The latest “hot issue” relating to Wage and Hour deals with the proposed changes to the regulations that define the requirements for the executive, administrative, professional, and outside sales exemptions. On July 6, 2015, DOL published proposed changes to regulations for public comments. The major change relates to the minimum salary requirements for the exemptions which is currently $455.00 per week. The proposal sets the estimated salary requirement for 2016 to be $970.00 per week. In addition, the salary amounts would increase each year. Although the proposal does not propose changes in the duties tests for these exemptions DOL invited the public to make suggestions in this area. Comments may be submitted for a 60 day period which ends on September 4, 2015. Once the comments are reviewed Wage and Hour will then issue the final regulation that will most likely have an effective date 60 to 90 days after the new regulation is published. In view of the time frame, it is not anticipated that the revisions will become effective until sometime in 2016. You can access a copy of the proposal and some of DOL’s other content in support of the proposed change at http://www.dol.gov/whd/overtime/NPRM2015/. You can make comments on the proposal (which are publicly- accessible) at http://www.regulations.gov/#!docketDetail;D=WHD-2015- 0001.
As evidenced by the increasing number of lawsuits filed in 2014, FLSA issues continue to be very much in the news. As employers are continually getting into trouble for making improper deductions from an employee’s pay, I thought I should provide you with information regarding what type of deductions that can be legally made from an employee’s pay.
Employees must receive at least the minimum wage free and clear of any deductions except those required by law or payments to a third party that are directed by the employee. Not only can the employer not make the prohibited deductions it cannot require or allow the employee to pay the money in cash apart from the payroll system.
Examples of deductions that can be made:
- Deductions for taxes or tax liens.
- Deductions for employee portion of health insurance premiums.
- Employer’s actual cost of meals and/or housing furnished the employee. The acceptance of housing must be voluntary by the employee but the employer may deduct the cost of meals that are provided even if the employee does not consume the food.
- Loan payments to third parties that are directed by the employee.
- An employee payment to savings plans such as 401K, U. S. Savings Bonds, IRAs, etc.
- Court ordered child support or other garnishments provided they comply with the Consumer Credit Protection Act and applicable state law.
Examples of deductions that cannot be made if they reduce the employee below the minimum wage:
- Cost of uniforms that are required by the employer or the nature of the job.
- Cash register shortages, inventory shortages, and also tipped employees cannot be required to pay the check of customers who walk out without paying their bills.
- Cost of licenses.
- Any portion of tips received by employees other than those allowed by a tip pooling plan.
- Tools or equipment necessary to perform the job.
- Employer required physical examinations.
- Cost of tuition for employer required training.
- Cost of damages to employer equipment such as wrecking employer’s vehicle.
- Disciplinary deductions. Exempt employees may be deducted for disciplinary suspensions of a full day or more made pursuant to a written policy applicable to all employees.
If an employee receives more than the minimum wage, in non-overtime weeks the employer may reduce the employee to the minimum wage. For example, an employee who is paid $9.00 per hour may be deducted $1.75 per hour for up to the actual hours worked in a workweek if the employee does not work more than 40 hours. Also, DOL takes the position no deductions may be made in overtime weeks unless there is a prior agreement with the employee. Consequently, employers might want to consider having a written employment agreement allowing for such deductions in overtime weeks.
Another area that can create a problem for employers is that the law does not allow an employer to claim credit as wages for money that is paid for something that is not required by the FLSA. In 2011, the Fifth Circuit Court of Appeals ruled in a case brought against Pepsi in Mississippi. A supervisor, who was laid off, filed a suit alleging that she was not exempt and thus was entitled to overtime compensation. The company argued that the severance pay the employee received at her termination exceeded the amount of overtime compensation that she would have been due. The trial court had ruled the severance pay could be used to offset the overtime that could have been due and dismissed the complaint. However, the Court of Appeals ruled that such payments were not wages and thus could not be used to offset the overtime compensation that could be due the employee. Therefore, employers should be aware that payments (such as vacation pay, sick pay, holiday pay, etc.) made to employees that are not required by the FLSA cannot be used to cover wages that are required by the FLSA.
The Act also provides that DOL may assess, in addition to requiring the payment of back wages, a civil money penalty of up to $1100 per employee for repeated and/or willful violations of the minimum wage provisions of the FLSA. Thus, employers should be very careful to ensure that any deductions are permissible prior to making such deductions. Further, in 2013, Wage and Hour instituted a procedure where they are requesting liquidated damages (an additional amount equal to the amount of back wages) in nearly all investigations. Virtually every week I see reports where employers have been required to pay large sums of back-wages and liquidated damages to employees because they have failed to comply with the FLSA.
There continues to be efforts to increase the minimum wage with the latest proposals suggesting $12.00 to $15.00 per hour. Several times a week I see articles that either advocate an increase or ones that put forth the argument that an increase in the minimum wage would just increase unemployment without helping low wage workers. Due to the political climate at this time, I doubt that we will see an increase this year. However, the President has issued an Executive Order requiring employees working on government contracts to be paid at least $10.10 per hour on all new contracts beginning January 1, 2015.
In a short-lived victory for employers, the D.C. Circuit Court of Appeals had issued an opinion on July 2, 2013, regarding the application of the administrative exemption to Mortgage Loan Officers. In 2006, DOL had issued an opinion stating that these employees could qualify for the administrative exemption but in a position paper issued in 2010, the Wage and Hour Administrator withdrew the earlier letter and stated the employees did not qualify for the exemption. The Mortgage Bankers Association brought suit and the Court stated that in order for the change in position to be valid, Wage and Hour was required to follow established “rule making” procedures. Since Wage and Hour failed to do this, the 2010 position is invalid; however, the D.C. Circuit stated they were not ruling on the merits of the position but just fact that DOL failed to follow the correct procedures when changing their position. DOL petitioned the Supreme Court to review the ruling and the Court ruled that DOL was within its rights to change it position. Perez v. Mortgage Bankers Ass’n (March 9, 2015).
Due to the amount of activity under both the Fair Labor Standards Act and the Family and Medical Leave Act employers need to make themselves aware of the requirements of these Acts and make a concerted effort to comply with them. If I can be of assistance do not hesitate to call me.