On September 22, 2020, the U.S. Department of Labor (DOL) announced a proposed rule simplifying the test to determine whether a worker is considered an “employee” under the Fair Labor Standards Act (FLSA) or an “independent contractor”. In short, the proposed rule uses the “economic reality” test as the basis for whether a worker is an employee or independent contractor. The “economic reality” test considers whether a worker is: 1) in business for him/herself (thus, an independent contractor); or 2) economically dependent on an employer for work (thus, an employee).

The DOL identifies two “core factors” in the analysis: 1) the nature and degree of the worker’s control over the work; and 2) the worker’s opportunity for profit or loss based on initiative and/or investment. These core factors hold the greatest weight in this determination. However, three lower impact factors to consider include: 1) the amount of skill required for the work; 2) the degree of permanence of the working relationship between the worker and the potential employer; and 3) whether the work is part of an integrated unit of production. Nonetheless, the DOL notes that treatment of the worker is more relevant than what is included in the worker’s contract (where applicable).

Employers should keep in mind that the IRS has its own test regarding whether a worker is an independent contractor or employee. Thus, employers should not only analyze the position based on the DOL test but the IRS test as well.

On August 31, 2020, the U.S. Department of Labor (DOL) issued an opinion letter addressing whether employees’ hours must fluctuate above and below 40 hours per week to qualify for the fluctuating workweek method (FWM) of calculating overtime pay. Although this post is primarily for employers who have already instituted the FWM, if you’re curious on what the FWM is or how it works, check out my previous post. Additionally, the DOL recently issued a rule allowing employers to pay bonuses, premium payments, or other additional pay to FWM employees, which I also wrote a post about.

As to the opinion letter prompting this post, the DOL recently concluded that the FWM requires only that an employee’s hours worked fluctuate from week to week—not that they fluctuate above and below 40 hours worked per week. This means, assuming the employee meets all other qualifying conditions, that an employee may qualify for the FWM even if they are always working more than 40 hours per week but their overtime hours fluctuate (e.g. 41 hours one week, 52 the next). There is no requirement for an employee’s hours to dip below 40 hours per work for an employer to use the FWM.

The DOL also noted that employers using the FWM may not deduct an employee’s pay for absences, even once the employee has exhausted their sick leave or have not banked enough sick leave to cover an absence, with the exception of occasional disciplinary deductions for willful tardiness/absences or infractions of major work rules.

On June 25, 2020, the U.S. Department of Labor (DOL) issued two opinion letters concerning the exemption of outside salespeople. In FLSA2020-6, the DOL opined that an employee qualifies for the outside sales exemption when deployed to high-population areas and events to sell products via stylized trucks (which is not itself a “place of business” as it is not fixed location), stocked with merchandise, marketing displays and demonstration units. In this set of facts, the salesperson is deployed at least 4 days per week (80%) with the truck at different locations each day. The salesperson is responsible for event planning and inventory management (done in the other the 20% of time), and is paid a base salary plus commission based on their sales (which they make using tablets issued to them).  Accordingly, the DOL found the salespersons’ primary duty is making sales customarily and regularly away from the employer’s place of business, and thus, the exemption is proper.

In FLSA-2020-8, the DOL issued an opinion regarding the overtime exemption for outside salespersons in various situations where they set up displays and perform demonstrations at retail locations (not owned by their employer). As the opinion is limited to a very specific, unique type of outside salesperson, it can be instructive for providing examples of when an employee qualifies for the exemption (but way too much to specifically blog about here!). In short, most of the examples for this type of salesperson was found to be exempt (working at home and garden shows, trade shows, and fairs). The exception/open question was when such employee is primarily located a a big-box third-party retailer, if they are obtaining commitments from customers and credited for those sales they are probably exempt; if not, they are merely promoting an employer’s product (versus selling) and probably not exempt.

On June 26, 2020, the U.S. Department of Labor issued Field Assistance Bulletin No. 2020-3, clarifying that, for purposes of federal child labor laws (which dictate hours of work for minors), schools that are “closed” for COVID-19 are “in session” so long as the child is required to participate in virtual or distance learning. While summer school is considered “outside of school hours”, if a school district makes summer instruction mandatory to make up for lost instruction time due to COVID-19, then summer school is treated as an extension of the regular (mandatory) school schedule for purposes of hours of work for minors. I am currently unaware of any Minnesota district that is doing this, but for Minnesota employers doing business in other states, it is something you should certainly keep in mind.

On June 26, 2020, the U.S. Department of Labor (“DOL”) issued Field Assistance Bulletin No. 2020-4, addressing employee paid leave under the Family First Coronavirus Response Act (FFCRA) to care for a child whose summer camp, enrichment or other program is closed due to COVID-19. The FFCRA allows an employee up to 10 weeks paid leave (Expanded Family and Medical Leave – EFMLA) to care for a child(ren) “whose place of care is closed due to COVID-19 related reasons.”  29 C.F.R. 826.20(a)(v), (b). During the school year, it was relatively clear whether a school was closed, and whether the child went to the school. However, summer care, typically filled with various camps and other enrichment programs for school-aged children, can present more problems when an employer must determine whether the employee is eligible for EFMLA leave based on a summer camp they cannot sign up for whether it is closed, or enrollment limited.

In short, the DOL instructs that the question is: “whether a specific summer camp or program would have been the place of care of an employee’s child had it not closed for COVID-19 related reasons, which must be established by a preponderance of evidence in any enforcement action (i.e. more likely than not).”

The DOL recognizes a “multitude of possible circumstances” regarding summer camp registration prevents a “one-size-fits-all rule”, but offers some general examples:

  • Current enrollment (sufficient).
  • Mere interest in camp (insufficient).
  • Past attendance in 2018 or 2019 (sufficient so long as continued to meet requirements such as age range).
  • Being accepted to a wait list (sufficient).
  • Summer school registration (sufficient).
  • Past attendance but no longer eligible (i.e. too old) (insufficient).
  • Submission of application prior to camp closure (sufficient).
  • Submission of a deposit (sufficient).

Employers should remember the above threshold – did the employee provide proof that their child was more likely than not going to attend the cancelled program.

On May 20, 2020, the U.S. Department of Labor (DOL) published its final rule allowing employers to pay bonuses and incentives to employees who are paid a salary plus overtime on the fluctuating workweek method (FWM) of computing overtime (employees who are paid a salary whether they work few hours or many, plus 1/2 overtime rate – usually seasonal businesses such as landscaping – see my earlier post about how this method works if you are interested). In the past, additional payments would cause the pay structure to be defeated (improper), resulting in additional overtime due for each hour worked. In other words, employers had a disincentive to pay employees additional compensation such as bonuses.  Now, certain additional payments are compatible with the use of the fluctuating workweek method under the Fair Labor Standards Act (FLSA).

The final rule amends 29 CFR 778.114(a) by allowing employers to pay bonuses, premium payments, or other additional pay (i.e. commissions and hazard pay), to FWM employees (but the pay must be included in the calculation of the regular rate unless excludable under FLSA sections 7(e)(1)–(8)). The final rule cleans up the rule (makes it easier to read) and adds examples related to night shift differentials and productivity bonuses. Finally, the title of the regulation was changed from “Fixed salary for fluctuating hours” to “Fluctuating Workweek Method of Computing Overtime” (which is how the Courts refer to it).

Just a quick update (as I recognize this likely doesn’t affect many reading this blog) – on May 14, 2020, the Federal Motor Carrier Safety Administration released a final rule that updates the hours of service rules. However, the amendment neither increases driving time, nor the requirement that a 30-minute break be taken within eight (8) consecutive driving hours.  In sum, the Final Rule:

  • Requires a 30-minute break after eight (8) hours of consecutive driving (versus on-duty time) and allows on-duty/not driving status to qualify as the break (rather than off-duty status).
  • Modifies sleeper berth exception to allow drivers to split the required ten (10) hours off duty into two periods (an 8/2 or 7/3 split), with neither period counting against the fourteen (14) hour window.
  • Extends the adverse driving conditions window by an additional two (2) hours.
  • Lengthens the maximum duty period for short-haul exception drivers to fourteen (14) hours and extends the distance limit to 150 air miles.

Due to COVID-19 and related delays in Federal reporting requirements across the government, the EEOC has recently announced that it is delaying collection of 2019 EEO-1 Component 1 data (employment data categorized by race/ethnicity, gender and job category) until the EEOC resumes normal operations, estimated to be in 2021. An EEO-1 must be filed by all companies with more than 100 employees or federal contractors or first-tier subcontractors with 50 or more employees and a prime contract in excess of $50,000. The EEOC expects the 2019 Component 1 data collection will be collected in March 2021, along with 2020 EEO-1 data. The new deadline will be posted when it is determined, and all EEO-1 filers should receive a notification letter. Finally, the EEOC has stated that it will not collect Component 2 data (employment data categorized by pay) at all in the future (at least under the current administration).

On Monday, May 18, 2020, the U.S. Department of Labor released a final rule, effective immediately, regarding retail and service industry exceptions from overtime for employees primarily paid on commissions. The new rule simply removes two (2) previous provisions which listed industries that the DOL then-viewed as having “no retail concept” or “may be recognized as retail”. Accordingly, a business may now qualify for the exemption if previously listed on the “no retail concept” list. Thus, the DOL will apply the same analysis to all establishments to determine if it is a retail or service establishment. This is great for employers!

On March 26, 2020, the U.S. Department of Labor (DOL) issued three new Opinion Letters, FLSA2020-3, FLSA2020-4, and FLSA2020-5 which all address various payments that may be excluded from the regular rate. This is important because the compensation that is included into the regular rate will increase the overtime rate. In a very short breakdown, here are the three clarifications:

Longevity Payments. FLSA 2020-3 clarifies that longevity payments made to employees as a part of a routine payment (i.e. you get $500 after 1 year, $5,000 after 10 years, etc.), are not excludable as gifts because the nature of the payment is non-discretionary. However, if a policy provides that a longevity payment “may” be made, in the employer’s discretion, that payment could be excluded from the regular rate as a “gift”.

Referral Bonuses. FLSA 2020-4 instructs us that a referral bonus does not need to be included in the regular rate if the referral program is voluntary, does not take significant time, and is limited to conversations as a part of employees’ social affairs outside of work hours. In other words, word-of-mouth referrals may be excluded from the regular rate (not spiffs for HR recruiters doing their job). However, if there is a referral bonus for longevity (i.e. the employee referred works for a year, the referring employee gets a bonus), then that payment would be part of the regular rate, because it is essentially a longevity bonus.

Employer Life Insurance Contributions. FLSA 2020-5 opines that employer contributions to a group term life insurance policy do not need to be included in an employee’s regular rate so long as the contributions meet the statutory and regulatory requirements (this is a lot more complicated, so if this is an issue, suggest you review the actual opinion letter and law).