Wage and hour legislation trends in 2017: Preparing your business for changes on local, state, and federal levels
R. Brian Dixon is a shareholder at leading global employment and labor law firm Littler Mendelson’s San Francisco office. He has particular expertise in all aspects of employee compensation, including minimum wage, prevailing wage, overtime compensation obligations, and incentive compensation plans.
We caught up with Brian to get his perspective on the wage and hour legislation trends for 2017, and how businesses can prepare. Please note that the following is his forecast of potential developments, and should not be considered legal advice.
What’s the biggest trend to look out for in 2017?
R. Brian Dixon: While there may be less activity — and possibly even some retrenching — on the federal level, there will continue to be state and local activity with respect to minimum wages, paid sick leave, and related laws. We will likely see more disputes between state governments and local governments as to when a local government has the authority to regulate wages and working conditions.
What can we expect for overtime legislation in 2017, especially in light of the administration change?
RBD: The injunction was issued against the immediate implementation of the increased salary pay rule, so there’s some delay in dealing with the consequences of that increase. The DOL asked for expedited briefing on the subject because they wanted to articulate their position before the administration change. The case has certainly not gone away and employers need to stay focused on future developments regarding the salary pay rule.
What the Trump Administration will do at this juncture is not certain. The new administration seems fairly concerned about the cost to all employers, particularly to public employers, of the salary increase and the indexing of future increase. At the same time, the minimum salary has not been updated for many years and a more modest increase may have support. It’s possible that we’ll see a revised salary pay increase but a much more modest increase.
What will we see on the state level for overtime salary thresholds?
RBD: The California minimum salary level for exempt-status goes up with the minimum wage; if, as expected, the minimum wage goes up to $15 by 2022, then the minimum annual salary level to be overtime exempt will be around $62,000.
New York and other states are pushing up minimum wage as well, and other states already have higher minimum salary levels, so it’s a subject of continued attention and concern for employers. At some point, the state and local increases may begin to have an impact on where employers want to conduct business.
You mention minimum wages increasing — what are some consequences of this? Any notable trends?
RBD: We might see more claims around expense reimbursement policies under federal, state and local minimum wage laws. If there’s an incidental expense that an employee has to pay or a uniform that an employee has to buy, it becomes an issue for a nonexempt employee if the expense in any week exceeds the difference between the employee’s hourly wage and the minimum wage for the employee’s straight-time hours of work in that week. And, as minimum wages go up, the possibility that there will be some deficit between incidental expenses and the minimum wage will go up too. We’re seeing a lot more in the way of claims for travel expenses in some industries.
What about paid sick leave on the state and local level?
RBD: Paid sick leave ordinances on the state and on the local level are becoming more and more common. The challenge for most employers is often not the immediate payroll cost — because paid sick leave is very common – but the many differences between the state statutes and local ordinances regarding the potential uses of paid sick leave and the accrual schedules for paid sick leave.
If you compare paid sick leave ordinances by state and locality, you’ll find that they vary greatly — all have different accrual rates, different potential uses, different notice requirements, etc. The development and administration of policies in accordance with such statutes and ordinances can be an administrative burden. While the administration burden may seem substantial in comparison to the additional benefit to employees for those employers which already have robust sick leave plans, an employer needs to be sensitive to the potential consequences of not getting all the details right – which could include be a wrongful termination claim for someone who is terminated for taking what turns out to be protected leave.
One possible advance would be for there to be an option under ERISA to provide a paid sick leave plan which fulfills the objectives of the local ordinances, which provides uniformity across all jurisdictions, and which preempts contrary state and local laws.
What changes can we expect in the DOL with the change in administration?
RBD: While of course employers must comply with the law and address lapses when they occur, the DOL has been much more aggressive under the previous administration than they were in the past. In the recent past, the DOL has been extremely aggressive about showing up on an employer’s doorstep with little or no advance notice, and asking businesses to drop everything to immediately prioritize the DOL’s audit. I don’t think an employer could expect to get on the DOL’s calendar for a meeting at the speed which the DOL expects an employer to open its books and records to an auditor.
There’s a lot of room for improvement here, and we might be seeing some with the new Secretary of Labor. Ultimately, the DOL relies on the cooperation of employers to attain and maintain compliance and you don’t want to lose that. Compliance with the wage and hour laws can’t be accomplished solely through an adversarial relationship. I can see the Trump administration returning to more evenhanded enforcement of the FLSA.
Do you have any comments on specific regulations for federal contractors?
RBD: Because those are the subject of executive order, my sense is that the recent additional burdens to employers posed by the Obama administration will probably be closely reviewed by the Trump Administration. I would not be surprised if some or many of those changed in the near future.
What can we expect from an increasingly mobile workforce?
RBD: Telecommuting is likely to continue to grow but may re-balance itself somewhat. Telecommuting allows employers to utilize talent wherever it may be located and provides convenience for the employees as well. But, there’s some loss in not having employees present in the worksite. With the growth of the economy and some easing of budgets, we might see more required days in the office for telecommuters and perhaps more video meetings where an employee’s presence is better felt.
Problems can crop up with telecommuting employees. If your business operates in six different states, and you start to let people telecommute from 12 other states, and you register as an employer in the additional states, then the taxing authorities from those 12 states may have something to say about getting some income tax from your business. Employers who take advantage of telecommuting have to have robust policies around data security and should be requiring that all work be performed on equipment and devices owned by the employer.
What are some ways for employers to prepare for changes in 2017?
RBD: One good thing about the now-delayed overtime changes is that it allows employers more time to sit down and candidly scrutinize who really is exempt among all employees, including those above the proposed salary level. This process should continue. It’s too easy for an employer to think that anyone over the minimum salary is exempt, which is definitely not true. Unless we see a sign from the Trump Administration that the exemptions will change (which seems unlikely), employers should continue to audit and monitor who’s exempt and who’s not.
While, as we discussed, there is some hope for uniform federal regulation of sick leave, any real remedy in that regard is a long time off. In the interim, employers have to be thinking about systems to administer paid sick leave programs that allow for multiple different requirements. Employers also have to have payroll systems which can accurately and timely pay meal and rest period premiums, report pay, split shift premiums and the like in each state which requires such compensation. Any systematic failure to pay wages in accordance with any state or local law can and at this time is likely to give rise to a class action. Employers need to find and implement reliable and easy to use payroll systems (which isn’t always easy to do), train both supervisors and employees how to use the systems, and audit for compliance.