WHD Issues Final Rule on Qualifying as a “Retail or Service” Establishment

On May 18, 2020, the U.S. Department of Labor’s Wage and Hour Division (WHD) announced a final rule to provide one analysis for all employers when determining whether they qualify as “retail or service” establishments for purposes of an exemption from overtime pay applicable to commission-based employees.

Section 7(i) of the Fair Labor Standards Act (FLSA) provides an exemption from the FLSA’s overtime pay requirement for certain employees of retail or service establishments paid primarily on a commission basis. Today’s rule withdraws two provisions from WHD’s regulations. The first withdrawn provision listed industries that WHD viewed as having “no retail concept” and thus were categorically ineligible to claim the section 7(i) exemption. The second withdrawn provision listed industries that, in WHD’s view, “may be recognized as retail” and thus were potentially eligible for the exemption. As the rule explains, some courts have questioned whether these lists lack any rational basis.

As a result of the withdrawal of these two lists, establishments in industries that had been on the non-retail list may now assert that they have a retail concept, and if they meet the existing definition of retail and other criteria, may qualify to use the exemption. These other criteria include paying a regular rate at least one and a half times the minimum wage and providing commissions that comprise more than half the employee’s compensation for a representative period. Some establishments on the withdrawn non-retail list may have been deterred from availing themselves of the exemption and its compensation flexibilities. If establishments on the withdrawn non-retail list now qualify for the exemption, they have added flexibility regarding commission-based pay arrangements with their workers. For these employers and workers, they could consider whether, for instance, more commission-based pay is sensible.

Establishments in industries that had been on the “may be” retail list may continue to assert that they have a retail concept. Moving forward, WHD will apply the same analysis to all establishments to determine whether they have a retail concept and qualify as retail or service establishments, promoting greater clarity for employers and workers alike.

WHD is issuing this rule without notice and comment, and it will take effect immediately. Notice and comment and delaying the effective date are not required because both lists being withdrawn were part of WHD’s interpretive regulations and were originally issued in 1961 without notice and comment or a delay.

 

 

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Corona Virus Update from DOL

Here is the latest updates from the Department of Labor’s website on the Corona Virus legislation:

On April 1, 2020, the U.S. Department of Labor announced new action regarding how American workers and employers will benefit from the protections and relief offered by the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act, both part of the Families First Coronavirus Response Act (FFCRA). The Department’s Wage and Hour Division (WHD) posted a temporary rule issuing regulations pursuant to this new law, effective April 1, 2020. For more information, see the DOL website  for fact sheets, Q&As, and posters.  The Posters are mandatory.

 

In addition, the DOL has:

Set up a Pandemic page set up on DOL website.

The DOL issued news release on its implementation of the payroll tax credits.

And finally, the CARES Act addresses many of the issues in the FFCRA but still waiting for clarification on what exactly it “changes” or “fixes” in the FFCRA from DOL. It does start the ball rolling on unemployment insurance. DOL issued an operating guidance to the states concerning unemployment insurance.

More DOL Opinion Letters Issued

The U.S. Department of Labor, Wage and Hour Division (WHD) announced that it issued two new opinion letters that address compliance issues related to the Fair Labor Standards Act (FLSA).  As a review, an opinion letter is an official, written opinion by the Department’s Wage and Hour Division (WHD) on how a particular law applies in specific circumstances presented by the person or entity that requested the letter. The opinion letters issued are:

  • FLSA2020-1: Addressing calculating overtime pay for a non-discretionary lump sum bonus paid at the end of a multi-week training period.
    • The background: the employer informs its employees in advance that they will be eligible to receive a lump sum bonus of $3,000 if they successfully complete ten weeks of training and agree to continue training for an additional eight weeks. You acknowledge that the bonus is nondiscretionary. The employee does not have to complete the additional eight weeks of training, however, to retain the lump sum bonus.
    • The opinion: As an initial matter, the lump sum bonus paid to your client’s employees must be included in the regular rate of pay as it is an inducement for employees to complete the ten-week training period. Because the employer pays the lump sum bonus to employees for completing the ten-week training and agreeing to additional training without having to finish the additional training, the lump sum bonus amount must be allocated to the initial ten-week training period. Based on the facts provided, it is appropriate for the employer to allocate the lump sum bonus of $3,000 equally to each week of the ten-week training period. Each week of the ten weeks counts equally in fulfilling the criteria for receiving the lump sum bonus, as missing any week (regardless of whether the employee worked overtime in that week) disqualifies the employee from receiving the lump sum bonus.
  • FLSA2020-2: Addressing whether per-project payments satisfy the salary basis test for exemption.
    • The background: the company employs educational consultants to provide services to schools and school districts throughout the country. These educational consultants are assigned to projects lasting various periods of time. The Department of Labor assumed that educational consultants meet the duties tests of the administrative or professional exemptions. The company will determine educational consultants’ compensation on a per-project basis regardless of the amount of time required to complete the project. The company will make payments for the project in “equal pre-determined installments” biweekly or monthly. The company provided two examples with the opinion request.
      • Example 1: for developing a new literacy curriculum, the educational consultant will receive a predetermined amount in 20 biweekly installments paid throughout the district’s academic year. That the amounts of these payments will not vary from week to week or month to month based on the number of hours worked by the consultant on the project and, for purposes here, the DOL presumed they will not vary based on the quality of the work performed. As a result, this payment structure satisfies the requirement that employees be paid a predetermined amount constituting all or part of the employee’s compensation” paid weekly or less frequently, provided the payments are not subject to reduction because of variations in the quality or quantity of work performed.
      • Example 2: the same educational consultant in example 1, is assigned to a second eight-week assignment (Project Two) while continuing to work on the original assignment. For completing the second project, in addition to payments received for work on the first project, the consultant will be paid $6,000 in four $1,500 biweekly installments, for a total of $5,500 per pay period during the eight weeks in which the projects overlap. The employer’s payments for the second project also satisfy the requirements as “extra” compensation under the regulations.
    • The Opinion: Both examples met the requirements for payments under the salary basis rule.

Wage and Hour Laws–They are Here, There and Everywhere Part 4

In my first blog in this series, October 23, 2019, I started discussing the complexities of compliance with wage and hour laws.  Which apply…federal or state?  What areas are covered?  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 23 areas where payroll professionals need to ensure compliance by researching wage and hour laws. In Part 2, I covered the first six areas. In Part 3 I discussed the next four areas.  This time I am reviewing the next set of four areas that may require research to ensure compliance: which includes posting requirements, frequency of payments, methods of payments, and termination requirements.

11. Posting Requirements
Many states have posting requirements in addition to the ones required by the FLSA.  The state may have its own minimum wage poster.  It may require a payday notice or copies of the wage and hour laws be posted or given directly to the employee. State with payday notice regulations include California, Montana, Minnesota, Texas, Tennessee and New York For those states who have them, including California, Connecticut, Colorado, Massachusetts, New Jersey, and New York, wage orders are usually required to be posted as well.

 

 

12. Frequency of Payments
Federal laws do not specify when an employee must be paid, only that they must. However, most states have a requirement that not only must employees be paid but that they must be within a certain frequency, such as semi-monthly or weekly.  Arizona requires that the employer designate two or more days in each month to pay employees and the days cannot be more than 16 days apart.  New York bases its requirements on whether the employee is a manual worker, a clerical worker or other type of worker. Most states require either biweekly or semimonthly paydays.  These include California, Illinois and New Mexico. Other states permit monthly payrolls including Alaska, Delaware and Washington. Be sure when researching to also check into the amount of time permitted between closing the payroll (collecting the timesheets) and paying the employees.  States do have requirements on what can be called “payroll processing time” or “lag time”.

13. Method of Payment
There is no requirement under the FLSA as to the method to pay an employee. Almost all the states do address this issue. The common requirement is the employee be paid by U.S. currency or check.  The federal government does regulate the paying of employees via direct deposit under the Electronic Funds Transfer Act. The Act was recently updated to include the newest method of payment of employees—payroll debit cards. The states are updating their regulations for payroll debit cards.  The payroll professional must determine if the state allows this form of payment if it intends to begin a pay card payment program and what restrictions may be in place.  These restrictions include limiting fees and voluntary participation.

14. Termination Requirements

Again the FLSA is silent when it comes to requirements on paying an employee who terminates.  States that address this issue vary greatly. For some states it can even depend on whether or not the employee quit or was discharged.  For example, if an employee is discharge Colorado requires that the employee be paid immediately.  But if the employee quits the check is due on the next regular payday. As to whether or not vacation pay must be included with the final paycheck will be discussed in the next segment of this blog.

 

In Part 5 I will be covering the next four areas that may require research including vacation pay requirements, compensatory time off, reporting time or show up pay and call back pay.

Wage and Hour Laws–They Are Here, There and Everywhere Part 3

In my previous blog, October 23, 2019, I discussed the complexities of compliance with wage and hour laws.  Which apply…federal or state?  What areas are covered?  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. In Part 2, I covered the first six areas. This time I am reviewing the next set of four areas that may require research to ensure compliance: which includes on call or stand by pay, providing holiday/sick/vacation benefits, statements and payday notices and what is hours worked.

7. Hours Worked-General

The definition of hours worked under the FLSA was is quite broad. By statutory definition the term “employ” includes “to suffer or permit to work.” The workweek ordinarily includes all time during which an employee is necessarily required to be on the employer’s premises, on duty or at a prescribed workplace. What is the state’s definition on what is an hour worked?  Most follow the FLSA. The difficult task is applying the rules to a specific type of hour. One example that comes up frequently is travel time.  If an employee travels for business is it hours worked?  Can a different wage be paid to employee traveling?  If a nonexempt employee travels out of town on business overnight is the entire time considered hours worked including sleeping or just the employee’s normal day?  Compliance here requires that each type of “hour worked” an employee performs must be researched to determine the proper payment.

8. On Call or Stand by Pay

The FLSA and court cases address the issue of on call pay on the federal level.  An employee who is required to remain on call on the employer’s premises is working while “on call.” An employee who is required to remain on call at home, or who is allowed to leave a message where he/she can be reached, is not working (in most cases) while on call. Additional constraints on the employee’s freedom could require this time to be compensated. However, the states may view it differently.  In most states the degree of control the employer has over the employee’s time and whether the employee is free to use his or her time for his or her own purposes is the guiding factor in whether or not the time is compensable.

9. Holiday/Sick Leave/Vacation Pay

The federal government does not require an employer to provide benefits such as these to the employee and does not count them towards hours worked for overtime.  But the state, county or even city could have a different rule in that area. More and more states or local governments are now requiring paid sick leave or paid leave.  The most recent is Nevada. Massachusetts and Rhode Island both have rules concerning mandated holidays. However, none require that it be included in regular rate of pay.

10.Statements and Payday Notices

The FLSA does not require that an employee be given any type of notification upon hire or when being paid.  But the states generally do have such requirements. These requirements could include giving the employee or posting certain notices regarding benefits and wages.  It may require that the date and time of distribution of paychecks be posted.  One common requirement in 42 states is the employee receive a statement or “paystub” with each payment explaining the breakdown of the check. This statement requirement may be as simple as listing only the deductions made from the check as in Idaho or listing everything including the gross to net wages and all rates and dates. The latest area of compliance concern for payroll is providing electronic pay stubs. Most states with this regulation require a written pay stub to be provided and have not yet allowed “written” to be by electronic means.

 

In Part 4 I will be covering the next four areas that may require research including posting requirements, frequency of payments, methods of payments, and termination requirements.

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. 

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Wage and Hour Laws–They Are Here, There and Everywhere Part 2

In my previous blog, October 23, 2019, I discussed the complexities of compliance with wage and hour laws.  Which apply…federal or state?  What areas are covered?  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. Today I am reviewing the first six areas that may require research to ensure compliance:  White collar exemptions; minimum wage; tip credit; meals and lodging credits; overtime rules and regulations; and regular rate of pay.

White Collar Exemptions
The FLSA does address this issue in great detail. The question here is whether or not the state follows suit. Does the state follow the same regulations for determining if an employee is exempt from minimum wage and overtime regulations? This is especially important since the federal rules are being revamped and implemented as of January 1, 2020 for the first time since 2004. Since the increase under President Obama was stopped by the courts, this will be the first official change. The states have not had time to catch up to these new regulations but should address this issue in 2020 as the legislatures start meeting. So far, states that differ from the FLSA include Alaska, California, Hawaii and Montana.

Minimum Wage
The FLSA has a standard. However since the states were the first to introduce the concept of a minimum wage (Massachusetts circa 1912) and the federal rate has rarely kept up with inflation (the last update was 10 years ago) this is an area where payroll sees the biggest difference between the FLSA and the states. 29 states have a higher minimum wage than the federal, 14 states are equal to the $7.25, 2 states are lower, and 5 states have no minimum wage provisions.

Tip Credit

The FLSA allows for tip credit against minimum wage for certain employees. The state requirements can range from forbidding tip credit as in CA and NV to matching the federal to anywhere in between.  It is important to verify the definition of a tipped employee including the dollar limits if any and the percentage or dollar amount permitted for the credit.

 

Meals and Lodging Credit

The FLSA allows for a meals and lodging credit against minimum wage for certain employees.  But it is a general rule stating that the fair market value can be deducted.  Many states do allow a meal and/or lodging credit, but they may specify the exact amount that may be taken. California (see chart below) and New Hampshire are two states that specify the exact amounts that may be taken for the credit. It is important to verify if the state allows the credit and then the regulations on which employees employers are permitted to use the credit and the amounts permitted.

Overtime Rules and Regulations
Again the FLSA rules on this are well known.  But a state may have its own method or regulations concerning the calculation of overtime.  Alaska, California, Colorado and Nevada are four states that have a daily overtime requirement.  Kentucky requires overtime for the 7th day worked.

Regular Rate of Pay

 

Regular rate of pay is the calculated rate that is used to pay overtime under the FLSA.  It can be affected by such payments as nondiscretionary bonuses and commissions.  The state could require a different definition. In this area, most states are less strict than the FLSA. An example is Arizona which requires that the minimum wage of the state be considered the regular rate of pay.

 

In part 3 of this series I will discuss the next 4 areas of research which includes on call or stand by pay, providing holiday/sick/vacation benefits, statements and payday notices and what is hours worked.

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.

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.

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.

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.