DOL Fact Sheet: Final Overtime Rule

The Department of Labor (Department) is updating the earnings thresholds necessary to exempt executive, administrative or professional (EAP) employees from the Fair Labor Standards Act (FLSA) minimum wage and overtime pay requirements.

The Department is updating both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees” (HCEs) to reflect growth in wages and salaries. The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004. The Department believes that the update to the standard salary level will maintain the traditional purposes of the salary level test and will help employers more readily identify exempt employees.

The Department estimates that, as a result of the final rule, 1.3 million currently exempt employees will become nonexempt.

Links and Resources

The DOL has published the following resources to help employers prepare for and understand the final white collar overtime exemption rule. The DOL’s final rule is available here.

Highlights

Important Changes

  • The final rule increases the standard salary level for the EAP exemptions to $684 per week ($35,568 per year).
  • The final rule increases the HCE salary level to $107,432 per year.
  • The final rule permits using an employee’s  nondiscretionary bonuses toward 10 percent of his or her salary level.

Important Dates

  • Sep. 24, 2019: Final overtime rule is announced.
  • Jan. 1, 2020: Final overtime rule becomes effective.

Key Provisions of the Final Rule

The final rule updates the salary and compensation levels needed for workers to be exempt in the final rule:

  1. Raising the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);
  2. Raising the total annual compensation level for HCEs from the currently enforced level of $100,000 to $107,432 per year;
  3. Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices; and
  4. Revising the special salary levels for workers in U.S. territories and in the motion picture industry.

Additionally, the Department intends to update the standard salary and HCE total annual compensation levels more regularly in the future through notice-and-comment rulemaking.

Standard Salary Level

The Department is setting the standard salary level at $684 per week ($35,568 for a full-year worker). The salary amount accounts for wage growth since the 2004 rulemaking by using the most current data available at the time the Department drafted the final rule.

The Department is updating the standard salary level set in 2004 by applying to current data the same method and long-standing calculations used to set that level in 2004—i.e., by looking at the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (then and now the South), and/or in the retail sector nationwide.

HCE Total Annual Compensation Requirement

The Department is setting the total annual compensation requirement for HCEs at $107,432 per year. This compensation level equals the earnings of the 80th percentile of full-time salaried workers nationally. To be exempt as an HCE, an employee must also receive at least the new standard salary amount of $684 per week on a salary or fee basis (without regard to the payment of nondiscretionary bonuses and incentive payments).

Special Salary Levels for Employees in U.S. Territories and Special Base Rate for the Motion Picture Producing Industry

The Department is maintaining a special salary level of $380 per week for American Samoa because minimum wage rates there have remained lower than the federal minimum wage. Additionally, the Department is setting a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands.

The Department also is maintaining a special “base rate” threshold for employees in the motion picture producing industry. Consistent with prior rulemakings, the Department is increasing the required base rate proportionally to the increase in the standard salary level test, resulting in a new base rate of $1,043 per week (or a proportionate amount based on the number of days worked).

Treatment of Nondiscretionary Bonuses and Incentive Payments

In the final rule, in recognition of evolving pay practices, the Department also permits employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.

If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the Department permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.

Updating

Experience has shown that fixed earning thresholds become substantially less effective over time. Additionally, lengthy delays between updates necessitate disruptively large increases when overdue updates finally occur. Accordingly, in the final rule the Department reaffirms its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking.

Source: U.S. Department of Labor


DOL issues finalized overtime regulation

The Department of Labor (DOL) released a new, finalized overtime rule recently. This new rule raises the minimum salary level to $35,568 per year for a full-year worker to earn overtime wages. Read this blog post from Employee Benefit News to learn more about this new rule.


The DOL on Tuesday released its highly anticipated finalized overtime rule, raising the minimum salary level to $35,568 per year for a full-year worker to earn overtime wages.

“Today’s rule is a thoughtful product informed by public comment, listening sessions and long-standing calculations,” Wage and Hour Division Administrator Cheryl Stanton says in a statement. “The DOL’s wage and hour division now turns to help employers comply and ensure that workers will be receiving their overtime pay.”

The final rule, effective Jan. 1, 2020, updates the earnings thresholds necessary to exempt executive, administrative or professional employees from the FLSA’s minimum wage and overtime pay requirements, and allows employers to count a portion of certain bonuses (and commissions) toward meeting the salary level.

The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004. In the final rule, the department is:

  • Raising the standard salary level from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);
  • Raising the total annual compensation level for highly compensated employees from the currently-enforced level of $100,000 to $107,432 per year;
  • Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and
  • Revising the special salary levels for workers in U.S. territories and in the motion picture industry.

This finalized rule is a shift from the previous administration's proposed rule, which would have doubled the salary threshold.

Under the Obama administration, the Labor Department in 2016 raised the minimum salary to roughly $47,000, extending mandatory overtime pay to nearly 4 million U.S. employees. But the following year, a federal judge in Texas ruled that the ceiling was set so high that it could sweep in some management workers who are supposed to be exempt from overtime pay protections. Business groups and 21 Republican-led states then sued, challenging the rule.

The overturning of the 2016 rule that increased the salary level from the 2004 level has created a lot of uncertainty, says Susan Harthill, a partner with Morgan Lewis. The best way to create certainty is to issue a new regulation, which is what the administration's done, Harthill adds.

While the final rule largely tracks the draft, there are two changes that should be noted: the salary level is $5 higher and the highly compensated employee salary level is dramatically reduced from the proposed level, she says.

“This is an effort to find a middle ground, and while it may be challenged by either or maybe both sides, the DOL’s salary test sets a clear dividing line between employees who must be paid overtime if they work more than 40 hours per week and employees whose eligibility for overtime varies based on their job duties,” Harthill adds.

The DOL estimates 1.3 million employees could now be eligible for overtime pay under this rule (employees who earn between $23,600 and $35,368 no longer qualify for the exemption).

A majority of business groups were critical of Obama’s overtime rule, citing the burdens it placed particularly on small businesses that would be forced to roll out new systems for tracking hours, recordkeeping and reporting.

SHRM, for example, expressed it's opposition to the rule, noting it would have fundamentally changed the rules for employee classification, dramatically increased the salary under which employees are eligible for overtime and provided for automatic increases in the salary level without employer input.

“Today’s announcement finalizing DOL’s overtime rule provides much-needed clarity for workplaces," SHRM says in a statement. "This rule marks the first increase to the salary threshold since 2004 and gives employers more flexibility to plan for the future. We appreciate DOL’s willingness to work with SHRM, other organizations and America’s workers to enact an overtime rule that benefits both employers and their employees.”

But the finalized rule still will have implications for employers.

“Education and health services, wholesale and retail trade, and professional and business services, are the most impacted industries, according to DOL, but all industries are potentially impacted,” Harthill, also former DOL deputy solicitor of labor for national operations, adds. “Also often overlooked is the impact on nonprofits and state and local governments, which are subject to the FLSA and often have lower salaries.”

All companies should be taking a close look at their employees to make sure workers are properly classified, but what they do after that will depend entirely on individual business needs, she says. “Some will hire additional employees to reduce the amount of overtime, while others will just pay overtime if their workers in this salary bracket spend more than 40 hours a week on the job.”

Employers who haven’t already reviewed their exempt workforce should do so now, before the Jan. 1 effective date, Harthill advises.

“They can opt to pay overtime, raise salary levels above $35,368, or review and tighten policies to ensure employees do not work more than 40 hours per week,” she says. “There could be job positions that need to be reclassified and that might have a knock-on effect for employees who earn above the new salary level.”

Many employers increased their salaries when DOL issued the 2016 rule, and some states have higher salary levels, so not all businesses will need to make an adjustment. “But even those employers should review their highly compensated employees — they may still be exempt even if they earn less than $107,432 but the analysis will be more complicated,” she adds.

“We did not hear any objections from employers when these rules were initially proposed," adds Jason Hammersla, vice president of communications at the American Benefits Council. "That said, aside from the obvious compensation and payroll tax implications, this rulemaking is significant for employers who include overtime compensation in the formula for retirement plan contributions as it could increase any required employer contributions."

"The change could also affect plans that exclude overtime pay from the plan’s definition of compensation if the new overtime pay causes the plan to become discriminatory in favor of highly compensated employees," he adds.

SOURCE: Otto, N. (24 September 2019) "DOL issues finalized overtime regulation" (Web Blog Post). Retrieved from https://www.benefitnews.com/news/dol-issues-finalized-overtime-regulation


Treasury, DOL, and HHS Issue FAQs on Enforcement of Final 2020 Benefit and Parameters Rule

The Treasury, Department of Labor (DOL) and Department of Health and Human Services (HHS) recently released FAQs regarding the enforcement of the final 2020 benefit and parameters rule. Read the following blog post from UBA for more information.


On August 26, 2019, the Treasury, Department of Labor (DOL), and the Department of Health and Human Services (HHS) (collectively, the Departments) issued FAQs About Affordable Care Act Implementation Part 40 (FAQs) regarding enforcement of the final rule.

Under the FAQs released after the final rule was published, the Departments will not initiate an enforcement action if an issuer or group health plan excludes the value of drug manufacturers’ coupons from the annual limitation on cost-sharing, until the final 2021 benefit payment and parameters rule is issued and effective.

SOURCE: Hsu, K. (6 September 2019) "Treasury, DOL, and HHS Issue FAQs on Enforcement of Final 2020 Benefit and Parameters Rule" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/treasury-dol-and-hhs-issue-faqs-on-enforcement-of-final-2020-benefit-and-parameters-rule


DOL Issues Advisory Opinion on Intermittent FMLA Leave

Recently, the Department of Labor (DOL) issued an advisory opinion regarding whether an employee can take intermittent FMLA leave to attend special educational meetings. The DOL concluded that the employee's attendance is a qualifying reason for taking intermittent FMLA leave. Read this blog post from UBA to learn more.


The Department of Labor (DOL) issued an advisory opinion regarding whether an employee may take intermittent leave under the Family and Medical Leave Act (FMLA) to attend special education meetings with a speech pathologist, school psychologist, and occupational therapist to discuss the employee’s children’s individualized education programs.

The DOL concluded that the employee’s attendance at the meetings is “care for a family member . . . with a serious health condition” under FMLA and is a qualifying reason for taking intermittent FMLA leave.

SOURCE: Hsu, K. (13 September 2019) "DOL Issues Advisory Opinion on Intermittent FMLA Leave" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/dol-issues-advisory-opinion-on-intermittent-fmla-leave


Compliance Recap - August 2019

August was a relatively quiet month in the employee benefits world.

The Department of Labor (DOL) issued its updated Medicaid / CHIP Model Notice. The Centers for Medicare and Medicaid Services (CMS) revised its Medicare Secondary Payer User Guide and changed reporting requirements regarding prescription drug coverage beginning January 1, 2020.

The Treasury, DOL, and Department of Health and Human Services (HHS) issued FAQs regarding enforcement of the Final 2020 Benefit and Parameters Rule. The Internal Revenue Service (IRS) released a private letter ruling addressing whether certain expenses qualify as Section 213(d) medical care expenses.

The DOL issued an advisory opinion addressing whether intermittent Family and Medical Leave Act (FMLA) leave can be taken to attend special education meetings for an employee’s children.

UBA Updates

UBA updated or revised existing guidance:

DOL Issues Updated Medicaid / CHIP Model Notice

The Department of Labor (DOL) issued an updated Premium Assistance Under Medicaid and the Children’s Health Insurance Program (CHIP) Model Notice. Employers should distribute the updated model notice before the start of the plan year if they have any employees in a state listed in the notice.

See the UBA Sample Open Enrollment Notices Packet for the updated model notice.

CMS Requires Prescription Drug Coverage Reporting under Section 111 MSP Reporting

The Centers for Medicare and Medicaid Services (CMS) revised its Section 111 Medicare Secondary Payer (MSP) User Guide and issued FAQs that require responsible reporting entities (RREs) to submit primary prescription drug coverage information as part of their Section 111 MSP Mandatory reporting requirements effective January 1, 2020.

The RRE for reporting primary prescription drug coverage is the entity that has direct responsibility for processing and paying prescription drug claims. In most cases, the RRE will be the insurer or TPA. For example, if the plan sponsor contracts with a third party such as a pharmacy benefits manager (PBM) to administer prescription drug coverage, then the third party or PBM is considered the RRE for prescription drug reporting purposes. However, for self-funded plans that are self-administered, the RRE will usually be the plan administrator.

Treasury, DOL, and HHS Issue FAQs on Enforcement of Final 2020 Benefit and Parameters Rule

On August 26, 2019, the Treasury, Department of Labor (DOL), and the Department of Health and Human Services (HHS) (collectively, the Departments) issued FAQs About Affordable Care Act Implementation Part 40 (FAQs) regarding enforcement of the final rule.

Under the FAQs released after the final rule was published, the Departments will not initiate an enforcement action if an issuer or group health plan excludes the value of drug manufacturers’ coupons from the annual limitation on cost sharing, until the final 2021 benefit payment and parameters rule is issued and effective.

Read more about the FAQs.

IRS Releases Private Letter Ruling Regarding Section 213(d) Medical Care Expenses

The Internal Revenue Service (IRS) released a private letter ruling (Letter) regarding whether the price of a DNA collection kit – specifically services and reports related to a person’s health that are generated from analyzing the collected DNA – qualify as Section 213(d) medical care expenses.

Health services such as genotyping are medical care under Section 213(d) while reports that provide general information are not medical care. The IRS concluded that the DNA collection kit’s price must be allocated between health services that are medical care, such as genotyping, and the non-medical services, such as reports that provide general or ancestry information.

DOL Issues Advisory Opinion on FMLA

The Department of Labor (DOL) issued an advisory opinion regarding whether an employee may take intermittent leave under the Family and Medical Leave Act (FMLA) to attend special education meetings with a speech pathologist, school psychologist, and occupational therapist to discuss the employee’s children’s individualized education programs.

The DOL concluded that the employee’s attendance at the meetings is “care for a family member . . . with a serious health condition” under FMLA and is a qualifying reason for taking intermittent FMLA leave. 

Question of the Month

  1. Under the ACA, if an employer’s size grows, when does the employer need to offer coverage and report on coverage offered?
  2. If the employer employs an average of at least 50 full-time or full-time equivalent employees during calendar year 2019, then it would make offers of coverage in 2020, and report in 2021 on its offers of coverage made in 2020.

The applicable large employer determination is a three-year cycle. For example, an employer’s size, calculated at the conclusion of 2019, determines its obligations for 2020, which it reports on in 2021.

If 2019 is the first time that a company is an applicable large employer, then the company will have until April 1, 2020, to offer coverage. If the company has individuals who are currently full-time employees and the company offers a group health plan, then the company must offer coverage to those full-time employees on January 1, 2020.

8/31/2019


DOL Offers Wage and Hour Compliance Tips in Three Opinion Letters

The U.S. Department of Labor (DOL) recently released three new opinion letters providing tips on how to comply with the Fair Labor Standards Act (FLSA) when it comes to wage and hour issues. Continue reading this blog post to learn how the agency would enforce statutes and regulations specific to these situations.


The U.S. Department of Labor (DOL) issued three new opinion letters addressing how to comply with the Fair Labor Standards Act (FLSA) when rounding employee work hours and other wage and hour issues.

Opinion letters describe how the agency would enforce statutes and regulations in specific circumstances presented by an employer, worker or other party who requests the opinion. Opinion letters are not binding, but there may be a safe harbor for employers that show they relied on one.

The DOL Wage and Hour Division's July 1 letters covered:

Here are the key takeaways for employers.

Rounding Practices

One letter reviewed whether an organization's rounding practices are permissible under the Service Contract Act (SCA), which requires government contractors and subcontractors to pay prevailing wages and benefits and applies FLSA principles to calculate hours worked.

The employer's payroll software extended employees' clocked time to six decimal points and then rounded that number to two decimal points. When the third decimal was less than .005, the second decimal was not adjusted, but when the third decimal was .005 or greater, the second decimal was rounded up by 0.01. Then the software calculated daily pay by multiplying the rounded daily hours by the SCA's prevailing wage.

Employers may round workers' time if doing so "will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked," according to the FLSA.

"It has been our policy to accept rounding to the nearest five minutes, one-tenth of an hour, one-quarter of an hour, or one-half hour as long as the rounding averages out so that the employees are compensated for all the time they actually work," the opinion letter said.

Based on the facts provided, the DOL concluded that the employer's rounding practice complied with the FLSA and the SCA. The rounding practice was "neutral on its face" and appeared to average out so that employees were paid for all the hours they actually worked.

For employers, the letter provides two significant details, said Marty Heller, an attorney with Fisher Phillips in Atlanta. First, it confirms that the DOL applies the FLSA's rounding practices to the SCA. Second, it confirms the DOL's position that computer rounding is permissible, at least when the rounding involves a practice that appears to be neutral and does not result in the failure to compensate employees fully over a period of time, he said.

Patrick Hulla, an attorney with Ogletree Deakins in Kansas City, Mo., noted that the employer's rounding practice in this case differed from many employers' application of the principle. Specifically, the employer was rounding time entries to six decimal places. Most employers round using larger periods of time—in as many as 15-minute increments, he said.

"Employers taking advantage of permissible rounding should periodically confirm that their practices are neutral, which can be a costly and time-consuming exercise," he suggested.

Exempt Paralegals

Another letter analyzed whether a trade organization's paralegals were exempt from the FLSA's minimum wage and overtime requirements. Under the FLSA's white-collar exemptions, employees must earn at least $23,660 and perform certain duties. However, employees whose total compensation is at least $100,000 a year are considered highly compensated employees and are eligible for exempt status if they meet a reduced duties test, as follows:

  • The employee's primary duty must be office or nonmanual work.
  • The employee must "customarily and regularly" perform at least one of the bona fide exempt duties of an executive, administrative or professional employee.

Employers should note that the DOL's proposed changes to the overtime rule would raise the regular salary threshold to $35,308 and the highly compensated salary threshold to $147,414.

Because "a high level of compensation is a strong indicator of an employee's exempt status," the highly compensated employee exemption "eliminates the need for a detailed analysis of the employee's job duties," the opinion letter explained.

The paralegals described in the letter appeared to qualify for the highly compensated employee exemption because all their duties were nonmanual, they were paid at least $100,000 a year, and they "customarily and regularly" perform at least one duty under the administrative exemption.

The letter cited "a litany of the paralegals' job duties and responsibilities—including keeping and maintaining corporate and official records, assisting the finance department with bank account matters, and budgeting—that are directly related to management or general business operations," the DOL said.

The DOL noted that some paralegals don't qualify for the administrative exemption because their primary duties don't include exercising discretion and independent judgment on significant matters. But the "discretion and independent judgment" factor doesn't have to be satisfied under the highly compensated employee exception.

Calculating Bonuses

The third letter discussed whether the FLSA requires an employer to include a nondiscretionary bonus that is a fixed percentage of an employee's straight-time wages received over multiple workweeks in the calculation of the employee's regular rate of pay at the end of each workweek.

Under the FLSA, nonexempt employees must be paid at least 1 1/2 times their regular rate of pay for hours worked beyond 40 in a workweek, unless they are covered by an exemption—but the regular rate is based on more than just the employee's hourly wage. It includes all remuneration for employment unless the compensation falls within one of eight statutory exclusions. Nondiscretionary bonuses count as remuneration and must be included in the calculation.

"An employer may base a nondiscretionary bonus on work performed during multiple workweeks and pay the bonus at the end of the bonus period," according to the opinion letter. "An employer, however, is not required to retrospectively recalculate the regular rate if the employer pays a fixed percentage bonus that simultaneously pays overtime compensation due on the bonus."

The annual bonus, in this case, was not tied to straight-time or overtime hours. Based on the facts provided by an employee, the DOL said that after the employer pays the annual bonus, it must recalculate the regular rate for each workweek in the bonus period and pay any overtime compensation that is due on the annual bonus.

For the quarterly bonuses, the employee received 15 percent of his straight-time and overtime wages so they "simultaneously include all overtime compensation due on the bonus as an arithmetic fact," the DOL said.

SOURCE: Nagele-Piazza, L.(2 July 2019) "DOL Offers Wage and Hour Compliance Tips in Three Opinion Letters" (Web Blog Post). Retrieved from https://www.shrm.org/ResourcesAndTools/legal-and-compliance/employment-law/Pages/DOL-Offers-Wage-and-Hour-Compliance-Tips-in-Three-Opinion-Letters.aspx


District Court Vacates Portions of the Association Health Plans Final Rule

Recently, the U.S. District Court for the District of Columbia ruled that the Department of Labor's final ruling on the definition of "employer" exceeded the statutory authority delegated by Congress under ERISA. Read this blog post from UBA for more on this compliance update.


As background, on June 19, 2018, the U.S. Department of Labor (DOL) issued a Final Rule that broadened the definition of “employer” and the provisions under which an employer group or association may be treated as an “employer” sponsor of a single multiple-employer employee welfare benefit plan and group health plan under Title I of the Employee Retirement Income Security Act (ERISA).

On March 28, 2019, the U.S. District Court for the District of Columbia (Court) found that the DOL’s final rule exceeded the statutory authority delegated by Congress under ERISA and that the final rule unlawfully expands ERISA’s scope. In particular, the Court found the final rule’s provisions – defining “employer” to include associations of disparate employers and expanding membership in these associations to include working owners without employees – are unlawful and must be set aside.

The Court’s order vacates the specific provisions of the DOL’s final rule regarding “bona fide group or association of employers,” “commonality of interest,” and “dual treatment of working owners as employers and employees.” The Court order sends the final rule back to the DOL to consider how the final rule’s severability provision affects the final rule’s remaining portions.

Although the DOL issued Questions and Answers after the Court’s decision, the DOL has not indicated how it will proceed. The DOL could revise its final rule or could appeal the decision and request that the Court stay its decision pending the appeal. Employers in association health plans should keep apprised of future developments in this case.

SOURCE: Hsu, K. (2 May 2019) "District Court Vacates Portions of the Association Health Plans Final Rule" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/district-court-vacates-portions-of-the-association-health-plans-final-rule


DOL Focuses on ‘Joint Employer’ Definition

Recently, the Department of Labor (DOL) announced a proposed rule that narrows the definition of "joint employer" under the Fair Labor Standards Act (FLSA). Continue reading to learn more about this proposed rule.


The U.S. Department of Labor (DOL) announced on April 1 a proposed rule that would narrow the definition of "joint employer" under the Fair Labor Standards Act (FLSA).

The proposed rule would align the FLSA's definition of joint-employer status to be consistent with the National Labor Relations Board's proposed rule and update the DOL's definition, which was adopted more than 60 years ago.

Four-Factor Test

The proposal addresses the circumstances under which businesses can be held jointly responsible for certain wage violations by contractors or franchisees—such as failing to pay minimum wage or overtime. A four-factor test would be used to analyze whether a potential joint employer exercises the power to:

  • Hire or fire an employee.
  • Supervise and control an employee's work schedules or employment conditions.
  • Determine an employee's rate and method of pay.
  • Maintain a worker's employment records.

The department's proposal offers guidance on how to apply the test and what additional factors should and shouldn't be considered to determine joint-employer status.

"This proposal would ensure employers and joint employers clearly understand their responsibilities to pay at least the federal minimum wage for all hours worked and overtime for all hours worked over 40 in a workweek," according to the DOL.

In 2017, the department withdrew an interpretation that had been issued by former President Barack Obama's administration that broadly defined "joint employer."

The Obama-era interpretation was expansive and could be taken to apply to many companies based on the nature of their business and relationships with other companies—even when those relationships are not generally understood to create a joint-employment relationship, said Mark Kisicki, an attorney with Ogletree Deakins in Phoenix.

The proposed test aligns with a more modern view of the workplace, said Marty Heller, an attorney with Fisher Phillips in Atlanta. The test is a modified version of the standard that some federal courts already apply, he noted.

Additional Clarity

Significantly, the proposed rule would remove the threat of businesses being deemed joint employers based on the mere possibility that they could exercise control over a worker's employment conditions, Heller said. A business may have the contractual right under a staffing-agency or franchise agreement to exercise control over employment conditions, but that's not the same as doing so.

The proposal focuses on the actual exercise of control, rather than potential (or reserved) but unexercised control, Kisicki explained.

The rule would also clarify that the following factors don't influence the joint-employer analysis:

  • Having a franchisor business model.
  • Providing a sample employee handbook to a franchisee.
  • Allowing an employer to operate a facility on the company's grounds.
  • Jointly participating with an employer in an apprenticeship program.
  • Offering an association health or retirement plan to an employer or participating in a plan with the employer.
  • Requiring a business partner to establish minimum wages and workplace-safety, sexual-harassment-prevention and other policies.

"The proposed changes are designed to reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections, promote greater uniformity among court decisions, reduce litigation and encourage innovation in the economy," according to the DOL.

The proposal provides a lot of examples that are important in the #MeToo era, said Tammy McCutchen, an attorney with Littler in Washington, D.C., and the former head of the DOL's Wage and Hour Division under President George W. Bush.

Importantly, companies would not be deemed joint employers simply because they ask or require their business partners to maintain anti-harassment policies, provide safety training or otherwise ensure that their business partners are good corporate citizens, she said.

Review Policies and Practices

Employers and other interested parties will have 60 days to comment on the proposed rule once it is published in the Federal Register. The DOL will review the comments before drafting a final rule—which will be sent to the Office of Management and Budget for review before it is published.

"Now is the time to review the proposal and decide if you want to submit a comment," Heller said. Employers that wish to comment on the proposal may do so by visiting www.regulations.gov.

"Take a look at what's been proposed, look at the examples in the fact sheet and the FAQs," McCutchen said. Employers may want to comment on any aspects of the examples that are confusing or don't address a company's particular circumstances. "Start thinking about your current business relationships and any adjustments that ought to be made," she said, noting that the DOL might make some changes to the rule before it is finalized.

"The proposed rule will not be adopted in the immediate future and will be challenged at various steps by worker-advocacy groups, so it will be quite some time before there is a tested, final rule that employers can safely rely upon," Kisicki said.

SOURCE: Nagele-Piazza, L. (1 April 2019) "DOL Focuses on ‘Joint Employer’ Definition" (Web Blog Post). Retrieved from https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/labor-department-seeks-to-revise-joint-employer-rule.aspx


Compliance Recap - February 2019

February was a quiet month in the employee benefits world.

The Internal Revenue Service (IRS) released an information letter addressing when an employer may seek recoupment of contributions made to an employee’s HSA.

A U.S. District Court held that the State of Maryland could not ask for a declaration that the Patient Protection and Affordable Care Act (ACA) is constitutional and enforceable. Four states and the U.S. House of Representatives joined the appeal of the court case that held the ACA to be unconstitutional.

The Department of the Treasury, Department of Labor (DOL), and the Department of Health and Human Services (HHS) issued a request for information regarding grandfathered group health plans.

UBA Updates

UBA released one new advisor: Compliance Recap – 2018 Year in Review

UBA updated or revised existing guidance: State Guide to COBRA Supplemental Requirements

IRS Releases Information Letter on Returning HSA Contributions to an Employer

Generally, a person’s interest in a health savings account (HSA) is nonforfeitable. However, in the past, the Internal Revenue Service’s Notice 2008-59 described limited circumstances under which an employer may recoup contributions made to an employee’s HSA.

The Internal Revenue Service (IRS) recently released Information Letter 2019-0033 (Letter), clarifying that IRS Notice 2008-59 was not intended to provide an exclusive set of circumstances in which an employer can recoup contributions made to an HSA. If there is clear evidence of an administrative or process error, an employer may request that the contributions it made to an employee’s HSA be returned. This correction should put the employer and employee in the same position that they would have been in if the error had not occurred.

The Letter lists the following examples of when an employer may recoup HSA contributions:

  • An amount withheld and deposited in an employee’s HSA for a pay period is greater than the amount shown on the employee’s HSA salary reduction election.
  • An employee receives an employer contribution that the employer did not intend to contribute but the amount was transmitted because an incorrect spreadsheet is accessed or because employees with similar names are confused with each other.
  • An employee receives an incorrect HSA contribution because it is incorrectly entered by a payroll administrator (whether in-house or third-party) causing the incorrect amount to be withheld and contributed.
  • An employee receives a second HSA contribution because duplicate payroll files are transmitted.
  • An employee receives as an incorrect HSA contribution because a change in employee payroll elections is not processed timely so that amounts withheld and contributed are greater than (or less than) the employee elected.
  • An employee receives an incorrect HSA contribution because an HSA contribution amount is calculated incorrectly, such as a case in which an employee elects a total amount for the year that is allocated by the system over an incorrect number of pay periods.
  • An employee receives an incorrect HSA contribution because the decimal position is set incorrectly resulting in a contribution greater than intended.

Status of Court Case Challenging ACA Constitutionality

There is recent activity in the court case regarding the Patient Protection and Affordable Care Act’s constitutionality.

As background, in February 2018, twenty states filed a lawsuit asking the U.S. District Court for the Northern District of Texas (Court) to strike down the Patient Protection and Affordable Care Act (ACA) entirely. The lawsuit came after the U.S. Congress passed the Tax Cuts and Jobs Act in December 2017 that reduced the individual mandate penalty to $0, starting in 2019.

On December 14, 2018, the Court issued a declaratory order that the individual mandate is unconstitutional and that the rest of the ACA is unconstitutional. The Court granted a stay of its December 2018 order, which prohibits the order from taking effect while it is being appealed in the Fifth Circuit Court of Appeals (appeals court).

On February 1, 2019, the U.S. District Court for the District of Maryland held that the State of Maryland could not ask for a declaration that the ACA is constitutional and enforceable because the federal government will continue to enforce the ACA while the appeal proceeds.

On February 14, 2019, the appeals court granted the U.S. House of Representatives’ request to intervene as a party to the lawsuit to defend the ACA. Also, on February 14, the appeals court granted the request of the states of Colorado, Iowa, Michigan, and Nevada to intervene as parties to the lawsuit to defend the ACA. The appeals court denied these intervenor states’ request for expedited briefing. The federal government’s brief is due on March 25, the twenty states’ brief is due on April 24, and reply briefs are due on May 15.

Agencies Issue Request for Information on Grandfathered Health Plans

On February 25, 2019, the Department of the Treasury, Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively, the Departments) issued a request for information (RFI) regarding grandfathered group health plans. The RFI contains two sets of questions concerning: (1) maintaining (or relinquishing) grandfathered status and (2) general information about grandfathered group health plans and group health insurance coverage.

As background, under the ACA, group health plans that were in existence on March 23, 2010, are excused from some of the ACA’s requirements. Under the Departments’ prior guidance, certain changes can cause a plan to lose its grandfathered status.

The RFI is intended to help the Departments understand issues related to grandfathered health plans and to estimate the impact of any potential changes to the rules governing group health plans’ retention of grandfathered status. The RFI also seeks to determine whether there are opportunities for the Departments to assist group health plans with maintaining grandfathered status.

Question of the Month

Q: When must IRS reporting Forms 1094-C, 1095-C, 1094-B, and 1095-B be electronically filed for the 2018 calendar year?

A: If filing electronically, Forms 1094-C, 1095-C, 1094-B, and 1095-B must be filed by April 1, 2019. Employers may file Form 8809 to receive an automatic 30-day extension of this due date for forms due to the IRS. Form 8809 must be filed by April 1, 2019 for employers that are filing electronically.

3/1/2019


DOL’s Annually Adjusted Federal Penalties

Recently, the DOL issued their Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2019. These annual adjustments of federal civil monetary penalties are effective for penalties assessed after January 23, 2019, for violations occurring after November 2, 2015. Read this blog post from UBA to learn more.


On January 23, 2019, the Department of Labor (DOL) issued its Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2019 which is the DOL's annual adjustment of federal civil monetary penalties.

Here are some of the adjustments:

  • Form 5500: For failure to file, the maximum penalty increases from $2,140 to $2,194 daily for every day that the Form 5500 is late.
  • Summary of Benefits and Coverage: For failure to provide, the maximum penalty increases from $1,128 to $1,156 per failure.
  • Medicaid/CHIP notice: For failure to provide, the maximum penalty increases from $114 to $117 per day per employee.
  • For failure to provide documents to the DOL upon its request, the maximum penalty increases to $156 per day, not to exceed $1,566 per request.

The adjustments are effective for penalties assessed after January 23, 2019, for violations occurring after November 2, 2015.

SOURCE: Hsu, K. (28 February 2019) "DOL's Annually Adjusted Federal Penalties" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/dols-annually-adjusted-federal-penalties