New US Labor Department rules may require business to change their payroll and HR practices.

In its continual quest to manipulate the free market for human labor, the Department of Labor has expanded the rules under The Fair Labor Standards Act (FLSA) for employers regarding paying employees for overtime. The DOL has increased the overtime rules exemption for employers effective December 1, 2016. The long awaited rules require employers to pay overtime (hours beyond 40 per week) to all employees making less than $47,476 per year.

How are employers affected?

• If your company is already paying employees on an hourly basis… no changes.
• If your company is paying employees a flat salary (exempt) of over $47,476 per year… no changes
• If your company is paying any employee a flat annual salary of less than $47,476 per year… well you have some changes to make.

Here is the bottom line…If your company is paying a flat salary to anyone making less than $913 per week to “just get the job done”, then you must treat them as hourly employees and therefor track worked hours and pay for overtime (over 40 hours) . The minimum salary level for an individual to remain overtime exempt under the executive, administrative, professional, and computer employees exemptions will be increased from $455 per week to $913 per week.

How to keep your employees overall wage cost the same and still meet the new rules. Do the math.

Employers with exempt employees currently making less than $913 per week will need to estimate the actual TOTAL hours historically worked by the employee and then calculate the hourly wage rate that equates to the same overall compensation.

Converting from Salary to Hourly and keeping compensation the same.

Lets do an example: Employee Armando typically works 55 hours a week and is paid a salary of $885 a week as an exempt employee. This means Armando is currently beneath the new minimum annual salary level needed to qualify for the overtime exemption and now he must be changed to an hourly employee. So what hourly rate keeps the employers annual payroll cost for Armando the same? In other words: What hourly wage is needed to still pay employee Armando $885 a week for the same 55 hours, but at a customized hourly rate for the first 40 hours, and time and a half for the next 10 hours?

Let’s do some math:

• Armando’s current weekly base salary=$885 or ($885*52 weeks ) =
  $46,000 per year
• A standard annual regular work year (40 hours per week) hours:
  2080 hours
• Annual overtime hours worked by Armando: (55-40) = 15 hours per week, or (15*52) =
  780 hours per year.
• Overtime premium hours * 50% (time and half) hours = 780*50%=
  390 OT premium hours to be compensated
• Total annual hours, plus OT and OT premium: 2080+780+390=
  3250 hours
• The equivalent hourly salary for Armando (considering his usual overtime) would be: $46,000/3250=
  $14.15 per hour

Tracking and Recording Hours Worked

In our example, it will be a new experience for Armando and his employer to track and record all of the hours worked. No more just cutting a paycheck and calling it good.

Does this increase the cost to employers? In some cases it will.

In our example above, the employer really has two choices:

1. Implement a new process to record and process payroll for Armando on an hourly basis. This might be done with a timecard, time clock or even some of the newer tools that operate as a phone app. In any case this will be a new process that will require increased administration and therefore cost.
2. Increase the employees pay to above the threshold. In Armando’s case, increasing his salary by $1,476 per year eliminates the hassle of tracking employee hours and paying on that basis.

The impact in the jobs market and wages paid to American works of the changes will be seen in time. Will it help or hurt employees and American small business? Only time will tell. In any event it makes sense for any small employer in the USA to get knowledgeable about the new rules, or considering joining a Professional Employer Organization (PEO). Keeping your company on the right side of employment laws and regulations is what they do. – Joining a PEO is just smart business.

image courtesy of Donny Ray Jones at Flickr

For general contractors, hiring subs may be riskier than it appears

To demonstrate the employment related challenges for general contractors, let’s create a scenario for our customer Donald, a property developer. Donald develops property all over the USA. For a recent project in Texas, he has hired Ted, a general contractor, to build the building. Ted is a shrewd businessman and recognizes that in order to maximize his profit he will need to bring in several subcontractors that will work as cheaply as possible. Ted sends out bid requests to several plumbing contractors in the area. He gets a bid on the plumbing portion of the project from Marco, a plumbing contractor in the area. Marco’s bid is much cheaper than the others so Ted awards the contract to  Marcos’ plumbing company. Ted is getting a good deal on the plumbing and knows it leaves more money in his pocket.

Problems with workers

As the project moves forward, the building is ready for Marco’s plumbing workers to start on the job. Marco sends in three people who start on the plumbing; Jeb, Carly and John. As the days go by Ted notices that Marco is almost never on the job site and provides little direction to his workers. Ted begins to get frustrated that the plumbing workmanship is shoddy and the project schedule is falling behind. Ted confronts Marco on these problems and Marco apologizes, stating that he is not at the jobsite enough because he is running in an election and that takes up all his time. Marco tells Ted “just tell my workers what you want done and let me know if there are any problems”. Ted is not happy. Ted has been watching the workers and notes that Jeb works very slowly, very low energy. Carly would rather talk all day then get any real work done. John spends most of his time telling everyone about how they did plumbing up in Ohio.

Mistakes are made

In frustration, Ted calls Jeb, Carly, and John into a meeting at the worksite and tells them he expects them there seven days a week from 8:00am to 7:00pm until the job gets done. In addition, he informs them that he will be the one providing them with direction on how to he wants the plumbing installed. Marco is not involved.

Feces strike the rotating air movement device

Two weeks later, the job is complete and Ted has made his final payment to Marco’s plumbing company. All is good until Ted gets a call from investigator Hillary with the US Department of Labor. Hillary explains that several of Marcos workers were not paid overtime and have filed a complaint against Ted’s General Contracting Company. Ted is confused… how can he be liable for wages when they weren’t his employees? That was Marco’s company! Investigator Hillary explains that her investigation has determined that because Ted set work hours and working conditions for Jeb, Carly and John, Ted was actually a considered a “joint employer” with Marco’s Plumbing and was liable for the overtime wages. Of course Ted is flabbergasted that he will be liable for the unpaid overtime and fines from the DOL. After the Department of Labor calculated the unpaid wage liability and assessed the fines, Marco has suddenly disappeared, so the DOL assesses the entire judgement against Ted General Contracting company. His profit on the job just evaporated.

Lessons Learned

While our story is fiction, it is based on real exposures faced by general contractors and virtually any business that hires subcontractors. The Fair Labor Standards Act (FLSA) has recently been used by several federal district courts to put pressure on general contractors to ensure that wage and hour rules are not being violated by their subcontractors. A recent case in Louisiana illustrates the issue. In that case four employees of a subcontractor sued both the subcontractor and the general contractor for violations of minimum wage and overtime claims. A motion to dismiss the claims was denied and the suit proceeded against the GC because the supervisor at the GC exercised direct control over the workers and exercised direct control over their work.

Avoiding the Subcontractor Liability Trap

While complete insulation from FLSA violations is impossible, there are steps GCs can take to minimize the exposure to the employment practices of subcontractors.

• Require subcontractors to sign and acknowledge their responsibilities under FLSA and mandate the same for any of their subcontractors.
• Insist on terms in your agreement with the subcontractor that address potential labor issues and insist on indemnity provisions in the event of an FLSA violation.
• Keep your distance from the subcontractors workers. Do not provide direct supervision of the subcontractor’s workers and do not get involved with hiring/firing or pay issues with the subcontractors workers.
• Of course always insist that workers’ compensation insurance is place for the subcontractor and that all workers on the jobsite are covered under the policy. Ask the sub for their work comp certification or “cert”.

How joining a PEO can help

General Contractors that join a Professional Employer Organization (PEO) gain access to expertise and best practices for avoiding DOL and labor entanglements. Unfortunately some PEOs (being potential co-employers with the General Contractor) recognize the regulatory risk ($$) associated with GCs and do not allow GCs to join their PEO. Many PEOs have stopped working with GCs due to the increasing joint-employer risk associate with subcontractors. However, other PEOs have developed programs for GCs that when implemented reduce the overall regulatory risk and those PEOs may allow a GC to join their PEO if they meet other workers compensation insurance and company size criteria. StaffMarket maintains a master database of PEOs who will and will not consider working with general contractors. Contact StaffMarket for more information.

Note: All characters in this story are fictional and under no circumstances should this be considered related to any candidates running for the presidency of the USA.

image courtesy of the U.S. Army Corp of Engineers

Just when employers thought the mine field of Human Resources rules were not dangerous enough, along comes a proposed expansion on Title VII rules for employers from the US Department of Labor. The new proposed rules address a range of areas including equal opportunity and fair pay for women in the workplace, discriminatory wage practices, sexual harassment, workplace accommodations for pregnancy, sex stereotyping, gender identity protections and family care giving discrimination.

Regarding “sex stereotyping”, the Office of Federal Contract Compliance Programs (“OFCCP”) proposed rules offer the following examples:

• Failure to promote a woman, or otherwise subjecting her to adverse employment treatment, based on sex stereotypes about dress, including wearing jewelry, makeup or high heels.
• Harassing a man because he is considered insufficiently masculine.
• Adverse treatment of an employee because he or she does not conform to sex-role expectations by being in a relationship with a person of the same sex.
• Adverse treatment of an employee or applicant because of his or her actual or perceived gender identity or transgender status.Adverse treatment of an employee or applicant based on sex-based stereotypes about caregiver responsibilities.
• Denial of opportunities to mothers of children based on the sex-stereotyped belief that women with children should not or will not work long hours, regardless of whether the contractor thinks it is acting in the employee’s or children’s best interest.

According to Connie Bertram writing for jdsupra:

“To comply with the new requirements, contractors should audit their existing policies, training and practices to comport with them. Most significantly, contractors should ensure that their policies and training clarify that managers may not make employment decisions based on (or make statement concerning) sexual stereotypes, such as perceptions about how women and men should act and dress, who should care for children and perceived limitations of family responsibilities. In addition, many contractors will need to update their ADA accommodation policies to afford accommodations to pregnant employees consistent with the proposed regulations.”

Total Insanity

How does a business owner or manager accused of violating these “rules” begin to defend themselves? Not noted in the “rules” are any penalties or repercussions for those who falsely accuse a manager of a violation.

At StaffMarket our company has a male staff member with hair down to the middle of his back. No biggie…. But If someone in the office says his hair looks “pretty”, I suppose that is questioning his masculinity and is grounds for a discrimination lawsuit.   TOTALLY INSANE!!!!

We wonder why new business formation is near an all-time low in the USA? With these kinds of insane workplace rules foisted on the private sector by the well intentioned but economically illiterate and politically motivated bureaucrats, who would want to start a business and become and employer? For now these proposed rules would only apply to government contractors, but as is often the case, they have a way of making their way in to the general private sector. If the USA ever wants to regain a robust and prosperous economy these kinds litigation landmines and business killers need to be struck down. In lieu of that occurring, PEOs become valuable partners dedicated to knowing the HR rules, training staff, documenting actions and sharing the risks associated with being an employer. For small businesses joining a PEO is a viable regulatory compliance and risk shifting strategy.