my obligations before receiving an order to garnish: All employers are required to report hire date, name, address, and Social Security Number for new hires to the Texas Employee New Hire Operations Center of the Texas Attorney General’s Office within twenty days of the employee’s first day of work. Employers with employees in more than one state may report in each individual state or one state. If reporting in one state, however, employers must do so using the state’s electronic system and notify the Federal Office of Child Support Enforcement (“OCSE”) in writing.

Employers must also respond to requests from OCSE and the Texas Attorney General’s Child Support Division for information regarding the identity, location, position, compensation, income, and benefits of an employee to help that office determine child support obligations.

Employers may meet each of these obligations using the Child Support Division’s electronic filing system.

What types of support exist: Most employers associate state garnishments with child support only. As you can see from the title of this edition, however, spousal support may also be deducted. Additionally, deductions may be made for medical insurance support and child and spousal support which are past due or in arrears. There is a very specific order of priority among these types of support also. Currently due child support takes the highest priority followed by current spousal support, medical support, and child support in arrears. Spousal support in arrears then occupies the very last position.

How does withholding work: An employee may be required to pay up to 50% of his or her “disposable earnings” for support. Disposable earnings are those earnings above and beyond withholding required by law (state and federal taxes, Medicare, and Social Security, etc.) and exceeding union dues, non-discretionary retirement contributions, and contributions for health and disability insurance.

What if there are multiple withholding orders: This is the messiest part of handling child support. Employees are sometimes subject to withholding orders from different states, which require employers to divide the disposable earnings up between the various orders. There are very specific rules for applying these payments. Disposable income must be applied to the total current support for each order equally first and then equally to arrears support. Seek the advice of employment counsel or the Child Support Division to be sure these payments are correctly made.

What about withholding for severance or bonus payments: Employees receiving a lump sum payment in excess of $500 as a bonus or other payout, may be required to contribute up to 50% of the disposable earnings portion of the payment to support in arrears. Employers are required to contact the Child Support Division to determine what portion of the payment must be sent in for support. Similarly, employees receiving a lump sum for severance at the end of employment must make an appropriate disposable earnings contribution to regular support equal to the number of paychecks the sum would represent. For example, a severance payment of $10,000 for an employee who usually earns $2,000 per month would require deductions for five months of regular support contributions.

How do I make payment: Employers must send the payment on the pay date on which money is withheld. Employers with more than 50 employees must remit payment electronically. Employers submitting paper checks for multiple employees must submit the proper processing form dividing all of the amounts for each employee so that the state may properly apply the payments.

How does support for medical insurance work: Employers may be ordered to place the dependent of an employee on the business’ medical insurance even if the employee is not participating in the plan. Employers will receive a National Medical Support Notice from either the OCSE or the Child Support Division requesting that a dependent be added to a plan. Employers must complete the forms attached and return them to the requesting agency within 40 days of receipt. This will let the agency know whether the request has been met or if there is a reason it cannot be met – such as the employee’s ineligibility for coverage. Employers should then deduct the premiums from the employee’s pay to the extent the plan requires deduction according to the regular withholding rules. Should the plan lapse, the employer must let the requesting agency know within 15 days.

What if the employee leaves: Employers must report the separation of an employee subject to a child support order to the Child Support Division and\or the OCSE within seven days of the date of separation.

Common Situations:

Woman on a mission: Sadie is the owner of a taxi company in Tyler and the single parent of a beautiful daughter. Sadie has zero tolerance for ex-husbands or ex-wives who shirk their responsibility and believes that people who have child support garnishments are just above snails in the food chain. Sadie refuses to hire anyone with a child support order and finds an excuse to release all employees who become subject to a child support order while working for her. Is Sadie on a taxi ride to the big house? Well, not the big house, but Sadie is subject to a lawsuit by each and every employee she has refused to hire or let go for this reason. It is illegal to discriminate against an employee based on child support status.

I didn’t hear you: Kevin operates Medieval Armory manufacturing replica armor for collectors all over the world. Kevin isn’t a paperwork kind of guy. He ignores all requests to deduct money from his employees’ wages and never reports new hires. What consequences does he face, if any? Let’s just say the State of Texas does not like to be ignored. Kevin may be penalized $25 per new hire he has neglected to report, but failing to withhold is the mother lode. Kevin is subject to a $200 fine per pay period and becomes liable to the person who was not paid support for the amount owed, plus all attorney fees to collect it from Kevin. Kevin better have some really, really, rich collectors.

Turn off the spigot – Now: Cal has been waiting for this day for the last six months. His son has turned 18 and Cal is ready for the child support payments to end. Cal strides into the Human Resources office showing a copy of his son’s driver’s license and demands that the payments cease. Cal is planning to buy a new truck and this money will put him over the top to get it. Can Cal head to the dealership this week? Not with his child support money. HR tells Cal that it needs an order from the Child Support Division to let him off the hook. Cal runs home and brings back his divorce decree showing that child support ends at 18 for his son. All better? No. Employers are not lawyers or judges. They are not required to interpret court orders or rely upon common perception about when child support ends (which can be age 25 in some cases). Cal’s employer should wait for an order from the Child Support Division. If Cal has a refund coming, he can get it from them.

What should I do:

Good: Provide notice of new hires, comply with all withholding orders, and provide notice of separation when employees leave. Don’t forget to deduct up to $10 per month as an administrative fee for handling support deductions (but not medical insurance).

Good gets it done this month. Because each of the obligations above is mandatory, there is no room for employers to take a “Better” or “Best” approach.

Who, What, Why . . .

Who does it apply to: Virtually all employers with employees of the opposite sex are subject to the Equal Pay Act (EPA).

What is the rule: Employers cannot pay one sex higher wages than the other for jobs that require equal work based on skill, effort, and responsibility that are performed under the same working conditions unless there is a legitimate exception to justify the difference.

What counts as “wages”: Almost anything you offer as an incentive to an employee is counted under the EPA. It includes pay, bonuses, expense accounts, allowances, lodging, use of a company car, etc. It also includes fringe benefits such as insurance, retirement benefits, leave, vacation or PTO, holidays, and regular days off.

What goes into equal work: Under the EPA, job titles don’t make much difference. The EPA looks across descriptions to make sure like work goes with like pay. To answer the question you set aside the common core duties between the jobs in question and focus on the differences in the following:

Skill: Consider the experience, training, education, and ability required to do the job (not of the person doing it).

Effort: Consider the level of physical and mental exertion required to do the job including factors that create or alleviate stress in performance of the work.

Responsibility: Consider the degree of accountability, creativity, supervisory responsibility, and individual judgment that go into performing the job.

Working conditions: Consider the surroundings and hazards of the position. Is it dangerous or distasteful? Is it unpleasantly hot or cold?

If these characteristics are the same or very similar, the jobs will be considered the same under the EPA and any differences specifically between the sexes will create liability – unless an exception applies.

Are there exceptions: The following exceptions may allow disparity over wages between the sexes:

Seniority: A male employee hired five years ago may make more than a female employee hired five minutes ago so long as the seniority system is formalized and has been followed closely in the past.

Merit: A female employee who has performed admirably in an orderly and systematically applied system may make more than a male counterpart for the same job. Merit systems should be formalized such that they are in writing or all of the employees are clear on the policy.

Quantity/Quality pay systems: Male and female employees paid based on the quantity of items they produce or the quality of the work they produce may be paid differently so long as there are no other extraneous discriminatory factors affecting their pay.

Factors “other than sex”: The black hole of distinctions. It could be anything, but it better be well thought out and documented. Examples that have been accepted in this category are experience, training provided without discrimination, financial crisis, differences in educational background of the employees, and actual economic benefit to the employer (one employee produces higher profits in the same job).

Common Situations:

Market force theory: General Electronics has discovered that women will historically and statistically work for less than men and rarely attempt to bargain a better wage at hiring. Upon suit by an employee, the company raises this as a defense. They pay women less because they are willing to work for less. Will this defense hold up? No, but it has been tried in several variations many times.

Red circle rates: Sarah has been with Bayou Bakery for 35 years and just can’t knead the dough like she used to. Without reducing her pay, Bayou moves Sarah to an inventory clerk position. Several males in the inventory clerk position file an equal pay claim because Sarah makes so much more. Will Bayou be sacked? No. Courts have found this to be an acceptable reason “other than sex” to have a different wage. And remember, the EPA goes against both sexes. Men can make claims, too.

Extra duties: John has the extra responsibility of turning on the lights and unlocking the doors each day at Steam Clean America. Amy, Mary, and Jane have the same job as John at Steam, without the extra task regarding lights and locks. John is paid more than the ladies and they file a claim. Will John’s extra duties justify his higher wage? Probably not. While extra duties can be a justification “other than sex” to pay more, they have to be more than just turning on the lights. Of course, if the difference in pay is very small, a court may consider and accept the difference. The size of the difference in pay between the sexes is a consideration in determining equal pay claims.

Successor liability: During the process of finding a replacement for his office manager, Suzy, Dr. Jose Cuervo discovers Stan. Stan has almost exactly the same qualifications Suzy did for the position, but Dr. Cuervo retains Stan for 10% more in salary. Suzy learns this from a close friend still working for Dr. Cuervo and makes a claim. Will she be successful? Probably. A former employee can reach in and get the difference in pay plus penalties going back up to three years against an employer in circumstances like this. Unless Dr. Cuervo can come up with additional job duties which Stan has agreed to or some other excuse, he will get bottled up on this one.

Not from around here: Joe’s Auto Parts has facilities and stores all over the U.S. All the locations have their own HR representatives that handle hiring, firing, promoting, and wages within nominal guidelines set at corporate. Natalie, who works in the Lubbock facility learns that male employees performing the same job in Harlingen make more for the same job. Joe’s is sunk right? Not likely. The EPA only applies to violations that occur within the same “establishment.” Offices and locations that are geographically and operationally distinct will not be treated together for violations.

What should I do:

Good: Pay all employees in the same position the same wage – including all forms of fringe benefits unless there is some reason to justify the difference.

Better: If you use a seniority or merit system, memorialize it in writing and follow it religiously. Set merit raise promotions for certain projects in motion with a writing to the employees involved. Prepare written notes for all discretionary bonuses awarded by position. Be careful that benefit packages for positions are offered to all persons in those positions. Be wary of changing benefit packages with new employees to avoid risk of accidental EPA claim.

Best: Create job descriptions and use them to identify positions with similar responsibilities and evaluate differences to make sure they justify the price difference in wage, if any. Memorialize in writing all reasons for paying the sexes differently in any position. Follow the exceptions or identify the duties that make the distinction in writing

Who, What, Why . . .

Who does it apply to: Every employer without exception. Under the Texas Payday Act and the federal Fair Labor Standards Act, there are requirements and limitations about what can be deducted from an employee’s pay.

What types of allowable deductions are there: Charges in the following categories may be deducted under the right circumstances:

Meals and Lodging: The “reasonable cost” of food and shelter provided by employers may be deducted from pay if it is primarily for the employee’s benefit. If the employer provides the food or lodging for its business purposes (think apartment complex manager), the value cannot be deducted from the employee’s wages. Essentially the “reasonable cost” of these items is the cost to the employer – with no profit. There are many rules and regulations regarding the deductibility of these items. Check with your lawyer before making deductions of this type.

Voluntary Wage Assignments: Employers are authorized to deduct from an employee’s wages and take them below minimum wage for payments made to programs such as the employer’s health, dental, disability, and life insurance plans.

Loans: Employers can make deductions to an employee’s pay taking the employee’s wages below minimum wage for loans made to the employee. Employers should be careful, however, because any administrative fees or interest on the loan may not be charged against the minimum wage portion of the employee’s wages. Employers should document any loan just like a private promissory note to protect against employees who quit, default, or try to avoid the debt so that they can seek recovery through the courts.

Pay Advances: If an employee is allowed to take vacation before that vacation time has technically accrued, and that employee quits, the employer may deduct the paid but unaccrued vacation money from the employee’s final pay. In doing so, the employer must have written authorization from the employee. In another circumstance, employers may advance an employee insurance premiums for unpaid leave periods where the employee would otherwise be responsible for the premiums. Employers must be careful making this type of advance, however. Offering it to only certain employees might generate a discrimination claim.

Uniform Costs and Cleaning: The cost of and cleaning charges for certain clothing required for work may be deducted from an employee’s wages and reduce them below minimum wage so long as the deduction is approved in writing by the employee. Clothes meeting this requirement must be provided solely as a convenience to the employee and suitable for off-duty use. If the clothes have a company logo, are of a distinctive style such as a tuxedo, a specific type of jacket, or a security uniform, the cost may still be deducted (with written consent), but may not cut into the employee’s minimum wage.

Payroll Taxes: FICA (Social Security and Medicare) and income tax withholding are permissible deductions which may bring an employee’s wages below minimum wage.

• Union Dues: Union dues may be deducted from an employee’s pay even if the deduction reduces the employee’s pay below minimum wage. Employers must have a written authorization for deduction of union dues.

Garnishments and Wage Attachments: Employers are required to follow appropriate garnishments and statutory wage deductions for bankruptcy garnishments (no limit on deduction amount), court-ordered child support or spousal maintenance (employer may add $10 administrative fee per month for child support and $5 for spousal), IRS tax levies (subject to IRS deduction limitations), and guaranteed student loans (employer may add up to $10 administrative fee per month).

Theft: Employers may deduct losses from employee theft or misappropriation of company resources and take the employee’s pay below minimum wage in doing so.

What about tips: Most employers don’t think of the difference between paying minimum wage and the allowed $2.13 for tipped employees as a “deduction” from pay but the federal government sees it as a deduction from minimum or overtime wages – even though it is referred to as a “tip credit.” Tips are a topic all their own, and will be discussed in a future EH piece.

Common Situations:

My register came up short: Bob’s Bowling Balls has a policy that all employees are responsible for shortages on their register at the end of each shift. Bob believes that employees who come up short must have stolen the money and this is the best way to keep them honest. Bob’s view may be logical, but it isn’t totally legal. If Bob has solid evidence that an employee stole money, he can take those losses from the employee in the form of wage deductions – even reducing the employee’s pay below minimum wage, but the deduction must still be authorized by the employee to be valid under the Texas Payday Act. Bob may follow his policy for register shortages without evidence so long as it is authorized in advance by the employee and does not take them below minimum wage.

Guilt by garnishment: Suzy Straightlace’s employee Tim has had a run of bad luck. Despite working two jobs he still cannot cover all the costs of his financial obligations and the medical treatment for his special needs child. Tim has defaulted on his student loans and is behind on his taxes so he recently suffered an IRS levy. Suzy decides that Tim must be let go because her customers would freak out if they realized Tim, an accountant, was handling their money but could not handle his own. Has Suzy strayed off the straight and narrow? Yes. Employers are not permitted to consider the fact that an employee’s wages are being garnished in termination or disciplinary decisions.

Payday loan deduction: Tom simply cannot live within his means. This month he takes out a payday loan and makes a “voluntary wage deduction” agreement with a local payday loan company. Tom provides the form to his employer and requests that a portion of his pay be diverted to the payday loan company. Is the employer obligated to fulfill this request? No. Employers may choose whether to accept a voluntary wage deduction agreement from an employee. The payday company will just have to sue Tom to get their money. That said, employers are prohibited under other laws from using this as an excuse to prevent an employee from participating in a benefits program, such as health insurance, offered to employees of the business.

What should I do:

Good: Always get consent, be careful deducting below minimum wage as noted above, and check that the deductions made for multiple garnishments do not exceed the legal limit.

Better: In addition to the above, document any loan to an employee as a separate document to protect your ability to sue if the employee leaves. Consider creating a single consent form signed at the time of hiring (or as soon as you read this) with all the different types of deductions in it.

Best: All of the above plus create special policies in your employee handbooks regarding deductions and utilize a specific policy for any advances for premiums on health policies to ensure no discriminatory practices.