Tag Archives: compensation

Deadlines Quickly Approaching for Major Employment Law Changes

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Employers should be preparing for several significant payroll and policy deadlines this summer that are required by new federal employment rules and regulations:

  1. Salaried employees must make a minimum salary of $43,888 annually beginning Monday, July 1, 2024. On January 1, 2025, that annual salary minimum threshold increases to $58,656. Only 10% of that annual salary can be paid in nondiscretionary bonuses or commissions.
  2. Noncompete clauses in almost all employment and severance contracts are scheduled to be banned on the deadline of September 4, 2024.
  3. Pregnant workers and women giving or returning from childbirth have to be reasonably accommodated, including being given individualized maternity leaves, under the broad final regulations as of a deadline last week (June 18, 2024).

Salary Minimum Increases

Employers cannot legally just pay employees on salary because it is convenient for the employer or the employee. Under the Fair Labor Standards Act, which applies to virtually all businesses, employees must receive hourly pay and overtime pay unless (1) the duties performed by that employee fit into one of the narrow white-collar exemptions; and (2) that employee also makes at least the amount required by the FLSA salary minimum threshold.

Since 2019, that salary minimum threshold has been $35,568 annually. But the regulations have been amended so that salaried employees must make at least $43,888 beginning next week. While court cases have been filed to try to stop this change from taking effect, no court has entered an injunction yet. That means that companies are out of time to resist this change. Therefore, as an employer, you need to double-check that your salaried employees are earning enough ($844 per week) to meet this salary minimum as of next Monday.

While you are at it, double-check whether your salaried employees are also actually performing the duties that allow you to pay them as an executive, a professional, an administrator, a computer specialist or outside salesperson (outside salespeople don’t have to meet the salary minimum but do have a duties test). If the employee doesn’t meet the duties test for their position to be exempt, you cannot pay that person on salary even if the employee is paid the salary minimum threshold amount.

Noncompete Contracts Ban

In April 2024, the Federal Trade Commission finalized a rule banning almost all employers (banks, credit unions, nonprofits and airlines excepted) from entering into, enforcing or attempting to enforce noncompetition clauses with employees. The rule goes into effect on September 4, 2024.

The FTC says that noncompete agreements suppress wages and block workers from pursuing better jobs. Employers like noncompetes because they prevent competitors from poaching talent and protects trade secrets and client relationships. But the FTC is siding with the free market and employees who want the opportunity to take their talents anywhere they please.

In addition to banning employers from entering into new noncompete agreements with employees, from enforcing noncompete agreements signed in the past, and from threatening to enforce existing noncompetes against departing employees, the new rule also requires employers to send out notices (FTC provided a model notice) by the deadline to current and former employees telling them that their noncompetition agreements are no longer in effect and won’t be enforced.

Continue reading Deadlines Quickly Approaching for Major Employment Law Changes →

Underpayment of Wages at Local Charity

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Advo Companies, Inc., a worthy local charity that trains and helps people with developmental disabilities find work, was recently investigated by the United States Department of Labor for underpayment of wages to 134 workers. The company had to repay $52,497 in back wages because, among other mistakes, it miscalculated the special wage rate allowed to be paid to their employees.

I don’t know the facts of this particular DOL investigation, but I know Advo Companies has been providing outstanding vocational services to disabled adults and operating group homes in Amarillo for more than 30 years. I seriously doubt that any of the wage problems discovered by the DOL were intentional underpayments. But Advo’s difficulties provide an example of how a very well-meaning employer can easily run afoul of the notoriously difficult Fair Labor Standards Act (“FLSA”) requirements.

For most employers, the Fair Labor Standards Act “simply” requires payment of minimum wage and overtime if an employee works more than 40 hours in any one workweek. But there are many ways for an employer to unintentionally break this law:

Continue reading Underpayment of Wages at Local Charity →

New FLSA Minimum Salary Requirements

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If you pay any employees on salary instead of hourly, as an employer you need to review new regulations released today by the United States Department of Labor, requiring that the salary you pay to any exempt employee is at least $43,888.00 beginning on July 1, 2024. That minimum increases to $58,656.00 on January 1, 2025. Those are substantial increases from $35,568.00, the salary minimum currently required by the Fair Labor Standards Act (“FLSA”), which governs minimum wage and overtime.

If you aren’t paying an employee by the hour, plus overtime pay for each hour over 40 worked in a 7-day workweek, then you must prove the following about that salaried employee:

  1. The employee is paid a recurring salary regardless of the hours worked; and
  2. The amount that the employee is paid must amount to at least $844 per week beginning on July 1, 2024 and $1128 per week beginning on January 1, 2025; and
  3. The salaried employee must primarily perform executive, administrative or professional duties (commonly referred to as the white-collar duties).

These exemptions for salaried, white-collar workers are the exception to the overtime rules required by the FLSA, and the burden is on the employer to show that the salaried employee meets all of these requirements or the business will owe the employee unpaid overtime (plus punitive damages and possible penalties) for not paying overtime.

FLSA has been the law since the 1940’s, but the salary minimum amount to meet the exemptions has increased over time. The Trump Administration increased the salary amount in 2019, and it has stayed there for five years. The Department of Labor’s new rule will make those increases automatic every three years, meaning that on July 1, 2027, you can expect another increase in the salary minimum amount if you still want to claim that the employee is exempt from the overtime requirements.

In addition to meeting the FLSA salary minimum requirement, your employee must also perform white-collar duties to qualify for the overtime exemption. The duties tests are harder to meet than you might expect. For example, you may believe that an assistant manager is an “executive”, but the FLSA duties test says that employee must have the power to hire and fire and must personally supervise at least two full-time employees, as well as being in charge of a recognizable store, division or branch of your business to be considered exempt. Most assistant managers don’t meet those requirements. Only the general manager does in many circumstances.

In addition, the new regulations increase the FLSA salary minimum for “highly compensated employees”. The 2019 threshold for highly-compensated employees currently says that any employee making a salary of at least $107,432.00 per year is exempt as long as the employee is performing non-manual work and that employee performs at least one other exempt duty customarily and regularly (such as managing two employees or performing duties of a professional such as a CPA). The salary minimum for highly compensated employees increases to $132,964.00 on July 1, 2024. On January 1, 2025, it will increase again to $151,164.00.

So what do businesses need to do to get in compliance?

Continue reading New FLSA Minimum Salary Requirements →

Commission Pay Arrangements in Texas

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If you as an employer pay any of your employees on commission, a recent Texas Supreme Court case makes it clear that your commission arrangement needs to be in writing.

The Court decided Perthuis v. Baylor Miraca Genetics Laboratories LLC in May 2022. In that opinion, the Court addressed the question of when a former employee has to be paid commissions collected by the company after the employee has left the job. In this case, the Texas Supreme Court determined that Brandon Perthuis, the former vice-president of sales at the company, would be entitled to a commission on the largest sale in the company’s history, even though he was terminated the day before the client signed the sales contract (but four days after Perthuis finalized the negotiations for the sale).

The Court reviewed the commission pay agreement and found that it was silent on whether the employee would get paid commissions after his employment was terminated. In the absence of a clear agreement, the Court followed the “procuring-cause doctrine,” meaning that if the employee was the reason the sale was procured, then he was entitled to the commission.

Perhaps the most important part of the Court’s opinion for any company that pays commissions is this: The procuring-cause doctrine provides nothing more than a default, which applies only when a valid agreement to pay a commission does not address questions like whether the  right  to  a  commission  extends  to  sales  closed  after  the  employment relationship ends.  

The procuring-cause doctrine is not a judicially created “term” for commission  contracts. It  does  not  add  anything  to  a  contract  or  take anything away. It does not restrict parties’ ability to modify their contractual  relationships  and  it  does  not  change  the  law  governing whether parties have entered into such a relationship in the first place. Parties certainly may condition the obligation to pay a commission on something  other  than  procuring  the  sale—they  need  only  say  so.

So the Court is saying that the company and the employee can negotiate any kind of commission pay agreement that they want. Or the company can just offer a commission arrangement and the employee can accept it. The courts will only intervene if your commission agreement is not in writing or if your written commission arrangement is silent as to an important term.

So what should a written commission pay arrangement include if any employee is paid fully or partly on commission?

Continue reading Commission Pay Arrangements in Texas →

SBA Finally Provides PPP Forgiveness Guidance

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Late last week, the Small Business Administration posted interim rules and the application for employers to complete when seeking forgiveness of their Paycheck Protection Program (“PPP”) loan. This guidance, which for many businesses comes almost at the end of the 8-week covered period for spending PPP funds, provides employers with many of the answers we have been waiting for since the CARES Act was passed in March.

Of course, that means that this guidance may be too late for some of us to correct actions we already took when we first received the PPP funds. But there are some strategic decisions that you can still make if you act quickly.

The basics of the loan forgiveness have been explained in more detail and in layman’s language in the U.S. Chamber of Commerce’s Guide to PPP Loan Forgiveness, which I highly recommend that you download. But here are some basic forgiveness criteria that we have been waiting on:

Continue reading SBA Finally Provides PPP Forgiveness Guidance →

DOL Finalizes New Salary Minimum

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Update: This post from March 2019 has been updated as of September 24, 2019, because on that day the DOL issued the final salary minimum rule, which changed a couple of important items from what was proposed six months ago.

A new federal overtime rule that has been finalized by the U.S. Department of Labor will become effective on January 1, 2020, and employers need to start preparing now to get into compliance.

The final rule requires employers to pay a higher minimum salary to those employees who meet certain white-collar exemptions to the overtime rules of the Fair Labor Standards Act (“FLSA”). Right now, an employer can pay a salaried exempt employee as little as $455 per week ($23,606 annually) and still claim the exemption (and not pay that person overtime) as long as the employee is performing exempt duties, such as executive work or professional work.

On January 1, 2020, the final minimum salary threshold for exempt employees is going to increase to $684 per week ($35,568) annually)(the proposed rule was $5 per week less, so we thought that the annual number was going to be $35,308). That means that if you have any employee whom you are paying on salary in an amount less than $35,568 per year, you as an employer need to spend the rest of 2019 deciding if you will provide that employee with a raise or reclassify that employee as non-exempt and move him to an hourly rate and pay him overtime when he clocks more than 40 hours in any one workweek.

In addition to meeting this increased salary level to $35,568 per year, anyone you are paying on a salary must also actually perform the duties of an exempt employee (the white-collar exemptions: executive, a professional or an administrator). These duties tests are much more difficult to meet than most people think, so don’t just assume that all of your salaried employees are actually exempt. For example, not every “manager” is an “executive exempt employee”, who under the FLSA must have the power to hire and fire and must supervise at least 2 full-time employees, as well as being in charge of a recognizable store, division or branch of your business.

During the rest of 2019, you have time to audit your pay practices to know who you are paying on salary, review their actual job duties to assure that they actually qualify for one of the exemptions, and then confirm that those salaried employees are making at least $684 per week. As you are going through this process, remember that the Equal Pay Act also applies to your salary decisions and you must not violate it when trying to comply with the DOL’s new salary minimum.

And yes, the DOL does measure the salary basis in weekly increments, so the employee must make at least $684 every week, not just averaged out over the year. The final rule does provide employers the ability to make up 10% of the salary basis test with non-discretionary bonuses and commissions. So, if you pay an executive, administrator or professional employee no less than $32,011.20 in yearly salary (divided by 52 weeks) and then the employee earns another $3,556.80 annually in non-discretionary bonuses and commissions (paid on at least a quarterly basis), you will not be in violation of the final rule.

If this proposal gives you a sense of déjà vu, that’s because we went through this process in 2016 when the DOL proposed an increase of the minimum salary for exempt employees of $913 per week ($47,476 annually). That rule was enjoined by a federal judge in East Texas just before it was to take effect and then died in the courts and under the new administration. No such messy reprieve is expected this time with this lower salary threshold, so businesses need to start talking now about properly paying their salaried employees in 2020.

Employer should also be aware that the “highly compensated employee” exemption under the final rule for 2020 has slightly increased. That exemption currently says that any employee making a salary of at least $100,000.00 per year is exempt as long as the employee is performing non-manual work and that employee performs at least one other exempt duty customarily and regularly. The final rule raises that salary threshold for highly-compensated employees to $107,432 per year (the proposed rule was to raise the highly-compensated employee salary minimum to $147,432, which was universally criticized and so reduced by $40,000).

Obviously, if you have to move an employee from exempt status to non-exempt status because of this salary minimum change, you should find a way to clearly communicate that this change is not a demotion, but simply a change in a governmental regulation. You’ll also need to train anyone moving from exempt status to non-exempt status on your timekeeping rules so that all time worked is properly recorded.

Overtime Rules: Are You Ready?

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Reminder: The Department of Labor’s final rules regarding the overtime exemption requirements go into effect December 1, 2016. So in the next month, you must get in compliance with these rules:

  • Salary increase for certain exemptions. The minimum salary requirement for administrative, professional, and executive exemptions dramatically increases from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). If you aren’t paying salaried employees $47,476 per year by December 1, 2016, you will be exposing your business to risky Department of Labor investigations and employee lawsuits.
  • Increase for highly compensated employees. The minimum total compensation required for the highly compensated employee exemption increases from $100,000 per year to $134,004 per year, which must include at least $913 paid on a weekly salary basis.
  • A portion of certain bonuses count. Employers may use nondiscretionary bonuses (generally those announced or promised in advance), incentive payments, and commissions, to satisfy up to 10 percent of the minimum salary requirement for the administrative, professional, and executive exemptions, as long as these forms of compensation are paid at least quarterly.
  • Automatic updates. Every three years, the DOL will adjust the minimum salary requirement, meaning you will need to review and adjust (if necessary) exempt employees’ salaries every three years as well.

 

Don’t wait until December; take steps NOW to prepare for the rule changes:

  • Ensure that your “exempt” employees are actually exempt. It takes more than the proper salary for an employee to be exempt. Call me for help with reviewing the primary duties your exempt employees actually perform to ensure they meet the DOL’s criteria for administrative, professional, and executive exemptions.
  • Compare the costs. If your exempt employees’ salaries fall below the new minimum, you will generally have to either: 1) raise their salaries to the new requirement; or 2) reclassify the affected employees as non-exempt and start following the overtime rules whenever they work more than 40 hours in a workweek. Review exempt employees’ salaries and their typical number of hours worked to determine which option is more cost-effective for your business.
  • Review your timekeeping policies. Get from me written policies and procedures for your business to ensure all non-exempt employees are accurately recording all time worked. I can provide training for employees on proper timekeeping practices and otherwise complying the compensation laws.

Overtime Salary Adjustments Could Violate Equal Pay Act

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The new overtime rule is causing employers to rethink employee compensation, but I fear that one pitfall is being overlooked – an employer who pays a woman less than a man for performing the substantially the same duties could be violating the Equal Pay Act of 1963.

Employers who can’t pay their salaried employees at or above the new white-collar exemption threshold of $47,476 may be forced to pay those same employees on an hourly basis and time and a half for all hours worked over 40 in any one workweek. Overtime scares employers because it is difficult to budget for and requires higher costs for each hour of productivity after the employee has worked 40 hours that week.

So in trying to juggle the new law and payroll costs, employers are reducing pay, overtime opportunities and benefits. That may be good business, but if the impact hits female employees more than male employees, we could see an increase in Equal Pay Act cases.

The Equal Pay Act requires that female employees be paid the same as their male counterparts with substantially similar job duties. “All forms of pay are covered by this law, including salary, overtime pay, bonuses, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits,” the Equal Employment Opportunity Commission points out.

If a woman files a lawsuit against a company for paying her less than a man performing the same work, the employer must show that the male employee’s higher pay is based on a seniority system, a merit system, a productivity system or another factor other than gender. That sounds easier than it is. Continue reading Overtime Salary Adjustments Could Violate Equal Pay Act →

Employers Must Pay for “Unauthorized Overtime”

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I see many employee policy manuals that prohibit “unauthorized overtime”, but employers must still pay an employee his overtime pay, whether the time worked was authorized or not.

Employers need to understand that all governmental enforcement agencies, such as the Texas Workforce Commission (“TWC”) and the U.S. Department of Labor (“DOL”), treat paychecks as sacred and not subject to any reduction or withholding because of a disciplinary reason.

Unauthorized overtime can result in disciplinary action, like a written warning, a suspension or a firing, but not docking of a paycheck or any refusal to pay.

The TWC explains it this way in their publication “Especially for Texas Employers”:

Many employers feel that such [overtime] should not be payable as long as the employer has not authorized the extra work, but the DOL’s position on that is that it is up to the employer to control such extra work by using its right to schedule employees and to use the disciplinary process to respond to employees who violate the schedule.

Just saying in your employee handbook that an employee cannot work overtime without prior authorization is not sufficient. You as an employer need to take steps to closely monitor (and pay for) all hours actually worked. Continue reading Employers Must Pay for “Unauthorized Overtime” →

Paying Employees on Salary Soon to Get Expensive

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In July 2016, in all likelihood you as an employer will have to start paying your employees more than $50,000 per year if you want to pay them on salary.  If an employee makes less than $50,440 per year, by this summer that employee will need to be paid on an hourly basis and receive overtime whenever the employee works more than 40 hours in any one workweek.

The new regulations proposed by the Department of Labor last summer to increase the required salary basis under the Fair Labor Standards Act are expected to be finalized in July 2016, according to a statement made by the Solicitor of Labor to the New York State Bar Association.

Currently, an exempt “white-collar” employee who can legally be paid on salary only has to make $23,660 per year ($455 per week) and meet the specific duties of a professional, an administrator, a computer professional or an executive. This summer that number is widely expected to increase to $50,440 ($970 per week) and will be tied to an inflation formula that will raise that threshold number annually.

Once the final rule is released in the summer of 2016, employers could have as few as Continue reading Paying Employees on Salary Soon to Get Expensive →