Competition, Cost Control & Compliance: Strategies to Navigate 2016 DOL Changes

Several U.S. Department of Labor reforms are on the horizon this year, raising employers’ concerns on maintaining compliance. Technology and economic forces continue to transform work environments, and as a result, more regulations are established to adjust to these changes. Employers must rethink their strategy to avoid being negatively impacted by these potential new laws.

Competition for talent and retaining talent are two primary pain points for HR departments, and employers can gain a competitive advantage by preparing for these DOL changes. Employers may benefit from being proactive and developing a strategy for these three reforms before they go into effect:

 

“White Collar” Exemption Reform

The U.S. Department of Labor proposed a provision to the Fair Labor Standards Act, which would reform the “white collar” exemption from minimum wage and overtime pay for all service hours over 40 per week.

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Assuming the proposed regulations are adopted as drafted, the minimum salary to qualify for the overtime exemption will more than double, increasing from $23,660 to $50,440 annually. As a result, approximately five million more Americans would become eligible for overtime pay because they would lose their current exemption.

It is estimated that the final regulations will be released in mid-to-late 2016, so employers should begin considering the effect this reform could have on their bottom line, and determine what organizational policies would need to be changed to abide by the new law. Before the proposed rules are finalized, HR and payroll departments must analyze the exempt status of each employee and identify which, if any, salaries will be affected. Once identified, employers must make a decision; some may find that increasing salaries to meet the new minimum threshold will be the best solution, but for employees in the middle of the new threshold, the answer may not be as clear.  Employers in this instance must consider the following options:

  • Restricting hours to less than 40 per week
  • Restructuring staff
  • Lowering hourly wages to compensate for overtime
  • Paying the overtime

Most options will result in increased payroll costs and, in some  cases, increased  benefit  costs. It is imperative that employers be proactive in their analysis of current compensation strategies to properly budget for the possible increases associated with these changes.

 

A Request For Information (RFI) on Use of Electronic Devices Off-the-Clock

In February 2016, the U.S. Department of Labor plans to issue a Request for Information (RFI) to “gather information about employees’ use of electronic devices to perform work outside of regularly scheduled work hours and away from the workplace.”

Alltrust icons-02According to Citrix, 61 percent of workers report working outside the office at least part of the time. Employees may use mobile devices after-hours to answer emails or complete quick work tasks that would be considered de minimus time – or insignificant amounts of time that aren’t compensable – but the problem is, it may begin to add up and trigger overtime. This may muddy the waters for employers, who currently have no guaranteed way of tracking the hours worked from mobile devices off-the-clock.

As a result, the RFI may focus on understanding how employers calculate time spent working on mobile devices; how big of a problem it is in the workplace; how often it is occurring; and whether this is worthy of a new regulation. With the information collected for the RFI, employers hope to receive guidance on:

  • What the DOL considers to be compensable time in terms of working from mobile devices, versus de minimus time
  • What hour-tracking and record-keeping systems, if any, will need to be implemented
  • Whether there should be restrictions on working after-hours, and if necessary, what special circumstances they can require work outside of regular hours

The RFI poses an advantage for employers, because it gives them the opportunity to perform internal audits and adjust existing practices before any laws are implemented. Employers should ensure that all policies regarding overtime, time-tracking and work hours are consistent and accurate for all employees. Work hours, and restrictions on working after-hours, should be part of the work culture and encouraged from every level of the organization, starting at the executive level. If further DOL action is likely to happen, limiting access to work emails and other systems may need to be considered if working after-hours proves to be an ongoing problem.

 

Expanding Definition of Joint Employer

In the beginning of the year, the U.S. Department of Labor issued an Administrator’s Interpretation (AI) that explains and expands its definition of “joint employment.” According to the DOL, If two or more employers “jointly” employ an employee, the employee’s hours for all joint employers during the workweek must be combined and considered as one employment – this is also used to calculate whether or not overtime must be paid. As a result, the joint employers are both liable for noncompliance with the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (MSAWPA)

The AI also expands the definition into two types of joint-employment arrangements:

  • “Vertical” joint employment – emphasizes the relationship between the employee and the employers. The employee has an employment relationship with one “intermediary” employer, such as a staffing agency or subcontractor, but the employee is also employed and relies economically on another entity involved in the work.
  • “Horizontal” joint employment – emphasizes the relationship of the employers to each other. The employee works for two or more employers, and the employers are sufficiently associated, or related with respect to the employee, making them joint employers. One common example is a waiter at a restaurant who is hired by another restaurant under the same management or ownership.

As the definition of joint employer becomes concrete, more liability lies on both sides of the coin. Employers may be held liable for situations that they wouldn’t have been held liable for in the past, so understanding both individual and joint responsibilities is key.

Employers can use this new definition as guidance for compliance,  and to ensure that all employees are fairly compensated. To prevent labor violations, employers should evaluate their relationships with other employers based on the metrics used to define horizontal joint employment, and with their employees based on the metrics used to define vertical joint employment.

2016 could be an impactful year for the U.S. Department of Labor and reforming employment regulations. Knowing what possible changes are coming down the pipeline is not enough for employers to stay ahead of the game; today, educating your staff, adapting new policies and formulating strategies to work around these changes are essential to remain competitive and compliant.

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