U.S. Department of Labor goes on rulemaking frenzy

The U.S. Department of Labor (DOL) has been very active in the last couple of weeks. Last month, we alerted employers to newly published proposed rules that would raise the minimum salary level for white collar exemptions. Last week, for the first time in more than 50 years, the DOL has made a proposal to change the definition of the regular rate of pay. This week, after over 60 years without any meaningful revisions, the DOL has proposed a new four-factor test for joint employment liability. It appears that the DOL is hurrying to complete its regulatory agenda before the next election season.

Regular Rate of Pay

The regular rate of pay is the basis on which employers calculate overtime rates for non-exempt employees. Some forms of payment must be included in the regular rate of pay while other forms of payment can be excluded. The existing rules are somewhat vague and have the effect of discouraging employers from offering more perks to their employees, as those perks may be required to be included in the employee’s regular rate of pay. The proposed rule clarifies whether certain kinds of perks, benefits, or other items must be included in the regular rate of pay. As the current regulations are decades old, the new proposal offers much needed guidance for today’s employer.

Under the newly proposed rule, the following benefits and payments may be excluded from an employee’s regular rate of pay:

  • the cost of providing wellness programs, on-site specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services;
  • payments for unused paid leave, including paid sick leave;
  • reimbursed expenses, even if not incurred “solely” for the employer’s benefit;
  • reimbursed travel expenses that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System and that satisfy other regulatory requirements;
  • discretionary bonuses (the proposal provides additional examples of discretionary bonuses and clarifies that the label given a bonus by an employer does not determine whether it is discretionary);
  • benefit plans, including accident, unemployment, and legal services; and
  • tuition programs, such as reimbursement programs or repayment of educational debt.

The proposed rule also has a couple of other substantive changes. One such change involves “call-back” pay — additional pay earned when an employee responds to a call-back noticed from his employer. Under the proposed rule, “call-back” pay and other similar payments must be “infrequent and sporadic” to be excludable from an employee’s regular rate. Such payments must not be so regular that they are essentially prearranged.

Another change is an update to the DOL’s basic rate regulations. Under the current regulations, employers using an authorized basic rate may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than $0.50 a week on average. The proposed rule would update this regulation to change the $0.50 limit to 40 percent of the federal minimum wage — currently $2.90.

The comment period on this proposed rule, which is open through May 28, 2019, allows interested members of the public to submit comments about the proposed rule before any rule is enacted.

Joint Employment Liability

The Fair Labor Standards Act (FLSA) imposes joint employer liability when an employer and another company (a joint employer) are jointly responsible for an employee’s wages. The proposed rule is intended to help employers and joint employers more clearly understand their legal obligations under the FLSA.

The DOL has proposed a clear, four-factor test — based on well-established case law — that would consider whether the potential 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.

This new joint employer test applies only for purposes of the Fair Labor Standards Act and does not apply to other laws such as the National Labor Relations Act or anti-discrimination laws. The proposed rule states that “[o]nly actions taken with respect to the employee’s terms and conditions of employment, rather than the theoretical ability to do so under a contract, are relevant to joint employer status under the Act.” This means that the joint employer must actually exercise the power to hire and fire the employee, supervise and control the employee, determine the employee’s rate and method of payment and maintain employment records — the theoretical ability or reserved right to do so will not trigger joint employer status.

The proposed rule also clarified the factors that are not relevant to the joint employer analysis under the FLSA. The factors that are not to be considered include:

  • Whether the employee has economic dependence on the potential joint employer;
  • Whether the employee is in a specialty job or a job otherwise requiring special skill, initiative, judgment, or foresight;
  • Whether the employee has the opportunity for profit or loss based on managerial skill; and
  • Whether the employee invests in equipment or materials required for work or the employment of helpers

These factors are often used under other tests, such as in determining if a worker is an employee or independent contractor; however, they are not to be used under the FLSA joint employer test.

The proposed rule also identifies business models, practices and agreements that do not make joint employer status more or less likely for an entity. These include the following examples:

  • Operating as a franchisor;
  • Providing a sample handbook to a franchisee;
  • Allowing an employer to operate a facility on the entity’s premises;
  • Jointly participating in an apprenticeship program;
  • Offering an association health or retirement plan to an employer or participating in such a plan with an employer;
  • Requiring an employer to institute workplace safety measures, wage floors or sexual harassment policies.

In addition to the new four-factor test, the DOL provided several examples that would help clarify joint employer status. The comment period on the joint employer rule is expected to be open through early June 2019.

Remember, all of these newly proposed rules are not in final form. There is always the possibility of substantial changes before the final rules are implemented. While employers should not make any changes to their policies just now, they should continue to monitor these proposed rules and, as necessary, seek the assistance of legal counsel to see if changes to their policies, practices or arrangements will be necessary in the future.