Q.  Have there been any recent changes to the overtime pay rules that we have to be concerned about?

A.  Currently, under both federal and Pennsylvania law, to be exempt from overtime under the “white collar exemptions,” an employee must meet both the salary basis test and the duties test, meaning they must make more than a certain amount weekly and perform certain identified duties. The salary threshold has been stagnant for decades. In 2016, however, the Department of Labor (DOL) announced new regulations that would increase the salary threshold from $23,660 annually ($455 per week) to $47,476 (or $913 per week).  The regulations however, fell short of becoming law when a federal court in Texas enjoined the DOL from implementing it, only weeks before it was set to go into effect.  Today, the federal law remains in limbo, with speculation that new regulations will be issued raising the salary test to less than the previously anticipated increase, although the exact amount remains unclear.

In the meantime, however, Pennsylvania Governor Tom Wolf has taken measures into his own hands. On January 17, 2018, Governor Wolf announced plans to issue rules that would increase the salary level from $455 per week ($23,660 annually) to $610 per week ($31,720 annually), beginning on January 1, 2020.  The threshold salary would again increase on January 1, 2021 to $39,832, followed by a third increase in 2022 to $47,892.  After the year 2022, the salary threshold would increase automatically every three years.  The goal of these proposed rules is to strengthen the middle class.

Although these rules have not yet been passed, employers should keep their eyes out for any changes that may occur. If the new rules do become implemented, Pennsylvania employers would be required to follow Pennsylvania law in determining overtime eligibility for Pennsylvania workers, rather than the federal law, assuming federal law remains less favorable for employees.

Kali T. James-Wellington

U.S. Department of Labor Endorses More Flexible Unpaid Intern Test

Q.  Our company wants to establish an internship program and host student interns to work alongside our employees. Do we need to pay the interns?

A.  Possibly. Over the past few years, courts and the Department of Labor (“DOL”) have carefully examined the relationship between businesses and unpaid student interns to determine whether students working at a company are more properly classified as unpaid interns or employees protected by the Fair Labor Standards Act (“FLSA”).  Under the FLSA, if an individual is deemed a non-exempt employee, that employee must be paid at least a minimum of $7.25 per hour and one and a half times their regular rate of pay for all hours worked in excess of 40 in a workweek.  The minimum wage is higher in many states, including New York and New Jersey.

Previously, the Department of Labor required employers to meet a six-part test to prove that an individual was properly classified as an unpaid intern. One of the benchmarks employers were required to prove under the prior test was that the employer providing the internship opportunity “derives no immediate advantage from the activities of the intern . . . and on occasion its operations may actually be impeded.”

Citing four separate appellate court rulings that had rejected DOL’s six-part test, the DOL recently announced that it would use a more flexible “primary beneficiary” test in order to determine the “economic reality” of whether an individual is an intern or an employee. Going forward, the DOL will consider the following seven factors to determine whether an individual is an intern:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

No single factor described above is determinative and DOL cautions that whether an individual is properly classified as an unpaid intern will depend on the unique facts of any particular case.  Employers should also be aware that some states have their own test for determining whether an intern must be paid. For example, the New York Department of Labor lists eleven separate factors relevant to determining whether an unpaid intern should be considered an employee under New York law.

Before establishing an internship program or allowing a student to intern at a business, companies should examine the “economic reality” of their relationship with interns, review the new DOL Fact Sheet on interns, and consult with a qualified employment lawyer to ensure that the internship program complies with both federal and state wage and hour laws.

Lee E. Tankle

Paying Employees During Short Rest Breaks

Q: Do I need to pay non-exempt employees when they go on short rest breaks of 20 minutes or less?

A: Yes.

The United States Department of Labor (“DOL”) has long taken the position that when employers offer non-exempt employees short breaks of under 20 minutes, the time spent on that break is “compensable” under the federal Fair Labor Standards Act (“FLSA”).

Recently, the United States Court of Appeals for the Third Circuit (which has jurisdiction over employers in Pennsylvania, New Jersey and Delaware) adopted the DOL’s position in a case brought by the DOL against American Future Systems, d/b/a Progressive Business Publications (“Progressive”). The Court concluded that the FLSA “does require employers to compensate employees for all rest breaks of twenty minutes or less.”

The facts of the case are as follows: Progressive’s sales representatives are hourly, non-exempt employees. In 2009, Progressive eliminated paid breaks but implemented a policy called “flexible time,” allowing employees to log-off their computers at any time. However, Progressive only paid employees if they were logged off their computer for less than 90 seconds. If an employee took more than 90 seconds to go to the bathroom, get a cup of coffee, or decompress from a particularly tough sales call, Progressive did not pay the employee.

The FLSA requires that employees are paid for all hours “worked,” but does not define the term “work.” Referring to the FLSA as “humanitarian and remedial legislation” which is to be liberally interpreted, the Third Circuit concluded that the brief periods spent by Progressive’s sales representatives when they logged off the computer clearly were compensable breaks under the FLSA. As the Court reasoned,  “[Progressive’s policy] forces employees to choose between such basic necessities as going to the bathroom or getting paid unless the employee can sprint from computer to bathroom, relieve him or herself while there, and then sprint back to his or her computer in less than ninety seconds. If the employee can somehow manage to do that, he or she will be paid for the intervening period. If the employee requires more than ninety seconds to get to the bathroom and back, the employee will not be paid for the period logged off of, and away from, the employee’s computer.” The Court concluded that this result is contrary to the FLSA and that Progressive’s “flexible time” policy was merely an attempt to circumvent the FLSA’s rules regarding compensable time.

Not all breaks are compensable under the FLSA. For example, the DOL takes the position that bona fide uninterrupted meal periods of 30 minutes or more are non-compensable.

The lesson from this case? Employers should review their policies and practices to ensure that employees are compensated for all types of breaks that are 20 minutes or less. This is true even if an employee violates the company’s break policy. The employee may be disciplined for violating the break policy, but he/she still must be paid.  The good news is that paying for short rest breaks will improve employee morale and avoid liability under the FLSA.

Lee E. Tankle

Paying Employees during a Shutdown due to Natural Disasters and Inclement Weather

Q: Do I need to pay my employees if my company has closed or temporarily shut down operations due to a natural disaster or inclement weather?

A: It depends.

In the aftermath of Hurricanes Harvey and Irma, and in anticipation of the upcoming winter snow season, many employers are questioning whether they need to pay employees when their company cannot open due to a natural disaster or inclement weather.

Whether an employee needs to be paid will typically turn on whether the employee is exempt or nonexempt under the Fair Labor Standards Act (FLSA). Under federal law, nonexempt employees only are entitled to payment for “hours worked.” Therefore, if a business is forced to shut down for a period of time due to a hurricane, blizzard, or other challenge imposed by Mother Nature, there is no obligation under federal law for an employer to pay nonexempt employees. This makes sense because, quite simply, if a non-exempt employee does not work, there is no requirement to pay them. Employers do have the option of permitting non-exempt employees to use vacation or other paid time off during periods of inclement weather.

Companies generally will be required to pay salaried nonexempt employees in the event of a natural disaster unless the employer’s operations are shut down for more than one workweek. Under the FLSA, salaried exempt employees are entitled to receive their full salary for any workweek in which they perform any work (regardless of the number of days or hours worked). As such, if an employer closes its facilities due to natural disaster for less than a full workweek, an exempt employee must still be paid his or her full salary for the workweek. An employer only is entitled to withhold payment of wages to salaried exempt employees if the employer is closed for an entire workweek and the salaried exempt employee performs no work during that workweek. Should an employer decide to close its facility for more than one workweek, an employer can permit an exempt employee to take vacation/paid time off or allow the employee to work remotely.

Paying employees when a business is closed due to weather concerns is not always legally required but doing so will certainly improve employee morale—especially in instances of a life-altering hurricanes like Harvey and Irma where employees have suffered the loss of a home or personal property. If questions arise regarding payment of employees during natural disasters, consult a labor and employment law attorney.

Lee E. Tankle

Employers Not Required to Submit Pay Data or Follow Higher Salary Basis Threshold for Exempt Employees

Q.  What is the status of the EEOC’s requirement that we submit pay data with our annual EEO-1 Form?  Also, have there been any updates on the lawsuit blocking the DOL’s rule raising the salary basis for certain non-exempt employees?

A.  As we reported previously, the EEOC, as part of its effort to detect and remedy pay discrimination, amended its EEO-1 Form to require that employers with 100 or more employees submit detailed pay data on their workforce.  On August 29, 2017, the OMB sent a memorandum to the EEOC, staying implementation of this requirement.  Thus, at least for now, employers may limit the information provided on the EEO-1 Form to data on race, ethnicity and gender by occupational category (but not data on pay or hours worked).

There is similar relief for employers on the DOL overtime issue.  As we reported in a previous blog post, the United States District Court for the Eastern District of Texas granted a preliminary injunction last November, blocking the implementation of the Department of Labor’s amendments to the overtime provisions of the Fair Labor Standards Act.  On August 31, 2017, the Court took a further step, granting summary judgment blocking the rule.  The Court concluded that the Department of Labor exceeded its authority in enacting a rule raising the minimum salary threshold for executive, administrative and professional exemptions.  This likely is the official end to President Obama’s Final Overtime Rule, although President Trump may revisit the issue of the minimum salary threshold in the future.

For more information on these issues and their impact on employers, please see our Client Alert.

Lee Tankle