Recordkeeping: What you must keep – and for how long

The trouble with recordkeeping at a lot of companies: You don’t know how complete your records are until you get involved in litigation or an audit. But by then, it’s often too late to fill in any critical gaps.  

That’s why it’s essential to know — before you find yourself in some kind of legal dispute — what documents you need to hold onto and what you can trash without putting your company at risk.

To be on the safe side, many employment law attorneys recommend you keep everything for at least five to seven years after an employee has left.

That’s sound advice — if you’ve got the storage and personnel to keep track of all those docs for that long. But it may be overkill, and often isn’t necessary to comply with many employment law record retention requirements.

Here’s a rundown of document retention rules under laws such as the FMLA, COBRA, FLSA, ERISA, HIPAA, ADEA and Equal Pay Act, courtesy of the employment law experts at the law firm Lindquist & Vennum:

Employee leave

The FMLA requires employees to hold on to a slew of employee leave-related paperwork for at least three years, including:

  • Identifying data regarding the employee on leave, which includes name address, occupation, pay rate, terms of compensation, days worked, hours worked per day, and additions or deductions in pay
  • Dates and hours of FMLA leave
  • Copies of employer notices to employee(s)
  • Documents describing employee benefit and premium payment info
  • Docs describing any disputes over FMLA benefits, and
  • Copies of the company’s FMLA policy.

Benefits plans

A slew of laws (ERISA, COBRA, ADEA, HIPAA) layout what benefits plan-related documents companies must hang onto, and the length of time docs must be saved varies by the enforcing law. Here’s a summary of the essentials:

  • Employee benefit plan governing documents — keep indefinitely
  • Summary plan descriptions and notices — keep indefinitely
  • Records backing up the information reported on Form 5500, such as vesting and distribution info, coverage and nondiscrimination testing data, benefit claims info, enrollment materials, election and deferral data, and account balance and performance data — keep for six years after the Form 5500 filing date
  • Evidence of fiduciary actions — keep indefinitely
  • HIPAA privacy record documents — keep six years from the date it was created or the date it was last in effect, whichever is later, and
  • COBRA notices — no required retention period, but it’s recommended these documents be kept for at least six years from the date they were given.

Compensation

Most compensation-related documents, with the exception of Certificates of Age (keep those until termination), do not need to be kept longer than three years, including:

  • Records containing employees’ names, addresses, dates of birth, occupations, pay rates and weekly compensation — keep for three years
  • Collective bargaining agreements and changes/amendments to those agreements — keep for three years
  • Individual contracts — keep for three years
  • Written agreements under the FLSA — keep for three years
  • Sales and purchase records — keep for three years, and
  • Basic employment and earnings records, like wage rate tables used to calculate wages; salary, wages and overtime pay info; work schedules; and additions to or deductions from wages — keep for two years.

Hiring

There are a number of hiring and recruitment-related materials employers must hold on to, including:

  • Hiring documents, like job applications, resumes, job inquiries and records of hiring refusals — keep for one year from date of action
  • Job movement docs, such as promotion, demotion, transfer, layoff and training selection info — keep for one year from date of action
  • Test materials, including test papers and employee test results — keep for one year from date of action
  • Physical examination results — keep for one year from completion, and
  • I-9 forms — keep for three years after the date of hire or one year after the date of termination, whichever is later.

Litigation changes the equation

Once you’re on notice that any matter may become the subject of litigation or an audit, you must keep all documents related to that matter until the case has come to a conclusion — no exceptions.

In addition, you must anticipate litigation when you receive a notice that a lawsuit is being filed, notice of a DOL or EEOC charge, an attorney demand letter, or an internal complaint.

What you must keep in those instances includes:

  • the personnel file of the complainant
  • all documents related to his or her application, hiring, promotions, transfers, disciplinary actions, evaluations, training, pay and medical records
  • job postings
  • job descriptions
  • complaint records of other employees
  • investigation notes and documents
  • supervisor notes and records, and
  • anything related to an alleged harasser or wrongdoer.

Bottom line: The best way to successfully fend off litigation or an audit is to be able to produce strong, comprehensive documentation.

11 remarkable overtime rule tips from DOL insider

Turns out there’s more to the FLSA’s overtime exemption rule changes (and salary threshold) than meets the eye. A former DOL administrator recently opened a lot of employers’ eyes with what she had to say about the new rule. 

In front of a packed room filled with more than 1,000 HR professionals at the SHRM16 Annual Conference & Exposition, the former administrator of the DOL’s Wage and Hour Division, Tammy McCutchen, surprised a lot of attendees with her insights on the rule changes.

McCutchen was the main architect behind the 2004 changes to the FLSA’s overtime exemption rules. So she has a unique handle and perspective on how the new overtime rule will be enforced and how employers can go about complying with it. She’s now an employment law attorney with the firm Littler Mendelson, P.C. and counsels businesses on how they can comply with the FLSA.

In her presentation, she shared 11 critical tips about the law every employer should see:

1. Think $913, not $47,476

McCutchen said many employers are focusing on the $47,476 annual threshold under the FLSA’s salary basis test. But she warned not to do that.

Why? It’s a week-by-week test. Therefore, employers need to focus on making sure exempt employees are paid $913 per week.

If there are weeks that employees don’t make at least $913, the DOL will consider them non-exempt (or, rather, the DOL’s new favorite term: “overtime-eligible”) for those weeks.

2. Think $821.70 when adding in bonuses

There is an exception to the $913-per-week rule: it’s when employers will count nondiscretionary bonuses toward up to 10% of the threshold.

In that case, exempt employees must be paid at least $821.70 per week. Then, when a bonus is paid out (and they must be paid out at least quarterly), the employees’ pay for that quarter must average out to at least $913 per week.

3. Nearly every bonus is nondiscretionary

McCutchen said the DOL’s definition of nondiscretionary bonus is very, very broad.

As a result, she said just about every bonus employees receive will be nondiscretionary.

4. The bonus method is risky

McCutchen said she’s hesitant to advise employers to go with a strategy in which they’ll attempt make up any shortfall between the $821 figure and the $913 figure with a bonus.

Why? Because if an employee fails to earn the bonus, or the company makes a calculation or payroll error that results in an employee making less than $913 in any week within a quarter, the employee must be classified as OT-eligible for that entire quarter — and that can get very expensive very quickly.

As a result, she suggests just rolling bonus pay into an employees’ base salaries to get, and keep, them above the $913 threshold. Or, at the very least, she says employers must consult with outside legal counsel and present that counsel with a plan as to how they plan to make the bonus calculations/payments. Then, she implores employers to audit their bonus processes frequently.

Plus, she said, there’s the whole issue of what happens when an employee leaves in the middle of the quarter. In those causes, she said to play it safe and pay the person any bonus amount necessary to get them over $913 per week worked.

5. With highly compensated employees, don’t forget the last “4”

McCutchen said if an employee makes more than the new highly compensated employee salary threshold — $134,004 — chances are they’ll pass the minimal duties test thrown at them. But employers can’t forget the last “4” on that number.

She said she’s hearing the number “$134,000” tossed around a lot, and she warned that setting someone’s salary at $134K won’t make them a highly compensated employee under the rule.

6. Expect a big increase in three years

As you’ve likely heard, the salary basis threshold will be reset every three years.

Currently, it was set at the 40th percentile of earnings in the lowest wage census region — the South — and it will be reset to that figure every three years.

But McCutchen said the data set the DOL will be looking at three years from now will be much different than the data set it used to establish the $913 figure. Due to this year’s change to the FLSA, she said she expects a lot of the lower salaries to drop out of the data set over the next three years and to see a lot of the higher salaries climb.

As a result, she said the threshold will likely be much higher when the FLSA is updated again in January 2020.

She also reminded employers that they’ll get 150 days’ notice before the 2020 salary threshold kicks in.

7. Make the switch over Thanksgiving

As you know, the new salary threshold kicks in Dec. 1, 2016. Do you know what day that is?

It’s a Thursday, and because of that McCutchen said you don’t want to have employees’ new salaries or classifications kick in on that day.

Why? It’ll result in an administrative nightmare in which some employees will be exempt for half of the week and non-exempt the second half.

A better way: Make the change the week of Thanksgiving. She said due to the holiday, it’s unlikely newly OT-eligible employees will have to work overtime that week, which can make the transition a lot easier (without making it more expensive).

8. Remember state notice requirements

Some states require employers to provide workers with advance notice of changes in their pay, and employers can’t forget to abide by them.

McCutchen said such laws tend to require a one pay period heads up — and typically just for reductions in pay. Meanwhile, Missouri requires employers to give workers 30 days’ notice for pay reductions.

9. Meet the most stringent duties test

McCutchen pointed out that 18 states have duties requirements that differ from federal regulations.

Which ones are employers required to follow? Answer: An employer must follow the more difficult of either its state’s duties test or the federal duties test.

10. The rule changes aren’t going away

McCutchen said the chances are “slim to none” that the new exemption rule gets nixed or delayed prior to the effective date of Dec. 1.

11. There is a cost-neutral salary formula

One option employers are considering for affected employees who work 40-plus hours per week is dropping those employees’ base pay rates and then allowing those folks to make up for the shortfall by receiving overtime pay.

But some employers are struggling to determine what to reduce those employees’ base wages to.

So McCutchen shared a DOL-recommended formula for determining what an employee’s pay rate should be, so that when the person works overtime their total compensation isn’t more than what he or she’s currently taking home.

In other words, it’s a cost-neutral formula. But it’s really only cost-neutral if you have a good estimate of the person’s expected weekly hours (including overtime).

Here’s the formula: Weekly Salary/(40+(OT Hours x 1.5))

Here’s how it would work: Say you have an employee who works 45 hours every week with a weekly salary of $800. His hourly pay rate for the purposes of calculating overtime is $20 per hour ($800/40), so his OT-rate would be $30 per hour ($20 x 1.5). Now if this employee worked 45 hours per week, he’d make $950 per week ($800 + $30 x 5).

Now let’s use the cost-neutral formula for this same person working 45 hours per week. His base weekly pay rate would be dropped to $16.84 ($800/40+(5 x 1.5)). That would mean his OT-rate would be $25.26 ($16.84 x 1.5). So his weekly take-home pay for 45 hours’ worth of work is $800 ($16.84 x 40 + $25.26 x 5).

But McCutchen did admit this is a hard sell for this employee because it basically means a pay cut if he doesn’t get five hours of overtime each week.

DOL’s final overtime rule moves forward: What’s next?

Get ready: The DOL’s final rule revising the white-collar overtime exemption regulations has advanced. So employers now have a pretty good idea of when it’ll go into effect. 

The DOL just sent the final rule to the White House’s Office of Management and Budget (OMB). This is the final step before the rule is published and made public for all to see.

If the OMB follows its normal review timeline, it should be approved in four to six weeks (although, it could take months).

So if it sticks to its normal schedule — and there’s no reason to think it won’t — employers should be able to get eyes on the final rule by early- to mid-May.

Avoid Congressional roadblocks

The fact that the rule is already in the OMB’s hands means it’s most likely to avoid an entanglement with the Congressional Review Act. In fact, the act may very well be the reason the rule was submitted for review much earlier than originally anticipated.

In a nutshell, the act allows Congress to disapprove “major” final rules promulgated by federal agencies — like the DOL. But the disapproval can be shot down by a presidential veto — meaning the FLSA changes were highly unlikely to be challenged during President Obama’s tenure.

However, the act states that if a major rule is is submitted to Congress with fewer than 60 session days remaining on the legislative calendar, then the next Congress will have a similar 60-day period to consider the rule. And according to recent calculations by the Congressional Research Service, if the DOL’s overtime rule isn’t released by the OMB by May 16, the rule will be at the mercy of the next Congress and president.

Bottom line: The best chance the Obama administration — and the current DOL regime — have of making the FLSA-altering overtime rule stick was to get it on the books before May 16, a deadline they’re now well on their way to beating.

When will it take effect?

Despite some back-and-forth about when it was going to submit the rule to the OMB, the DOL has remained steadfast about one thing: The rules were likely to take effect 60 days after being published, and that still appears to be the plan.

As a result, employers can expect to have to be in compliance with the rule this summer — most likely by the end of July (but possibly sooner).

Still, there’s no way to know exactly what’s in the rule until it is approved by the OMB. But chances are the rule won’t be too far off from what employers saw in the proposed rule.

Here’s a rundown of what was proposed:

  • Drastically increasing the FLSA’s salary threshold. As you know, the current minimum salary a worker has to be paid to be exempt from overtime is $455 per week or $23,660 per year. Well, under the proposed rule, it would jump to $970 a week or $50,440 per year. The DOL calculated that $50,440 would equal the 40% percentile of weekly earnings for full-time salaried workers.
  • The highly compensated employee threshold will also climb. The total annual compensation requirement needed to exempt highly compensated employees would climb to $122,148 from 100,000 — or the 90th percentile of salaried workers’ weekly earnings.
  • The salary thresholds will automatically increase. For the first time ever, the salary thresholds would be tied to an automatic-escalator. The DOL is proposed using one of two different methodologies to do this — either keeping the levels chained to the 40th and 90th percentiles of earnings, or adjusting the amounts based on changes in inflation by tying them to the Consumer Price Index.
  • No changes to the duties tests have been proposed. The DOL didn’t suggest changing the executive, administrative, professional, computer or outside sales duties tests as of yet. However, the agency sought comments on whether they should be changed and whether they’re working to screen out employees who are not bona fide white-collar exempt employees. Early indicators were that the DOL would look to adopt a California-style rule in which employees would be required to spend more than 50% of their time performing exempt duties to be classified as exempt.
  • Discretionary bonuses wouldn’t count toward salary threshold. In the proposed rule, discretionary weren’t part of a person’s salary calculation — but that could change depending on the comments the agency received. Currently, such bonuses are only included in calculating total compensation under the highly compensated employee test. But the DOL said some stakeholders are asking for broader inclusion of bonuses in salary calculations.

The DOL received more than 250,000 comments on the proposed rule.

Stay tuned. HR Morning will have a full breakdown of the final rule once it’s published — along with rundown of what you’ll need to do to get in compliance.

OT rule might be released in spring … or summer … or maybe spring, DOL says

The DOL keeps changing its tune on when it’ll release the final revisions to the overtime exemption rules. 

The agency’s final rule will be kind of a big deal. So employers really want an accurate timeline on when the rule will be released — so they can plan accordingly.

Problem is, the DOL itself doesn’t appear to have a specific timeline mapped out within its own walls for when the rule will be released.

Here’s what we know:

  • Last fall, at the American Bar Association’s Labor and Employment Law conference in Philadelphia, the DOL’s Solicitor of Labor M. Patricia Smith said during a panel discussion that the finalized changes to the FLSA’s overtime eligibility rules likely won’t be issued until late 2016.
  • Shortly after, the DOL released its fall 2015 regulatory agenda, which said the agency was targeting a July 2016 release date for the final rule. The deadline wasn’t set in stone, but it gave employers an idea of when they should be ready for the new regulation.
  • Then DOL Secretary Thomas Perez told Bloomberg BNA in an interview that the agency is “confident we’ll get a final rule out by spring 2016.” Not long after Perez’s statements went public, the Congressional Research Service, a branch of the Library of Congress, released a report that suggested the DOL had until approximately May 16 to release the rule to avoid giving the next Congress and president the power to overturn the rule. The report detailed a little-known mechanism created by the Congressional Review Act that gives Congress 60 legislative session days to pass a joint resolution that would invalidate any major rule. If the rule is submitted to Congress with fewer than 60 session days remaining on the legislative calendar, then the next Congress will have a similar 60-day period to consider the rule. Following the release of the report, Perez’s statements made perfect sense, until …
  • … Smith, while speaking at another meeting of the American Bar Association, said the DOL’s white collar exemption rule would be published in July 2016 (a tip of the hat to law firm Ford & Harrison for bringing her comments to our attention). Smith also stated that the rule will become effective 60 days after it’s published.
  • Then, roughly a week later, Smith backtracked … a bit … by saying the final rule could be published in or before July. She also said the rule will take effect at least 60 days after it’s published.

What should employers do?

What is all of this telling employers? This is a complicated law, and the DOL appears to be poring over the details carefully. It doesn’t want to promise a release date it can’t meet.

And reading the tea leaves, it appears, to the agency’s credit, that the DOL’s putting an emphasis on getting the rule just right rather than wrapping it up before it’s subject to the Congressional Review Act.

Of course, that doesn’t mean you can count out the rule being published prior May 16.

So what should employers do? The safest thing is to keep planning for a spring release and to have to be in full compliance by summer. That’s the only way to ensure you’re not behind the eight ball when the rule is published.

DOL quietly drops big news on new overtime rules

The DOL’s been pretty quiet about what it’s doing behind the scenes about changing the overtime exemption rules and salary threshold. But it has finally spoken. 

This week, at the American Bar Association’s Labor and Employment Law conference in Philadelphia, the Solicitor of Labor M. Patricia Smith shared some insider info that elicited “gasps” from the audience, according to a report by The Wall Street Journal.

Smith said during a panel discussion that the finalized changes to the FLSA’s overtime eligibility rules likely won’t be issued until late 2016. From that juicy piece of info, one could surmise that they won’t take effect until 2017.

This is huge news for the business community, which hasn’t been shy about expressing outrage over the proposed overtime rule changes the DOL issued this summer. The delay means employers have more time to prepare, even though they don’t know what the finalized rules will look like yet.

The period during which the public can comment on the proposed rules ended Sept. 4, and the DOL received roughly 270,000 comments during that period. That’s about three times the amount of comments the agency received when it last updated the overtime rules back in 2004. About 50,000 comments came in during the last week alone.

But despite that last-minute outpouring of commentary, the DOL announced it wouldn’t extend the comment period. It said the standard 60-day comment period — combined with its outreach efforts prior to the proposal being published — was enough to “produce a quality regulation.”

So all signs pointed to the final rules being issued sometime in early 2016. But Smith cited the amount of comments it received and the complexity of the law as the two main reasons the agency’s looking at a later date for releasing the rules.

What we do know

While the DOL’s been mum on whether or not it’ll make significant changes to its proposed rules, we do know a few things for certain about what’ll be in the final rules.

For starters:

  • The minimum salary threshold will rise … significantly. The current threshold a worker must hit to be overtime-exempt is $23,660. The proposed rules seek an increase to $50,440. And while it may not climb quite that high, it will climb — likely to at least $40,000 or so.
  • The threshold will automatically increase. For the first time ever, the salary threshold will be tied to an automatic-escalator, so it can keep pace with inflation — and so major legislative changes aren’t needed every time lawmakers want it to increase.
  • The DOL is looking at making changes to the duties tests. The DOL hasn’t suggested changing the executive, administrative, professional, computer or outside sales duties tests (see them here) yet. But the agency did specifically ask for comments on whether the tests should be changed and whether they’re working to screen out employees who are not bona fide white collar exempt employees.

The X factor

There is one X factor in all of this that no one has mentioned yet: the effect the upcoming presidential election will have on the rulemaking process.

Originally, the DOL had set a tentative deadline of November 2014 for issuing the proposed rules. Then, they didn’t come out until more than six months after that soft deadline had passed.

Then, it was expected the finalized rules would be issued sometime in early 2016. Now, that’s clearly not what’s going to happen. All of these delays have butted the rulemaking process right up against the presidential election.

This begs the question: Would the Obama administration really issue a highly controversial set of finalized rules just prior to the election?

After all, business groups, employers and even a former DOL administrator (who oversaw the last rule changes) have staunchly opposed the proposed rule changes, saying they’ll stifle companies’ ability to operate, drive prices up and/or actually hurt the very people the rules are trying to help. This could potentially give the GOP more ammunition to use on the campaign battlefield.

On the other hand, if public opinion polls reveal that the rule changes are something the voting public wants and views as beneficial, the Democrats may try to push the final rules through prior to the election to give their political campaigns a shot in the arm.

Time will tell which scenario will play out — but a lot of it likely depends on how Democrats feel the voting public will react to the rule changes once they’re finalized.

One final thing to consider: Since the entire rulemaking effort was spurred by the Obama administration, and heavily backed by Democrats, it’s entirely possible any finalized rule changes will be repealed should a Republican win the White House next fall.

DOL quietly drops big news on new overtime rules

The DOL’s been pretty quiet about what it’s doing behind the scenes about changing the overtime exemption rules and salary threshold. But it has finally spoken. 

This week, at the American Bar Association’s Labor and Employment Law conference in Philadelphia, the Solicitor of Labor M. Patricia Smith shared some insider info that elicited “gasps” from the audience, according to a report by The Wall Street Journal.

Smith said during a panel discussion that the finalized changes to the FLSA’s overtime eligibility rules likely won’t be issued until late 2016. From that juicy piece of info, one could surmise that they won’t take effect until 2017.

This is huge news for the business community, which hasn’t been shy about expressing outrage over the proposed overtime rule changes the DOL issued this summer. The delay means employers have more time to prepare, even though they don’t know what the finalized rules will look like yet.

The period during which the public can comment on the proposed rules ended Sept. 4, and the DOL received roughly 270,000 comments during that period. That’s about three times the amount of comments the agency received when it last updated the overtime rules back in 2004. About 50,000 comments came in during the last week alone.

But despite that last-minute outpouring of commentary, the DOL announced it wouldn’t extend the comment period. It said the standard 60-day comment period — combined with its outreach efforts prior to the proposal being published — was enough to “produce a quality regulation.”

So all signs pointed to the final rules being issued sometime in early 2016. But Smith cited the amount of comments it received and the complexity of the law as the two main reasons the agency’s looking at a later date for releasing the rules.

What we do know

While the DOL’s been mum on whether or not it’ll make significant changes to its proposed rules, we do know a few things for certain about what’ll be in the final rules.

For starters:

  • The minimum salary threshold will rise … significantly. The current threshold a worker must hit to be overtime-exempt is $23,660. The proposed rules seek an increase to $50,440. And while it may not climb quite that high, it will climb — likely to at least $40,000 or so.
  • The threshold will automatically increase. For the first time ever, the salary threshold will be tied to an automatic-escalator, so it can keep pace with inflation — and so major legislative changes aren’t needed every time lawmakers want it to increase.
  • The DOL is looking at making changes to the duties tests. The DOL hasn’t suggested changing the executive, administrative, professional, computer or outside sales duties tests (see them here) yet. But the agency did specifically ask for comments on whether the tests should be changed and whether they’re working to screen out employees who are not bona fide white collar exempt employees.

The X factor

There is one X factor in all of this that no one has mentioned yet: the effect the upcoming presidential election will have on the rulemaking process.

Originally, the DOL had set a tentative deadline of November 2014 for issuing the proposed rules. Then, they didn’t come out until more than six months after that soft deadline had passed.

Then, it was expected the finalized rules would be issued sometime in early 2016. Now, that’s clearly not what’s going to happen. All of these delays have butted the rulemaking process right up against the presidential election.

This begs the question: Would the Obama administration really issue a highly controversial set of finalized rules just prior to the election?

After all, business groups, employers and even a former DOL administrator (who oversaw the last rule changes) have staunchly opposed the proposed rule changes, saying they’ll stifle companies’ ability to operate, drive prices up and/or actually hurt the very people the rules are trying to help. This could potentially give the GOP more ammunition to use on the campaign battlefield.

On the other hand, if public opinion polls reveal that the rule changes are something the voting public wants and views as beneficial, the Democrats may try to push the final rules through prior to the election to give their political campaigns a shot in the arm.

Time will tell which scenario will play out — but a lot of it likely depends on how Democrats feel the voting public will react to the rule changes once they’re finalized.

One final thing to consider: Since the entire rulemaking effort was spurred by the Obama administration, and heavily backed by Democrats, it’s entirely possible any finalized rule changes will be repealed should a Republican win the White House next fall.

The next costly HR headache: Workers’ comp to double

It never ends. You’re already trying to comply with Obamacare. Then, you’ll have to deal with the DOL’s new overtime exemption rule changes. What’s next? 

A wave of workers’ compensation claims, according to one insider.

Our good friends over at SafetyNewsAlert.com recently attended the annual conference for the Association of Occupational Health Professionals in Healthcare and came back with some concerning info for HR pros.

‘It’ll double’

While presenting at the conference, Phil Walker, the founder of the Phil Walker Work Comp Savings Company and a national trial counsel for employers in California workers’ comp cases, said workers’ compensation claims will double over the next 10 years.

According to Fred Hosier, SafetyNewsAlert’s editor-in-chief, Walker said there are three reasons for this:

  1. Technology will eliminate low-paying jobs. We’re already seeing this at places like Amazon, which is using robots to eliminate warehouse jobs, and Wendy’s, which is starting to use order kiosks in place of warm-blooded order-takers, Walker said. And what happens when low-paying jobs are eliminated? People who occupied those positions file workers’ comp claims.
  2. Municipal bankruptcies. It’s no secret cities are having financial problems. As a result, retiree benefits are getting cut, which is already leading to a spike in workers’ comp claims. Walker said when United Airlines filed for bankruptcy, 100% of the people who “retired” filed a workers’ comp claim. And when United tried to enter negotiations to settle these claims, not one person did.
  3. Doctors are money-hungry. As a result, Walker said doctors are looking for excuses to perform surgery, are referring more patients to specialists and pain management providers, and billing above cost knowing they’ll settle with insurance companies for far less. Walker said docs are doing this because they’re finding it hard to survive on what Obamacare and Medicare plans are paying them.

What can employers do?

Is there a way to avoid the coming workers’ comp avalanche? Walker says there may be.

He said companies will start requiring their retiring or terminated employees to submit to pre-termination physicals. This will allow employers to screen for any employment-related health problems and, if none are found, provide employers with the ammo needed to refute bogus workers’ comp claims.

This may be an avenue worth exploring if you start to notice a spike in fishy workers’ comp claims.

OT lawsuits: When signed time sheets aren’t enough to protect you

When is asking employees to sign off on their time sheets before they’re submitted to Payroll for processing not enough to protect you from an overtime lawsuit? When this happens. 

Here’s when you can get nailed: A manager knows or should’ve known that an employee worked more hours than he or she claimed to have worked.

A recent lawsuit shows just how hard it can be to defeat employees’ claims that they weren’t paid proper overtime.

Never spoke up

Meet Jose Garcia and Raymond Sutton, two employees for SAR Food of Ohio, which runs several Japanese restaurants — under the names Sarku Japan and Sakkio Japan — that are located in shopping center food courts.

Both workers sued SAR. They claimed that despite their initial acknowledgement/certification that the work hours they were paid for were correct, they actually weren’t paid for all the time they’d worked.

SAR posted employees’ work schedules at the beginning of every work week. Often times, the schedules called for employees to work more than 40 hours in a week — and there was no dispute that when employees’ schedules and subsequent payroll submissions indicated that they’d worked overtime, they were paid for the time indicated.

But Garcia and Sutton claimed they frequently worked beyond their scheduled shifts and didn’t claim the additional hours on the payroll submissions. Garcia and Sutton gave several reasons for not claiming the additional hours — including not wanting “to seem petty,” feeling “intimidated” and not thinking it was worth pointing it out.

‘But our managers knew’

The court, however, appeared to give little weight to the flimsy reasons Garcia and Sutton gave for not speaking up about their hours.

Instead, it decided to focus on a bigger fish: The fact that their managers may have known they were working undocumented hours.

Garcia and Sutton painted a picture in which it appeared as though they worked side-by-side with their managers, and their managers had a pretty good idea of the true hours the pair worked.

SAR moved for summary judgment in an attempt to get the workers’ lawsuit thrown out. It said that they were given multiple opportunities to inform management that their time sheets were inaccurate and claim the additional work hours (again, there was no despite that SAR paid employees for all the hours they claimed).

On top of that, SAR pointed out that every paystub issued to the workers said “Any questions concerning your pay, please call … Sarku Japan Payroll Department.”

But in the end the court said that didn’t matter.

‘What would a jury say?’

The court said the plaintiffs’ testimony presented evidence that “could allow a reasonable jury to conclude that the store supervisors were aware that Plaintiffs were working after their scheduled shifts, but nonetheless knowingly submitted time sheets indicating that no such work occurred.”

Bottom line: The lawsuit was allowed to proceed.

But what about Garcia and Sutton, weren’t they culpable for failing to point out the unpaid hours? Not if management knew they weren’t paid for time they’d put in, according to the court.

The reason the court gave:

“If an employer with knowledge of uncompensated time could evade FLSA liability where the employee failed to follow procedures, an employer and employee could effectively contract around the FLSA by contriving for the employee to simply not report all time he worked.”

The court also said SAP and its managers, “cannot sit back and accept the benefits [of Garcia and Sutton’s work] without compensating for them.”

The ruling closely mirrors another ruling earlier this summer in which a court allowed an employee’s unpaid overtime claims to proceed based solely on his testimony that he’d worked overtime and hadn’t been compensated for it. (In fact, the Garcia v. SAR court cited this case in its ruling).

In that case, the court asked itself the very straightforward question:

“Where Plaintiff has presented no other evidence, is Plaintiff’s testimony sufficient to defeat Defendant’s motion for summary judgment?”

The answer: Yes.

What can employers do?

Both of these rulings set a high bar employers have to meet to get employees’ unfair pay claims thrown out of court.

So, naturally, the best thing for employers to do is avoid the courtroom altogether.

There are two steps you can take to do this:

  • Step 1: Tell your managers that they cannot turn a blind eye to the hours employees work — no matter the hours an employee signs off on having worked. Managers should be reviewing time cards and engaging employees in conversations if they believe time cards are inaccurate.
  • Step 2: Discipline employees for performing unauthorized work or failing to follow your procedures when it comes to reporting work time. As long as employees are paid for all the hours they work, it’s within your rights to punish workers for these actions.

DOL issues new OT rules: What you need to know, what they’ll cost

The wait is finally over. The DOL just released its proposed revisions to the FLSA overtime exemption rules. Now you can start prepping for the fallout, which will be dramatic. 

For months, the DOL’s been teasing us with promises that the proposed rule changes would be revealed soon. Labor Secretary Thomas Perez even joked the agency was “working overtime” to get the revisions on the table.

Well, all the speculation came to a screeching halt on Monday, when a President Obama-bylined column was published by The Huffington Post, providing a sneak peek at the rules. Hours later, the official Notice of Proposed Rulemaking was available on the DOL’s website.

We’ve gathered the pertinent facts from the 295-page long notice here for you.

Here’s what you need to know:

  • The new pay threshold is much higher than anticipated. As you know, the current minimum salary a worker has to be paid to be exempt from overtime is $455 per week or $23,660 per year. Well, under the proposed rules, it would jump to $970 a week or $50,440 per year. That’s significantly higher than the $42,000 mark those on Capitol Hill had been teasing. The DOL calculated that $50,440 would equal the 40% percentile of weekly earnings for full-time salaried workers.
  • The highly compensated employee threshold will also climb. The total annual compensation requirement needed to exempt highly compensated employees would climb to $122,148 from 100,000 — or the 90th percentile of salaried workers’ weekly earnings.
  • The salary thresholds will automatically increase. For the first time ever the salary thresholds will be tied to an automatic-escalator. The DOL is proposing using one of two different methodologies to do this — either keeping the levels chained to the 40th and 90th percentiles of earnings, or adjusting the amounts based on changes in inflation by tying them to the Consumer Price Index.
  • No changes to the duties tests have been proposed. The DOL hasn’t suggested changing the executive, administrative, professional, computer or outside sales duties tests (see them here) as of yet. However, the agency is seeking comments on whether they should be changed and whether they’re working to screen out employees who are not bona fide white collar exempt employees. Early indicators were that the DOL would look to adopt a California-style rule in which employees would be required to spend more than 50% of their time performing exempt duties to be classified as exempt.
  • Bonuses aren’t part of the salary calculation. As of now, the DOL says discretionary bonuses won’t count toward a person’s salary — but that could change depending on the comments the agency receives. Currently, such bonuses are only included in calculating total compensation under the highly compensated employee test. That’s not set to change. But the DOL said some stakeholders are asking for broader inclusion of bonuses in salary calculations.
  • The rules will — most likely — take effect in 2016. We don’t have a definitive timeline for implementation of the rule changes, but it’s a safe bet they won’t kick in until at least 2016. The proposed rules haven’t been published in the Federal Register yet. But once they are, an official public comment period will be set. The DOL will then review the comments and make changes to the proposed rules if it’s deemed necessary. At that point, the rules will be re-released in their final form, and an effective date will be announced.

How many people will be affected?

Based on the Obama Administration’s calculations, only about 8% of workers currently earn less than the existing $23,660 salary threshold. And as the numbers above indicate, cranking the threshold up to $50,440 would put about 40% of workers under the line. According to the DOL, that would extend overtime eligibility to about 4.6 million workers, assuming employers did nothing in reaction to the rule changes.

The White House has also provided a chart of just how many workers in each state would be affected by the rule changes — again, assuming employers stood pat.

How much will it cost?

Now for the cost to employers: The DOL is estimating that the average annualized direct employer costs will total between $239.6 million and $255.3 million per year, depending on the salary threshold auto-escalation method.

In addition to direct costs, the DOL says the rules would transfer between $1.18 billion and $1.27 billion out of employers’ coffers into employees’ paychecks annually — again assuming employers do nothing to adjust to the rules.

As we reported previously, Oxford Economics, a global analytics, forecasting and advisory firm, is predicting that transfer of funds won’t take place. Its researchers believe businesses are likely to make “significant adjustments in the structure of their workplaces to compensate for the billions of dollars of added wages the new regulations would impose.”

Oxford Economics predicts employers will “adjust compensation schemes to ensure they do not absorb additional labor costs.”

To do this, the firm estimates employers would:

  • lower hourly rates of pay
  • cut employee bonuses and benefits so they can increase base salaries above the new threshold, and
  • reduce some workers’ hours to fewer than 40 per week in order to avoid paying overtime.

All of these actions would leave total pay largely unchanged.

But taking these actions would result in exorbitant administrative costs — far outweighing the DOL’s estimates, according to Oxford Economics.

In its report, commissioned by the National Retail Federation, Oxford Economics estimated that raising the salary threshold to $51,000 would cost businesses $874 million in administrative expenditures alone.

Reminder: The states are looking at your pay practices, too

Just a reminder: It’s not just the feds who are on the lookout for wage and hour violators — it’s state authorities, too.

Case in point: New York Attorney General Eric T. Schneiderman announced settlements totaling $970,000 with four current Domino’s Pizza franchisees, who together own 29 stores across New York State, as well as with one former franchisee who owned six stores. The franchisees admitted to a number of labor violations, including minimum wage, overtime or other basic labor law protections, according to Schneiderman’s office.

The admitted violations varied by location and time period, and included the following:

Some stores paid delivery workers below the tipped minimum wage applicable to delivery workers under New York law.
Some stores failed to pay overtime to employees who worked over 40 hours in a week, and others under-paid overtime, because they did not combine all hours worked at multiple stores owned by the same franchisee, or because they used the wrong formula to calculate overtime for tipped workers, unlawfully reducing workers’ pay.
Delivery workers who used their own cars to make deliveries were not fully reimbursed for their job-related vehicle expenses.
Delivery workers who used their own bicycles to make deliveries were typically not reimbursed for any expenses related to maintaining their bicycles, nor were they provided with protective gear as required by New York City law.
Some stores violated a state requirement that employers must pay an additional hour at minimum wage when employees’ daily shifts are longer than 10 hours.
Some stores also violated a state requirement that employers must pay restaurant workers for at least three hours of work when those employees report to work for a longer shift but are ultimately sent home early because of slow business or other reasons.
Some stores took a “tip credit” without tracking tips, and assigned delivery workers to kitchen or other untipped work for more time than legally permitted. Employers may only take a “tip credit” and pay a lower minimum wage to tipped restaurant employees if those employees earn enough in tips and spend most of their time – at least 80 percent –performing tipped work.

Schneiderman’s been on Domino’s case for a while. The recent agreements follow settlements announced last year with six Domino’s pizza franchisees, who together owned 23 stores and agreed to pay a total of $448,000 in restitution.