Wage and Hour Laws–They are Here, There and Everywhere Part 1

Knowing the wage and hour laws and applying them is one of the basic tasks of employers in general and the payroll department in specific. But if payroll must apply the laws then the question must arise—what are the laws, and which one applies? Payroll chat rooms, blogs and classrooms constantly discuss this question.  How do I know I am in compliance if I don’t know all the laws to follow? We all know there are laws governing the minimum wage and overtime but what else is out there?  Are the employees entitled to a break or meal period? Is vacation pay required?   How is on call pay handled?  Can an employer demand an employee use direct deposit?  And when these questions do arise, where do you find the answers. Can a payroll professional simply check the Fair Labor Standards Act (FLSA) to find the answer with a quick verification of any state requirement? Or is the state the main source to go to first with the FLSA as the fall back? The answer is not simple.  In this blog series I will be discussing areas where payroll professionals need to ensure compliance by researching wage and hour laws.

The Fair Labor Standards Act of 1938 (FLSA) sets the federal standards for minimum wage, overtime, equal pay, recordkeeping and child labor.  But it does not address all the issues that arise when paying an employee.  It is silent (gives no information or requirements) on such items as when an employee must be paid or the method that needs to be used.  It explains what is considered hours worked concerning meal periods but does not actually require that an employee be given a meal period. States on the other hand are autonomous when it comes to wage and hour laws within their own borders.  The state may mirror a federal law, exceed it, have a version of the same law with lesser requirements or no law governing an area at all. In addition, the state may have a requirement in an area that the FLSA is silent on such as paystubs or rest periods.

For a payroll department to ensure that it is in full compliance with the wage and hour laws it needs to first verify every facet of its payroll process and then verify what laws govern it.  It must start with what are hours worked and how that relates to calculating the gross pay for its employees and follow that through to the rules that governing paycheck distribution and timing. Both federal and state laws need to be included.  In this blog series we will review 23 general areas that could be covered under a wage and hour law on the federal side, the state side or both. We will start with the more common areas known such as white-collar exemptions and move into lesser known regulations such as paystubs and payday notices. Some areas on the list are strictly a state function and requirement while others are both federal and state.  If a conflict exists between a federal and state law the law establishing the higher standard applies.  In other words, the law that gives more money or more time or more benefit to the employee is the winner. It is also important to remember that not only should the labor code be verified but in some states wage orders must also be consulted.  Wage orders are a set of wage and hour regulations issued by the state that apply to only a certain industry or group of workers.

In Part 2 of this blog series I will discuss the first six areas to research.

Our subscribers to Payroll 24/7 E-Alert received the news of the 2020 wage base the same day it was released by the SSA. Don’t wait for important payroll news, subscribe today for only $149 per year.  That’s hundreds of dollars less than our nearest competitor.  And our news is strictly payroll related. 

Reminder:  The early pricing for our next payroll lecture ends on October 23rd.  Register for our lecture on the 2020 Form W-4 and receive a 60 day free subscription to Payroll 24/7.  A $37 value free with your registration.  And just in time for all the latest year end news.

Handling Disaster Relief Payments…Taxwise

Disaster occurs without warning.  Your employees may be affected by wildfires, earthquakes, hurricanes, ice storms and/or tornados.  When a disaster occurs, personal lives can be upended. Loss of homes and property is a common occurrence when a disaster strikes.  And employers may want to help their individual employees recover. But what if an employer gives money to an employee to help rebuild after a disaster. How would that money be treated taxwise? We have to look at section 139 of the Internal Revenue Code (IRC) to discover the answer.

The Victims of Terrorism Tax Relief Act of 2001 added section 139 to the IRC.  Section 139 provides that gross income does not include any amount received by an individual as a qualified disaster relief payment.  A “qualified disaster relief payment” means any amount paid to or for the benefit of an individual:

  • To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster;
  • To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster;
  • By a Federal, State, or local government, agency or instrumentality thereof, in connection with a qualified disaster in order to promote the general welfare.

The term “qualified disaster” means:

  • A disaster that results from a terroristic or military action;
  • A Presidentially declared disaster;
  • A disaster resulting from any event that the Secretary determines to be of a catastrophic nature; or
  • A disaster that is determined by an applicable federal, State, or local authority to warrant assistance from the Federal, State, or local government or an agency thereof.

 

Taxable Wages?

So, are payments made by an employer to its employees for disaster relief as listed above taxable wages?  The IRS provides a hypothetical scenario to explain how the above rules would apply to an employer’s payments made for disaster relief to an employee.  Basis for the scenario is as follows:  An area within state “ST” was affected by a flood that was a Presidentially declared disaster as defined in the IRC. Acme, an employer in that state, makes grants to its employees who are affected by this flood.  The grants will pay or reimburse employee for medical, temporary housing, and transportation expenses they incur as a result of the flood that are not compensated for by insurance or otherwise. Acme does not require its employee to provide proof of actual expenses to receive the grant payments.  Acme’s program, however, contains requirements to ensure that the grant amounts are reasonable expected to be commensurate with the amount of unreimbursed reasonable and necessary medical, temporary housing, and transportation expenses that its employees incur as a result of the flood. The grants are not intended to indemnify all flood-related losses or to reimburse the cost of nonessential, luxury or decorative items and services.  The grants are available to all of Acme’s employees regardless of how long they have been with the company or the type of service they perform for the company.

The payments made by Acme to its employees in the above scenario, first of all, cannot be excluded from income because it is considered simply a gift from Acme to the employee.  This type of payment made to an employee does not qualify as a gift under IRC §102.  The payments cannot be excluded from income by being considered a type of general welfare payment.  Acme, as an employer, is a non-governmental agency and cannot issue welfare payments.

The grants, however, are reasonably expected to be commensurate with the unreimbursed reasonable and necessary personal, living, or family expenses that Acme’s employees incur as a result of a flood that is a qualified disaster. Moreover, they are paid to compensate individuals for expenses that are not compensated for by insurance or otherwise.  Therefore, Acme’s grants are qualified disaster relief payments that are excluded from the gross income of Acme’s employees under § 139. As such, the grants are not subject to federal income tax, social security, Medicare, or FUTA tax.  In addition, they do not need to be reported on the Form W-2 nor any other reporting form such as a 1099-MISC.

The states may have a different view and the appropriate state tax code would need to be consulted to determine state taxable income. For example, in California, the disaster relief payment would not be subject to Personal Income Tax (PIT) withholding. However, the payment would be subject to state unemployment insurance (SUI), Employment Training Tax (ETT) and state disability insurance (SDI). The payment would only be excluded under Section 938 of the California Unemployment Insurance Code (CUIC) if paid as a result of the employee’s death.

DOL Issues Three New Opinion Letters

The U.S. Department of Labor announced that it issued three new opinion letters that address compliance issues related to the Fair Labor Standards Act (FLSA) the Family and Medical Leave Act (FMLA), and the Consumer Credit Protection Act (CCPA). An opinion letter is an official, written opinion by the Department’s Wage and Hour Division on how a particular law applies in specific circumstances presented by the individual or entity that requested the letter.

The opinion letters issued are:

FMLA2019-3-A: Addressing whether an employer may delay designating paid leave as FMLA leave due to a collective bargaining agreement;

FLSA2019-13: Addressing the ordinary meaning of the phrase “not less than one month” for purposes of FLSA section 7(i)’s representative period requirement; and

CCPA2019-1: Addressing whether employers’ contributions to employees’ health savings accounts are earnings under the CCPA.

Our subscribers to Payroll 24/7 E-Alert received the news of the 2020 wage base the same day it was released by the SSA. Don’t wait for important payroll news, subscribe today for only $149 per year.  That’s hundreds of dollars less than our nearest competitor.  And our news is strictly payroll related. 

Reminder:  The early pricing for our next payroll lecture ends on October 23rd.  Register for our lecture on the 2020 Form W-4 and receive a 60 day free subscription to Payroll 24/7.  A $37 value free with your registration.  And just in time for all the latest year end news.

SSA Announces 2020 Social Security Wage Base

The Social Security Administration (SSA) has released the 2020 Social Security changes.  The social security (or Old Age, Survivors and Disability Insurance (OASDI)) wage base for 2020 will be $137,700. The rates will remain the same at 6.2% for social security and 1.45% for Medicare.  There will continue to be no limit on Medicare.  The Additional Medicare Tax, started under President Obama, will continue with the same wage base, $200,000 and the same rate, 0.9% with no employer matching.

 

Back on May 8th we posted the social security wage base projects that were issued by the Social Security Administration in their 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Fund.  There were three estimates, low, medium and high.  The rates ranged from $136,800 to $137,100.  So the final wage base coming in at $137,700 was not too far off.

Our subscribers to Payroll 24/7 E-Alert received the news of the 2020 wage base the same day it was released by the SSA. Don’t wait for important payroll news, subscribe today for only $149 per year.  That’s hundreds of dollars less than our nearest competitor.  And our news is strictly payroll related. 

Reminder:  The early pricing for our next payroll lecture ends on October 23rd.  Register for our lecture on the 2020 Form W-4 and receive a 60 day free subscription to Payroll 24/7.  A $37 value free with your registration.  And just in time for all the latest year end news.

Not a Great Milestone to Reach

2019 is the year of a milestone concerning the minimum wage on the federal level.  This past June marked the longest period in our history (since 1938 when the minimum wage was established) that has not seen an increase in the federal minimum wage.  The last time Congress passed an increase was in May 2007 that was effective July 24, 2009.  That marks 10 years!  The impact of this lack of increase actually decreases the purchasing power according to the Economic Policy Institute (EPI). The EPI explains that when the minimum wage remains unchanged for any length of time, inflation erodes its buying power.  When the minimum wage was last raised to $7.25 in July 2009, it had a purchasing power equivalent to $8.70 in today’s dollars. Over the last 10 years, as the minimum wage has remained at $7.25, its purchasing power has declined by 17 percent. And, since its historical peak in February 1968, the federal minimum wage has lost 31 percent in purchasing power—meaning that full-time, year-round minimum wage workers today have annual earnings worth $6,800 less than what their counterparts earned five decades ago, EPI said.

The current session of the House of Representatives has grappled with this issue but there is little hope, at this time, of it coming out of committee in the Senate.  But this 10-year drought has not gone unnoticed in most states.

As of 2019, 29 states, plus the District of Columbia have a higher minimum wage than the federal.  14 states are equal, 2 states are lower, and 5 states still have not enacted a minimum wage. In addition, many “high cost” cities or counties have enacted their own minimum wage different from the state level. This includes at least 27 cities in California; New York City; Chicago, IL; Minneapolis, MN; four counties/cities in New Mexico; three entities in Washington state; two counties in Maryland; and Portland, ME among others.

The growing trend among the states is to link the minimum wage to the Consumer Price Index. At least 12 states, including AZ, CO and NV, have used this method to ensure that the level of the minimum wage keep up with inflation in their own state.

With 2020 just around the corner, the states are already announcing increasing to the minimum wage. These include South Dakota, Vermont, Montana, Ohio and Connecticut. New cities or entities are also adding a minimum wage for the first time, including Houston airport area in Texas and the city of Novato, California. (Be sure to subscribe to our payroll update news service, Payroll 24/7 to keep up with the latest minimum wage increases for 2020).

But how does the United States stack up against the other industrialized countries. Well taking currency adjustments into account, we are quite a bit lower on the national level.  Even with higher costs of living most cities or countries come in higher than we do. They generally range from $10 an hour to $13 an hour in U.S. dollars. However, this does not take into account that citizens in those countries also have paid for medical care and do not have to pay for health insurance out of that minimum wage in most cases.

Upcoming payroll lectures:  Our next payroll lecture is on the 2020 Form W-4.  Be sure to join us on October 30, 2019 as we review the massive changes to this form in decades. Get a free 60 day subscription to Payroll 24/7 if you register before October 23rd.

Virtual Lecture on 2020 Form W-4

I am holding another virtual payroll lecture in October.  This time on the new and totally revamped Form W-4 for 2020.  Join me on Wednesday, October 30, 2019 at 10 am Pacific for this 2 hour lecture.  The lecture will take you through the major changes to the form for 2020 including the worksheets.  I will also be covering the Publication 15-T which is used in conjunction with the form. Because this is a lecture rather than a webinar, I will have a hands on, follow along, segment where you will fill out the form with me.  Of course, there will be a Q & A session where hopefully I can answer questions you may have. I hope you will join me for this informative lecture on first major changes to the Form W-4 in decades.  The cost is only $149. If you register before October 23, 2019 you will receive a free 60-day subscription to Payroll 24/7, my email news update service exclusively for payroll professionals. If you are already a subscriber to Payroll 24/7 then please use coupon code w420% at check out to receive a 20% discount. This lecture has been submitted to the APA for 2 RCHs.

DOL Proposing Rules for Tip Credit Provisions

The U.S. Department of Labor (DOL) has announced a proposed rule for tip provisions of the Fair Labor Standards Act (FLSA).  The proposed rule would implement provisions of the Conso

Still life of a full tip jar

lidated Appropriations Act of 2018 (CAA). The proposal would also codify existing Wage and Hour Division (WHD) guidance into a rule.

According to the announcement: The CAA prohibits employers from keeping employees’ tips.  During the development of those provisions, the Department provided technical assistance to Members of Congress. DOL’s proposed rule would allow employers who do not take a tip credit to establish a tip pool to be shared between workers who receive tips and are paid the full minimum wage and employees that do not traditionally receive tips, such as dishwashers and cooks.

The proposed rule would not impact regulations providing that employers who take a tip credit may only have a tip pool among traditionally tipped employees. An employer may take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (currently $2.13 per hour) and the federal minimum wage. Establishments utilizing a tip credit may only have a tip pool among traditionally tipped employees.

Additionally, the proposed rule reflects the Department’s guidance that an employer may take a tip credit for any amount of time an employee in a tipped occupation performs related non-tipped duties with tipped duties. For the employer to use the tip credit, the employee must perform non-tipped duties contemporaneous with, or within a reasonable time immediately before or after, performing the tipped duties. The proposed regulation also addresses which non-tipped duties are related to a tip-producing occupation.

In this notice of Proposed Rulemaking (NPRM), the Department Proposes to:

  • Explicitly prohibit employers, managers, and supervisors from keeping tips received by employees;
  • Remove regulatory language imposing restrictions on an employer’s use of tips when the employer does not take a tip credit. This would allow employers that do not take an FLSA tip credit to include a broader group of workers, such as cooks or dishwashers, in a mandatory tip pool.
  • Incorporate in the regulations, as provided under the CAA, new civil money penalties, currently not to exceed $1,100, that may be imposed when employers unlawfully keep tips.
  • Amend the regulations to reflect recent guidance explaining that an employer may take a tip credit for any amount of time that an employee in a tipped occupation performs related non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties.
  • Withdraw the Department’s NPRM, published on December 5, 2017, that proposed changes to tip regulations as that NPRM was superseded by the CAA.

After publication this NPRM will be available for review and public comment for 60 days. The Department encourages interested parties to submit comments on the proposed rule. The NPRM, along with the procedures for submitting comments, can be found at the WHD’s Proposed Rule website.

Happy Labor Day!

Wishing my all followers a Happy Labor Day! Monday marks the 125th celebration of Labor Day as a national holiday in the United States.
Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country. The history of the holiday is interesting. The first governmental recognition came through municipal ordinances passed in 1885 and 1886. From these, a movement developed to secure state legislation. The first state bill was introduced into the New York legislature, but the first to become law was passed by Oregon on February 21, 1887. During 1887, four more states – Colorado, Massachusetts, New Jersey, and New York – created the Labor Day holiday by legislative enactment. By the end of the decade Connecticut, Nebraska, and Pennsylvania had followed suit. By 1894, 23 more states had adopted the holiday, and on June 28, 1894, Congress passed an act making the first Monday in September of each year a legal holiday in the District of Columbia and the territories. Who actually started the day is still disputed but it appears that of the two men generally credited with its beginnings, Peter J. McGuire and Matthew Maguire, the better claim for the credit for the holiday goes to Matthew Maguire, secretary of Local 344 of the International Association of Machinists in Paterson, NJ. Regardless of who had the idea, 125 years later it is still going strong. So Happy Labor Day!
 

Opinion Letters Issued

Despite all the “turmoil” that is going on over at the U.S. Department of Labor (DOL), the work is still continuing. The DOL has issued three new opinion letters that address compliance issues related to the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA). An opinion letter is an official, written opinion by the Department’s Wage and Hour Division on how a particular law applies in specific circumstances presented by the individual or entity that requested the letter.

The latest opinion letters are:

  • FMLA2019-2-A: Addressing whether attending a Committee on Special Education meeting to discuss a child’s Individualized Education Program qualifies as FMLA leave;
  • FLSA2019-11: Addressing the application of the section 7(k) overtime exemption to public agency employees engaged in both fire protection and law enforcement activities; and
  • FLSA2019-12: Addressing the employment status of volunteer reserve deputies who perform paid extra duty work for third parties.

Be sure to keep up with the latest rule changes and opinion letters from the DOL with a subscription to Payroll 24/7.  Only $149 per year for all the latest payroll news right to your inbox.

IRS Launches New Tool for Estimating Taxes

The Internal Revenue Service has launched the new Tax Withholding Estimator, an expanded, mobile-friendly online tool designed to make it easier for everyone to have the right amount of tax withheld during the year. The Tax Withholding Estimator replaces the Withholding Calculator, which offered workers a convenient online method for checking their withholding. The new Tax Withholding Estimator offers workers, as well as retirees, self-employed individuals and other taxpayers, a more user-friendly step-by-step tool for effectively tailoring the amount of income tax they have withheld from wages and pension payments.

“The new estimator takes a new approach and makes it easier for taxpayers to review their withholding,” said IRS Commissioner Chuck Rettig. “This is part of an ongoing effort by the IRS to improve quality services as we continue to pursue modernization and enhancements of our taxpayer relationships.” The IRS took the feedback and concerns of taxpayers and tax professionals to develop the Tax Withholding Estimator, which offers a variety of new user-friendly features including:

  • Plain language throughout the tool to improve comprehension.
  • The ability to more effectively target at the time of filing either a tax due amount close to zero or a refund amount.
  • A new progress tracker to help users see how much more information they need to input.
  • The ability to move back and forth through the steps, correct previous entries and skip questions that don’t apply.
  • Enhanced tips and links to help the user quickly determine if they qualify for various tax credits and deductions.
  • Self-employment tax for a user who has self-employment income in addition to wages or pensions.
  • Automatic calculation of the taxable portion of any Social Security benefits.
  • A mobile-friendly design.

In addition, the new Tax Withholding Estimator makes it easier to enter wages and withholding for each job held by the taxpayer and their spouse, as well as separately entering pensions and other sources of income. At the end of the process, the tool makes specific withholding recommendations for each job and each spouse and clearly explains what the taxpayer should do next.

The new Tax Withholding Estimator will help anyone doing tax planning for the last few months of 2019. Like last year, the IRS urges everyone to do a Paycheck Checkup and review their withholding for 2019. This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed this year. It’s also an important step for those who made withholding adjustments in 2018 or had a major life change.

Those most at risk of having too little tax withheld include those who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.

 

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