Thursday, July 2, 2015

Two from SCOTUS, One from DOL!

It’s a 3-fer week!

It’s been a busy week with implications for businesses with decisions handed down from the Supreme Court, and proposed rulemaking from the Department of Labor. What does it mean for your business? Well, depending on whom you are and what you’ve already been doing, maybe not much, or it could be huge. Don’t ya just love these types of answers? Well, let’s break it down….

So, first up. The Supreme Court heard and decided on the most recent (and some assume, the last) challenge to the Affordable Care Act. This case revolved around whether the Act provided for the premium subsidies to be offered by both the state run exchanges, as well as the federal exchange. I wrote about this previously here. As we now know, the SCOTUS ruled that the intent of the Act was to allow subsidies to be granted through either state or the federal exchanges. I don’t really think this decision is much of a surprise, but does it mean anything to your business? It means that implementation of all the ACA's provisions will continue as scheduled. Businesses should continue preparations to comply with the requirements of the law. For most, other than offering health coverage to more of your employees, it means the significant challenge of complying with the reporting requirements. If you haven’t already decided how you will handle this reporting, you need to get cracking! Notices to employees are due early next year, as well as the reporting to the IRS. If you’re using a payroll service, most of them are offering the service – for a cost (and it’s not insignificant). Using an outside vendor or not, you should be collecting and crunching the required data now (actually, you probably should have started this last year!) Time’s a-wasting, and penalties are a-waiting.

Next, the SCOTUS ruled on the constitutionality of bans on same-sex marriage. We also now know that the Supremes have ruled that same-sex marriage is a constitutional right. What does this mean for your business? Again, it depends – on what you’ve been doing up to now. Prior to this decision, many states had already legalized same-sex marriage, but several had not. Some national companies had faced some issues around uneven benefit policies and procedures between states that recognized same sex marriage and those that didn’t. That goes away – although all businesses will want to check insurance plan documents, internal policies and procedures, etc. that may contain definitions of "spouse" as someone of the opposite sex.

Some businesses that had offered domestic partner coverage under health and other insurance plans may want to consider whether to continue that coverage. Many of these businesses began offering this benefit specifically in recognition of same-sex couples who were not allowed to marry. Now that has changed and there may no longer be a need for domestic partner coverage, with its significant tax and payroll difficulties. Several years ago after the state of Maryland legalized same-sex marriage, the state ended the domestic partner insurance coverage for state employees for just this reason. So, it is possible that some people will actually lose health insurance coverage under a partner’s plan because of this decision. 

One benefit that was provided more clarity is the Family and Medical Leave Act (FMLA). Covered businesses must now permit eligible employees to take FMLA leave to care for their same-sex spouse with a serious health condition or for qualifying military exigency leave if the spouse is being deployed, among other qualifying reasons. Earlier this year, the DOL issued a final rule allowing an otherwise eligible employee to take FMLA leave to care for a same-sex spouse, regardless of whether the employee lives in a state that recognized their marital status.  Now that the Supreme Court has declared that same-sex marriage is a Constitutional right, states can no longer prohibit same-sex marriage, and therefore, there can be no distinction in this benefit depending on where one lives, or where one married.

Number three is the big one. The one with the most potential for having the most impact on business. The Department of Labor finally released the long-awaited notice of proposed rulemaking to update the Fair Labor Standards Act’s white collar overtime exemptions. 

Currently, any employee making less than $455.00 per week (or $23,660 a year) must be paid overtime for hours worked in excess of 40 in a workweek (or in some states, 8 in a day). It makes no difference what duties such an employee performs. If the position the employee holds pays more than this minimum, certain criteria must be met before that positon can be deemed "exempt" from the FLSA’s overtime provisions. The proposed rule will raise that minimum salary to about $50,440 per year, or $970 per week. Read that carefully: $50,440. If you have employees you are currently treating as exempt who are making less than this amount, under the new rules, they must be converted to non-exempt status and be paid overtime, track hours, lose flexibility in scheduling, etc., regardless of the "management" content of their duties. If an employee makes more than the new minimum, you may still be able to classify their position as exempt from overtime, if those criteria are also met.

The additional expenditures in overtime payments have been estimated to be over $700 million. So, businesses have a few options:

  • Suck it up and pay the additional overtime to the newly non-exempt employees. How well will your budget withstand this? Would it cause you to reduce future hiring?
  • Give raises to those currently exempt employees who are now below the threshold, bringing them above the amount that would trigger the non-exempt status and require overtime payments. Do the math; does it work?
  • Limit overtime opportunities. Will this eventually cause you to have to add to staff in order to get the work done? Which is more cost-effective for your business?
  • Shuffle. Reclassify the appropriate positions, but reduce pay to offset for the amount of expected overtime payments. I’m not thinking this would be a popular option, but I’m sure some will try it.

  • Make no mistake; the FLSA is a complicated animal. By all accounts, it’s actually not uncommon to be in violation of this law, with no intent to do so. It’s just so complicated for many businesses, most especially for smaller businesses without the expertise or knowledge to keep them in compliance. It was thought that the DOL would propose changes to the duties test. This is the portion of the law that describes the types of duties and tasks an employee must perform in order to be exempt from the overtime provision – the "while collar" exemptions. But no, the DOL declined to better define those criteria, which might have actually made it easier to understand and therefore easier to comply with. We might not have like those changes, but at least we would be able to understand and apply them to the jobs in our businesses with fewer "mistakes". Instead, the DOL asks for comments in response to specific questions:
    1. What, if any, changes should be made to the duties tests?
    2. Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?
    3. Should the Department look to the State of California's law (requiring that 50 percent of an employee's time be spent exclusively on work that is the employee's primary duty) as a model? Is some other threshold that is less than 50 percent of an employee's time worked a better indicator of the realities of the workplace today?
    4. Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider its decision to eliminate the long/short duties tests structure?
    5. Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are exempt lower-level executive employees performing nonexempt work?

    Guess what? These questions aren’t new. The business community has been asking them for years, and asking the DOL for clarification and answers. Now, they’re asking us. What will they do with the answers?

    It is certainly possible that after reviewing the comments received in answer to these questions, the final rule will include more specific criteria in this area.

    What’s next? There is a 60-day public comment period on the proposed changes to the overtime regulations. Once that period has ended, the DOL will issue (eventually) a final rule that will implement the changes some 30 days after issuing the final rule. All of this could take quite some time, most likely well into 2016.  Public comments can be submitted to the DOL in writing (or online at by referencing the rule’s Identification Number (RIN) 1235-AA11.

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