October 2016

Have No Fear. The New FLSA Regulations WILL Go into Effect on December 1, 2016

New FLSA Regulations are set to go into effect December 1, 2016, that will double (to $47,476) the salary threshold under which virtually all workers are guaranteed time-and-a-half pay whenever they work more than 40 hours in a given week. The Labor Department estimates that the rule will extend overtime coverage to more than 4 million employees and cost businesses about $1.2 billion annually.

At the end of September, the House voted 246-177 to delay implementation of the Labor Department’s overtime rule by six months to June 1, 2017. Republicans voted unanimously for the bill, along with five Democrats (including Collin Peterson of Minnesota). A companion bill was then introduced in the Senate.

RLG Takeaway
Don’t delay compliance with these regulations. Neither the House nor the Senate bill will likely go anywhere. If a bill delaying implementation of the new overtime rule hits the President’s desk, the White House has been clear that Barack Obama will veto it.

It's All in a Day: The EEOC Gives Employers One Day to Comply with EEO-1 Filings

The Equal Employment Opportunity Commission reported on October 6, 2016, that it will require employers with 100 or more employees to include compensation data in their annual EEO-1 reports – reports which were due the following day. Employers are now required to provide this information regardless of whether they are federal contractors, as long as they meet the 100-employee threshold.

The EEOC says that it will use this information to identify compensation discrimination in the workplace and, more generally, to combat “wage gaps” based on race, ethnicity, or sex. The EEOC will also periodically publish wage reports using this aggregated data.

New Timetable
In addition to requiring compensation data, the new requirement significantly changes the timetable to which employers have become accustomed. Currently, employers who are required to do EEO-1 reporting take a “snapshot” of the race, ethnicity, and sex of their workforces in each of the 10 EEO-1 categories during a pay period in July, August, or September – with the information being reported by September 30.

Under the new timetable, this “snapshot” period will change to a pay period in October, November, or December, and the information must be reported by March 31 of the following year.

What’s great about this is that if you sent off your EEO-1 Report in early October, you will not need to file again until March 31, 2018!

Other Reporting Changes

Pay Bands. Employees within each of the 10 EEO-1 categories will be grouped into 12 pay bands based on their W-2 compensation. According to the EEOC, pay bands will be less burdensome for employers and will also provide more meaningful pay data to the EEOC. In addition to the number of employees (by race, ethnicity, and sex) in each pay band, employers will be required to state the number of hours worked. If employees are exempt from the overtime requirements of the Fair Labor Standards Act, then the employer may use 40 hours as a “proxy.” (Or 20 hours if the exempt employee is part-time.) Employers may also use actual hours. For non-exempt employees, the reportable hours must be what appears in their payroll records, including any overtime.
Smaller employer. Employers with 99 or fewer employees who are not federal contractors or subcontractors are not required to file EEO-1 reports at all. Federal contractors or subcontractors with fewer than 50 employees also are not required to file EEO-1 reports. This will continue under the new rule. Federal contractors with 50-99 employees will continue to report race, ethnicity, and sex for each EEO-1 category, but will not have to report compensation information.
Timing. As you may recall, the EEOC issued its proposed rule on EEO-1 reporting in February 2016. Under that proposed rule, September 30 would have continued as the reporting date. However, the EEOC issued an amended proposed rule in July of this year, primarily to change the reporting date to March 31 for the preceding calendar year. The EEOC changed the date because it will require W-2 compensation to be reported, and it was believed – probably correctly – that March 31 would be more convenient (read: workable) for employers because it coincided with tax time.

The EEOC has not yet issued a Final Rule on its proposal, although it is anticipated to be issued shortly. Finally, a sample of the new EEO-1 form is available here. The Agency will also conduct free webinars on the EEO-1 reporting on October 20 and October 26.

RLG Takeaway
While the idea seems reasonable, there is no evidence that the gender pay gap is due to discrimination – which is the basis for these changes. The “pay gap” compares the average pay of all women in the workforce with the average pay of all men in the workforce. It does not control other variables, such as career interest, position held, location, family responsibilities, education, time away from work, or other issues that can affect pay. Some states do have pay equity legislation and this would be a good time to check in with counsel about pay practices and potential compliance issues.

Federal Contractor? You Must Provide Sick Leave

Under a new final rule announced by the U.S. Department of Labor, workers on federal projects can take leave to care for themselves or a family member. The rule will provide sick leave to almost 600,000 employees and affect 1.15 million federal contractors once it goes into effect on January 1, 2017.

This new rule is even more generous than many other sick leave mandates implemented by state and local governments. The federal rule requires employers to provide at least one hour of paid sick leave for every 30 hours of work, up to at least 56 hours (seven days) per calendar year. The leave may be used for:

Episodes of physical or mental illness
Visits to health care providers for preventive care
Caring for a sick family member
Responding to and caring for the consequences of domestic violence, sexual assault, or stalking, including time off to pursue legal action or to seek relocation services

The rule also permits employees to carry over any accrued, but unused, sick time from year to year, although employers can still cap the total accrual amount at 56 hours per year. Furthermore, if an employee is separated but rehired by the same contractor within 12 months, contractors are required to reinstate any amount of unused paid sick leave accrued prior to the separation (unless the contractor already paid the employee for accrued, unused paid sick leave). Generally however, no contractor is required to pay out employees for any unused sick leave at termination, as long as its policies do not otherwise require it – so check your handbook for that specific language.

How Will the New FLSA Regulations Affect Benefit Plans?

The Department of Labor’s new FLSA regulations will not only require substantial changes to employers’ compensation-related practices, but will also affect their employee benefit plans. For example:

If a retirement, health, or life insurance plan provides differing benefits to non-exempt and exempt employees, reclassifying such employees in response to the DOL’s new rules may simultaneously impact the plan’s ability to pass applicable non-discrimination tests.
In order to defray the potentially-increased costs arising from the DOL’s new rules, certain employers may consider reducing the employer’s share of health-plan premiums and increasing the employees’ share. This adjustment may cause the benefits to become “unaffordable” for certain employees, thus triggering higher employer penalties under the Affordable Care Act.
Employers who eliminate matching 401(k) plan contributions as a means of defraying the cost associated with the new rules could simultaneously imperil the plan’s “safe harbor” status, potentially causing the plan to fail non-discrimination testing.

RLG Takeaway
Remember, most benefits-related cost-saving measures will typically require advance, written plan amendments, as well as updates to other documents that describe employee benefit entitlements. Thus, if changes need to be made, it’s important to look at them ASAP.

Trade Secrets & Confidential Information: They're Not for Everyone

Trade secret theft in the United States is estimated to cost businesses as much as $300 billion annually, with the most damages coming from employees and business partners. Yet, we often don’t know how to protect trade secrets nor are we even aware that they have been stolen.

This is why, when signing the Defend Trade Secrets Act, President Barack Obama stated:

“As many of you know, one of the biggest advantages that we’ve got in this global economy is that we innovate, we come up with new services, new goods, new products, new technologies. Unfortunately, all too often, some of our competitors, instead of competing with us fairly, are trying to steal these trade secrets from American companies. And that means a loss of American jobs, a loss of American markets, a loss of American leadership.”

With this in mind, employers should do the following:

Take Reasonable Measures to Protect Trade Secrets. The use of protective orders can be a critical first step. In addition, companies should determine whether they have comprehensive policies and procedures in place and are employing narrowly drafted agreements to protect trade secrets.

Policies: How are the stake holders involved in protection and implementation of company policies? What is the process for handling confidential information? How is it maintained?
Agreements: Employers should review all confidentiality and NDAs. All agreements must now have the Defend Trade Secrets Act’s notice of immunity provision.
On Boarding: When bringing on new employees, a company should prohibit the use of confidential information from a prior employer (and do it in writing) and should determine whether an employee is subject to any non-compete obligations. The same can be true when working with contractors, consultants and other business partners.
Training: Manage your risk by training or educating employees, contractors and consultants on confidentiality requirements and practices.
Terminations: Trade secret misappropriation frequently occurs when a departing employee moves to a competitor. To help minimize risk, have solid narrowly drafted agreements. Remind employees about such obligations (again, in writing) when they are leaving.

RLG Takeaway
Employers should conduct audits to determine whether policies are up to date, procedures are reasonable and effective, whether they have enforceable agreements and whether they are prepared to enforce their rights.

This newsletter is provided for informational purposes only, not as legal advice. The reader of these materials should seek legal advice before using this or any other materials from this author.