FLSA Transparency Threat Persists

American employers might still be required to fully disclose their justifications for overtime treatment to workers and to share details about employee/contractor status classification decisions with each person affected.  The potential proposal first suggested some years ago has been updated and restated as “Right to Know Under the Fair Labor Standards Act.”  Any changes to current rules could impose new demands on already overburdened HR people, with expensive cost implications for noncompliance. 

The threat of major changes to U.S. FLSA regulatory reporting requirements initially raised in 2010 seemed to diminish when nothing happened for a long time.  But the latest news proves the risk of compulsory disclosures to every worker being imposed continues to exist, where noncompliance might have drastic consequences.  While details remain sketchy, rule changes still remain a future possibility. 

The Department of Labor’s section of the 2014 Federal Regulatory Agenda just published shows that a number of possible "tweaks" to FLSA compliance rules remain a long-range target.  This newest notice keeps alive a very wide range of potential employer disclosure requirements about worker classification decisions and how people are paid.  Most of the DOL's status categories for the unspecified regulatory changes (which do NOT require Congressional action) are labeled "undetermined" except for the Priority status which is "Other Significant." They seem to be stalling without revealing any details.

It is unclear if the intentions remain the same.  The original proposal specifically planned to require employers to document their communication to workers about employee overtime treatment and employee/contractor status.  Failure to comply with such new rules could cost an exemption from overtime requirements and could imperil independent contractors status decisions.  The new summary outline retains the same potential span of possible changes but is less detailed about what might be offered up for comment as new regulatory compliance requirements.  The latest Federal Agenda release also repeats its additional intention to also consider modernizing manual recordkeeping rules involving domestic home workers, but that minor item does not involve proposed changes that would affect the majority of workers in the United States.

Critical questions that remain unanswered include:  Must any required “transparency” communication to every worker (employee or contractor) be documented?  Will failure to present the proof that the message was delivered cost the company an exemption or reverse an independent contrator status determination?   No way to know until more specific proposals are announced. 

Granted, it is a truly good idea to confirm that workers are properly classified.  The financial impact of denying overtime to eligible employees is immense.  Likewise, treating workers as independent contractors when they are truly employees under the law should not be permitted.  But explaining those decisions can be more complicated than the decisions themselves.  Under the current regulations, overtime exemptions are accepted as valid unless specifically challenged by a DOL Wage-Hour Division Investigator’s contrary determination or a private lawsuit.  New “transparency” communication rules would provide more chances for employers to make a mistake that could trigger fines and require penalties.  For example, if the company must inform each exempt employee why they don’t get time and a half overtime, there could be severe repercussions if the company incorrectly cites the administrative exemption when the professional exemption actually applies to one person.

It would be awful if validly exempt employees were declared eligible for time and a half overtime, payable retroactively and accompanied by a fine, simply because the employer communicated the wrong reasons for exemption.  Or if there was no proof that the disclosure took place.  The possible consequences of failure to properly tell every single independent contract worker why they are not employees could be even worse.  The logistics of arranging personal communications that meet whatever new federal rule interpretation is imposed could be daunting.  In a major corporation with far-flung operations, just delivering the proper “transparent” communication with all workers (both employees and independent contractors) would be quite difficult if personal meetings and signatures are required for compliance. 

Without any details, no one knows what may happen and speculation fills the discussions.  This is a difficult way to end an article, but compensation professionals need to know that a potential new burden could still be imposed in the distant future. 

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. After over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much  been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), serves on the Advisory Board of the Compensation and Benefits Review and will express his opinion on almost anything.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Comments

[Jacque Vilet]

This confusion and fear (?) has probably accompanied every employment ruling that has come down from on high in the past. Somehow we will get through it. How many times has the government ruled something without giving enough detail on how to interpret? Lots of times. ACA is the most recent example but there have been others.

This is just example of why transparency scares me --- not just how to explain government rulings but just about everything. It's complicated ---and not that our employees are "dummies" but it is hard to explain compensation. Plus many employees are so suspicious now and upset about executive pay. Again I don't mean it can't be done --- but I worry about the outcome. Looks like we all need "compensation communication" training. Maybe a few of you can help??

[E. James (Jim) Brennan]

Excellent points, Jacque. The more government requires us to communicate, the more "transparent" things should be. Biggest problem now seems to be that we don't know enough to deliver an accurate message! Once we have full and complete information, then we can turn to the communication experts for help.

[Secret Compensation Man]

I wonder if it will be permissible to include a short paragraph on an offer letter that explains which exemption test(s) was/were passed, with boilerplate language, or if each explanation will have to be crafted to the specific job. Imagine having to list three or four bullet points from the job description for each and every job on each and every offer letter that demonstrate the use of independent judgement and discretion in the performance of the assigned duties. It's hard to inmagine something more inefficient and time-consuming. It's almost as if the intent is to cause mistakes resulting in more penalties and more roles being deemed Non-Exempt.

[Tony Bergmann-Porter]

Some years ago, I worked at an organization that gated stock option eligibility at a base salary of $50k.

It should come as no surprise to any regular reader of this blog that there were no employees of this enterprise whose base salaries were between $44.96K and $49.99K.

[E. James (Jim) Brennan]

SCM: A summary statement sounds sensible as a theoretical approach, but the issue always comes from what the employee actually DOES in the position rather than what the document intends before hire. Government types probably would not be displeased if your speculation about their intent came true. If that happened, they would benefit from more penalty income and could brag about enriching the working class with more overtime.

Tony: Good point. The biggest fights over classifications always occur at the tightest margins. When there is a big gap between an individual's location and the break-point boundary, no one gets very excited. When a tiny difference has big money implications, WATCH OUT!