With Higher Minimum Wages Can Come Higher Penalties

As my Payroll 24/7 subscribers found out today, Illinois is increasing its minimum wage to $15.00 per hour by the 2025.  But the bill, Senate Bill 1, also increases the penalties for failure to follow

the new requirements.  One of blogs that I follow, Wage & Hour Insights has an excellent post on this very issue.  I urge you to take a moment to read Bill Pokorny’s blog on the new Illinois minimum wage violations penalties, Stiff New Employer Penalties Included in Illinois $15 Minimum Wage Law. It is an excellent source on the new requirements.

Average vs. Weighted Average When It Comes to Calculating Overtime Rates–Another Use for Algebra!

Calculating overtime is always tricky.  What rate is the “regular rate of pay” as required by the Fair Labor Standards Act (FLSA) is a question that must be answered each time for each calculation.  What can make this even more difficult is when the employee works at more than one rate in the workweek.  What rate do you use for the “regular rate of pay” if the employee has two or more hourly rates during the workweek? Can you simply average the different rates or is something more required?  The Department of Labor recently addressed this situation in Opinion Letter FLSA 2018-28, dated December 21, 2018.

Facts of the letter:  The employer in question wanted to determine if their compensation plan, which pays an average hourly rate that may vary from workweek to workweek, complies with the FLSA. It was concerned in both the area of minimum wage and calculating the overtime rate.  The employer pays a different rate for when an employee is working with a client as opposed to when the employee is traveling between clients.  It makes sure that the typical standard rate of pay is $10.00 per hour and if the employee works over 40 hours in any given workweek, they are paid overtime based on the $10.00 rate.

The DOL agreed that the employer followed the minimum wage requirement as the employer is paying well above the minimum wage of $7.25 per hour.  However, the problem for the employer is with the rate used to calculate overtime.  According to the letter:

…If the employer always assumes a regular rate of pay of $10 per hour when calculating overtime due, then the employer will not pay all overtime due to employees whose actual regular rate of pay exceeds $10 per hour. 29 C.F.R. § 778.107. Neither an employer nor an employee may arbitrarily choose the regular rate of pay; it is an “actual fact” based on “mathematical computation.” Walling v. Youngerman-Reynolds Hardwood Co., Inc., 325 U.S. 419, 42425 (1945); 29 C.F.R. § 778.108. That said, the compensation plan does comply with the FLSA’s overtime requirements for all employees whose actual regular rates of pay are less than $10 per hour, as an employer may choose to pay an overtime premium in excess of the statutorily required amount.

So what rate should an employer use to calculate the overtime in situations where the employee is working two or more rates within the workweek?  The rate is determined by what is known as a “weighted average” not an average of the rates. The DOL addresses this method in Fact Sheet #23: Overtime Pay Requirements of the FLSAIt reads as follows:

…Where an employee in a single workweek works at two or more different types of work for which different straight-time rates have been established, the regular rate for that week is the weighted average of such rates. That is, the earnings from all such rates are added together and this total is then divided by the total number of hours worked at all jobs. In addition, section 7(g)(2) of the FLSA allows, under specified conditions, the computation of overtime pay based on one and one-half times the hourly rate in effect when the overtime work is performed. The requirements for computing overtime pay pursuant to section 7(g)(2) are prescribed in 29 CFR 778.415 through 778.421.

Here is an example of a weighted average calculation: The employee has worked the following hours at the following rates for the workweek:

Step 1: To determine the weighted average the following calculations would be required:

Step 2: Divide the total earnings by the total hours worked to determine the regular rate of pay

$475.75 divided by 43 = $11.06 (regular rate of pay)

Step 3: Determine the premium pay for overtime by multiplying the regular rate of pay by .5 (or divide by 2) then multiplying that amount by the number of overtime hours

$11.06 x .5 x 3 = $16.59

Step 4: Determine the total weekly compensation by adding the total earnings (step 1) and the premium pay (step 3): $475.75 + $16.59 = $492.34.  $492.34 is the total weekly compensation.

In closing, it must be remembered that it is the employer’s responsibility to ensure that the regular rate of pay used for overtime calculations is the correct one.

 

FLSA Video Training Has Arrived at DOL/WHD

The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) is launching a new series of brief, plain-language videos to help employers understand their legal obligations when it comes to calculating overtime etc.  According the the WHD website these videos “strip away the legalese and provide employers with basic information…”  The topics provided so far are:

  • Coverage: Does the Fair Labor Standards Act (FLSA) apply to my business?
  • Minimum Wage: What minimum wage requirements apply to my business?
  • Deductions: Can I charge my employees for uniforms or other business expenses?
  • Hours Worked: Do I have to Pay for that time?
  • Overtime: When do I owe overtime compensation and how do I pay it correctly?

The videos are very well done and cover the rules quite nicely.  For example the overtime video does go into all the calculations needed for regular rate of pay.  They last an average of seven or eight minutes each. If you are looking for a good basic training on these topics listed check out the videos from WHD.

ALEC Wins Another State Over!

The American Legislative Exchange Council, or as it is commonly known ALEC, according to their website, is “America’s largest nonpartisan, voluntary membership organization of state legislatures dedicated to the principles of limited government”.  It’s current legislative agenda is to try to stop increases in the minimum wage and the mandatory sick leave movement as it sees it as having a negative effect on workers.  But in order to keep the minimum wage low or as ALEC describes it; “Maximizing the freedom of businesses and employees to negotiate their own wages” they not only have to convince state legislatures not to raise the minimum wage or provide mandated sick leave, but have to convince all local governments as well.  This is a tough job as there are thousands of local entities such as cities and counties that could decide to raise the minimum wage or enforce mandatory sick leave.  So ALEC takes the approach to tackle this from the head down by convincing state legislatures that they need to pass laws that prohibit any local entity from passing any type of minimum wage or benefit increase that does not equal the state level.  At this task they are making headway.  The latest state to buy into ALEC and bar local governments from passing a minimum wage or benefits ordinance is Wisconsin.

New legislation, A748,  prohibits counties, cities, and towns from enacting ordinances that: (1) establish or mandate local hour and overtime requirements, including scheduling employee work hours or shifts; and (2) require employers to provide employment benefits, including a retirement, pension, profit sharing, insurance, or leave benefit. The legislation does allow prospective employers to solicit salary information from previous employers and preempts counties, cities, and towns from prohibiting such solicitation.  The bill is effective as of March 30, 2018.

Jane Fonda is Not Wrong on Tip Regulations

As some of you may have seen on Facebook, a new video with Jane Fonda has been making the rounds. It concerns the latest Department of Labor proposed rules concerning employer treatment of tips.  Leaving the politics of Jane Fonda aside this is an important issue that needs to be understood.  A great source to understand this issue is the latest post from Wage & Hour Insights written by Bill Pokomy on December 8th.  I highly recommend you review his analysis of the proposed rule.

EPI Report Shows Employers Steal Up to $8 Billion From Employees’ Wages Annually

A report released on May 10, 2017 by the Economic Policy Institute (EPI) assesses the prevalence and magnitude of one form of wage theft—minimum wage violations. Minimum wage violations is defined in the report as paying a worker an effective hourly rate that is below the legal or binding minimum wage, either state or federal law. The report looked at the 10 most populous U.S. states: California, Florida, Georgia, Illinois, Michigan, New York, North Carolina, Ohio, Pennsylvania, and Texas. These states were chosen to limit the focus of the report so EPI could carefully account for each state’s individual minimum wage policies and state-specific exemptions to wage and hour laws. Two of the states chosen, California and New York, actually have anti-wage theft laws on the books. The data for these states provides adequate ample sizes and the total workforce in these states accounts for more than half of the entire U.S. workforce. The results of the study are a bit alarming even if you take into account that the measuring of wage theft is challenging and suitable public data sources are limited. The key findings of the report are that:

  • In the 10 most populous states in the country, each year 2.4 million workers covered by state or federal minimum wage laws report being paid less than the applicable minimum wage in their state—approximately 17 percent of the eligible low-wage workforce.
  • The total underpayment of wages to these workers amounts to over $8 billion annually. If the findings for these states are representative for the rest of the country, they suggest that the total wages stolen from workers due to minimum wage violations exceeds $15 billion each year.
  • Workers suffering minimum wage violations are underpaid an average of $64 per week, nearly one-quarter of their weekly earnings. This means that a victim who works year-round is losing, on average, $3,300 per year and receiving only $10,500 in annual wages.
  • Young workers, women, people of color, and immigrant workers are more likely than other workers to report being paid less than the minimum wage, but this is primarily because they are also more likely than other workers to be in low-wage jobs. In general, low-wage workers experience minimum wage violations at high rates across demographic categories. In fact, the majority of workers with reported wages below the minimum wage are over 25 and are native-born U.S. citizens, nearly half are white, more than a quarter have children, and just over half work full time.
  • In the 10 most populous states, workers are most likely to be paid less than the minimum wage in Florida (7.3 percent), Ohio (5.5 percent), and New York (5.0 percent). However, the severity of underpayment is the worst in Pennsylvania and Texas, where the average victim of a minimum wage violation is cheated out of over 30 percent of earned pay.
  • The poverty rate among workers paid less than the minimum wage in these 10 states is over 21 percent—three times the poverty rate for minimum-wage-eligible workers overall. Assuming no change in work hours, if these workers were paid the full wages to which they are entitled, less than 15 percent would be in poverty.

The report gives a full explanation of the background and previous research into the problems.

EPI report

 

Is Private Sector Comp Time Finally Here? And Is It a Good Idea in the First Place?

This week the House of Representatives passed The Working Families Flexibility Act of 2017, H. R. 1180. The purpose of this bill is to amend The Fair Labor Standards Act of 1938 to allow employees to receive compensatory time off instead of payment for overtime worked for employees working in the private sector. It sponsors say that this gives employees in the private sector the same flexibility that employees in the public sector have enjoyed for a number of years. In essence, being able to choose between being paid for overtime or getting time off at a later date. I have not yet made a decision on this bill as to whether or not I support it. It has good points but it also has a lot of flaws.

First the good points:

  • the bill does require that the employee agree to, in writing, receive comp time instead of being paid for the overtime worked. If the employee would prefer to be paid over time then they have to be paid overtime, at least in theory.
  • The bill also requires that the employee be given opportunity to take the comp time when requested, as long as it does not interfere with business operations.
  • The bill does require that the employee be cashed out upon termination, voluntary or involuntary, or at the end of a 12 month period. This in theory prevents overtime from never being paid.
  • The bill permits an employee to opt out after agreeing in writing to be paid compensatory time and does not permit compensatory time to be as a condition of employment.
  • The bill does not allow new employees to be forced to take compensatory time instead of overtime. The employee must work at least 1000 hours for the employer before they can agree to be pay compensatory time.
  • The bill sunsets after five years and requires after two years that the GAO submit a report outlining whether or not there were complaints alleging violation of the rules made to the Secretary of Labor or the Department of Labor. It requires an accounting of any unpaid wages, damages, penalties, injunctive relief, or any other remedies that were obtained or sought by the Secretary Of Labor.

However there are flaws:

  • first the premise that public sector employees “enjoy” the privilege of compensatory time in lieu of overtime. Public sector employees did not come under the FLSA until 1985 when it was mandated by a court decision. Private-sector employees have been under the FLSA since 1938. The only reason the comp time in lieu of overtime was permitted is because it was written into many cities, counties and states requirements because they were spending public money. It was never something that was negotiated or requested by the employees themselves.
  • Many studies in the United States show that employees tend not to take all of the vacation they are due because they can’t get the time off from their employers. So my question is if they can’t get time off to take vacation that has been given them how will they be able to take off using compensatory time? Especially when the bill does not state that they must be given the comp time when requested but only if it does not interfere with business operations. And how many of us have not been able to take our vacation because our boss says I can’t give you the time off right now.
  • If not able to take the time off due to business operations then what’s the purpose of having comp time except to delay paying the employee overtime that was rightfully do. I understand that taking time off does affect business operations and if I’m requesting vacation I can understand that my boss can say not at this time. Because in essence vacation is not something that I actually worked for, but a benefit my boss is offering me. But compensatory time off is not the same as vacation although this bill seems to treat it that way. This is money that I’ve already worked for and am already due. It is not a benefit that my boss gets to allow me to take at his or her convenience.
  • My biggest problem with this bill is the fact that even though it says that the GAO will present a study on whether or not there were violations the fact is that the Labor Department collects hundreds of millions of dollars each year for violation of simple minimum wage and overtime rules. These rules have been in effect since 1938 and yet employers still violate them on a regular basis. Is this just adding one more area that employees will have to sue their employers through the DOL to get their money? Especially lower paid or minimum wage employees. Is this one more thing the employee will have to be aware of and make sure they are being paid properly?

Compensatory time off bills have passed the house many times in the past but have never gone past the Senate, usually dying in committee. But these are not normal times so we will have to wait and see.

 

What do you think? Take our poll. Are you for or against The Working Families Flexibility Act of 2017? 

State vs. Cities: The Wage Hour Fight Continues

Localities such as cities or counties have been enacting their own wage and hour requirements for quite a few years now.  Dozens of cities in California and New Jersey have their own sick leave laws as well as higher than state minimum wages.  New Mexico has local minimum wages as does Washington.  But it seems the state legislators are starting to fight back.  With the assistance of groups such as the American Legislative Exchange Council (ALEC) model bills (draft legislation that legislators may customize and introduce) have passed in several states.  The latest states to pass such legislation are Arkansas and Iowa.  These bill basically forbid the local governments from passing any type of law relating to minimum wage, living minimum rates, employment leave or benefits, hiring practices or any condition of employment that is more generous than the federal or state law.  Whether cities will fight back in the courts, or if they even can, remains to be seen. Miami Beach recently tried to establish its own minimum wage despite Florida having passed its own version of the ALEC legislation.  The court struck down the Miami Beach ordinance. So the fight continues.  Payroll professionals need to monitor local minimum wage and sick leave ordinances to ensure compliance but remember these ordinances can be fleeting if the state has passed the ALEC-style legislation.

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Disney Costume Deduction Cost Them

All my readers with young daughters knows the price of a Disney princess costume.  Well now Disney does too.  Or at least the cost of making deductions for maintaining them.  The Department of Labor (DOL) recently announced that two subsidiaries of Walt Disney Company have agreed to pay $3.8 million in back wages to 16,339 employees to ensure compliance with the Fair Labor Standards Act (FLSA). Among the violations found by the wage and hour division was that the Disney resorts in Florida deducted a uniform or a “costume” expense that caused some employees hourly rates to fall below the federal minimum wage. However under the wage and hour rules, the FLSA does not allow deductions for uniforms if it reduces the employees wage below $7.25 per hour. In addition the cost may not cut into overtime compensation. The proper handling of uniforms is often a source of confusion for payroll departments and company employees. The DOL’s Fact sheet #16 provides the information on the proper deductions for uniforms and other facilities.

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$7.25 is Now 7 Years Old

An interesting fact, the current federal minimum wage of $7.25 turned seven years old on Sunday, July 24th. But how does our young one compare with the rest of its class?  In other words, is it top of the class, bottom of the class, or floating around in the middle? According to CNN Money the U.S. was ranked 11th out of 27 developed countries that have a nationwide minimum wage.  Australia comes in first, followed by Luxembourg, Belgium,  Ireland, France, Netherlands, New Zealand, Germany, Canada and the United Kingdom. Interestingly enough, Finland, Sweden, Denmark, Norway, Iceland, Austria, Switzerland and Italy are not listed because they have no federal rules on minimum wages.  That does not mean that their workers are low paid. In fact, many of these nations are known for paying relatively high wages because of the strength of unions. So the federal government does not feel the need to intervene to protect workers.

If we took into account the state or local minimum wage rates our ranking would increase since many states as well as local cities and counties have increased the minimum wage far above $7.25 per hour. But you would still have to take into account those states who have no minimum wage such as Alabama or Mississippi or those that are below the federal minimum wage such as Wyoming which is still at $5.15 per hour.  So there are those who are calling for the federal minimum wage to be raised. Historically this is usually a bipartisan issue. Since 1938 when the minimum wage was created it has been raised 10 times under both republican and democratic presidents. It started out at $.25 per hour under FDR, rose to $1.00 per hour under Eisenhower in 1956, to $1.15 an hour under Kennedy, $1.60 an hour under Nixon, $3.35 an hour under Reagan, $3.80 an hour under George H.W. Bush, $5.85 an hour under George W. Bush and finally to its present level of $7.25 under Obama.  But what is amazing is that its buying power has really varied over the years. For example, under Nixon it had the buying power of $9.28 in 1970 if comparing it to 2012 prices. But it has fallen over 25% since then.

So should we increase the minimum wage on the federal level or not?  If yes, by how much? These are questions that will weigh heavy on the upcoming election. But there is wide-spread support. A Hart Research Associate poll in 2015 showed most Americans (75%) support an increase in the federal minimum wage up to $12.50 per hour. 53% of those in the poll identified themselves are registered republicans. In addition, according to the federal Department of Labor, support is high for increasing the minimum wage even among business owners.  A survey of 1,000 executives was conducted by LuntzGlobal which is run by a republican pollster.  The survey results were leaked to a liberal watchdog group called Center for Media and Democracy.  It appears that 80% of respondents supported raising their state’s minimum wage.

So happy 7th birthday to our federal minimum wage!  But will it see 10? Who knows?