The Department of Labor has been busy recently, issuing proposals to update the joint employer standard as well as the “regular rate” requirements.
On April 1, the agency issued a Notice of Proposed Rulemaking (NPRM) with a proposed rule “to revise and clarify” the responsibilities of employers and joint employers to employees in joint employer arrangements. The DOL hasn’t meaningfully revised its regulations on the topic since 1958.
Pursuant to the Fair Labor Standards Act (FLSA), multiple parties may be jointly responsible for an employee’s wages where a determination is made that they are joint employers.
To make such a determination, the DOL proposed a four-factor test that would consider whether the potential joint employer actually exercises the power to hire or fire the employee, supervise and control the employee’s work schedules or conditions of employment, determine the employee’s rate and method of payment, and maintain the employee’s employment records.
The primary question, according to the agency, is whether the purported joint employer “exercises substantial control over the terms and conditions of the employee’s work.”
Included in the NPRM are illustrations to provide further clarification. For example, an individual works 30 hours per week as a cook at one restaurant and 15 hours per week as a cook at a different restaurant affiliated with the same nationwide franchise. The restaurants are locally owned and managed by different franchisees that do not coordinate with respect to the employee. Are they joint employers of the cook?
They are not, under the DOL’s proposed joint employer standard, because the restaurants are not associated in any meaningful way with respect to the cook’s employment. “The similarity of the cook’s work at each restaurant, and the fact that both restaurants are part of the same nationwide franchise, are not relevant to the joint employer analysis, because those facts have no bearing on the question whether the restaurants are acting directly or indirectly in each other’s interest in relation to the cook,” the agency explained.
However, if the cook’s schedule was the same but the two restaurants were owned by the same person and coordinated the cook’s schedule of hours at each location every week, deciding together to pay the cook the same rate, they would be joint employers of the cook, the DOL said.
The NPRM also explained that certain business practices—such as providing a sample employee handbook to a franchisee or jointly participating in an apprenticeship program—do not make joint employer status more or less likely; nor do certain business agreements (requiring an employer to institute workplace safety measures or sexual harassment policies, for example).
“This proposal will reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections,” Secretary of Labor Alexander Acosta said in a statement. “Providing public notice and comment is the best way to move forward with another significant deregulatory proposal.”
In a second proposal, the DOL seeks to amend the rule for the forms of payment employers can include and exclude in the “time and one-half” calculation for determining overtime rates. The tweaks to the “regular rate” requirements would be the first in 50 years, the agency noted.
The FLSA requires employers to pay nonexempt employees overtime at a rate of 1.5 times their regular rate for all hours worked over 40 in a given week. Although the regular rate is defined as all “remuneration for employment paid to, or on behalf of,” the employee, divided by the total number of hours worked that week, other forms of compensation and benefits can throw a wrench in the calculations.
To provide clarity for employers, the DOL’s NPRM attempts to better define the regular rate for modern workplaces. Specifically, the proposal would allow employers to exclude from an employee’s regular rate of pay the cost of providing wellness programs, on-site specialist treatment, gym access and fitness classes, as well as employee discounts on retail goods and services.
Payments for unused paid leave (including sick leave), tuition programs (such as reimbursement programs or repayment of educational debt), discretionary bonuses—emphasizing that a bonus’s label is not determinative—and benefit plans (including accident, unemployment and legal services) would all be excluded.
Other exclusions include reimbursed expenses (even if they were not incurred “solely” for the employer’s benefit) and reimbursed travel expenses that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System and that satisfy other regulatory requirements.
The NPRM also clarifies that pay for time that would not otherwise qualify as “hours worked,” including bona fide meal periods, may be excluded from an employee’s regular rate unless an agreement or established practice indicates that the parties have treated the time as hours worked.
“The regular rate proposal would provide clarity for employers to allow them to add more benefits to their employees without unknown overtime consequences or litigation,” Keith Sonderling, acting administrator for the department’s Wage and Hour Division, said in a statement. “This proposed rule offers a positive path forward to employers and employees alike.”
Why it matters: Employers should take advantage of the opportunity to weigh in on NPRMs, with comments accepted on the proposals until June 10 (for the joint employer standard) and May 28 (on the “regular rate” requirement). The joint employer standard has also been the subject of an NPRM from the National Labor Relations Board, with the board indicating its plans to issue a final rule by the end of 2019.