Changes Are Coming to Pay and Wage Rules

Every four years or so (give or take a presidential term), the policies of the U.S. Department of Labor change. When President Trump issued Executive Order 13771 early last year, which directs federal agencies to repeal two existing regulations for each new regulation issued, it seemed like we might have a few quiet years from the DOL and its Wage and Hour Division.

Well, you know what they say about assuming.

Instead of a quiet first year under Secretary of Labor Alexander Acosta, we have had some fast and furious changes that lay the groundwork for changes coming in the next year that could dramatically alter how employers do business in several industries.

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What’s Already Occurred? 

First and foremost, employers in the hospitality industry had a rocky 2018. In December 2017, the DOL published a proposal to revise its 2011 tip regulation and explicitly permit mandatory tip pooling arrangements that include non-customarily tipped employees, provided that the employer does not take the tip credit. In other words, the DOL was about to clarify that, if employees are paid at least the minimum wage, employers can mandate whatever tip-pooling arrangements they would like.

This change was highly controversial because of the potential of an employer being able to redistribute, or not redistribute, tips as it saw fit. Employee advocates (and some news sites) claimed that this regulation would lead to employers “stealing” tips from employees. In March, Congress acted suddenly and decisively. As part of a budget reconciliation bill, Congress amended the Fair Labor Standards Act to provide that an employer (as well as “managers and supervisors”) cannot keep tips for itself for any purpose, regardless of whether it takes the tip credit. Congress further noted that the 2011 regulation from the DOL that prohibited an employer requiring the redistribution of tips to any non-customarily tipped employees under any circumstances “shall have no further force or effect” to the extent that portions do not address Section 3(m) as it existed at the time.

Compliance Focus

The Department of Labor announced in March that it was rolling out its Payroll Audit Independent Determination program, designed to encourage employers to self-report violations of the FLSA, and permitting employers to complete self-audits and make supervised payments, under certain circumstances. Then, just recently it announced the creation of the Office of Compliance Initiatives, an office designed to educate and encourage compliance with the FLSA. At this point, though, it’s hard to say whether the PAID program has had any meaningful success or what the new office will do.

But Wait, There’s More

With everything happening at the DOL in the last six months, it’s hard to believe that we expect a lot more to come in the ensuing months. First, employers with tipped employees can expect the agency to publish new regulations any time now. Presumably, these regulations will clarify Congress’ language in the budget reconciliation bill, but they also could end up doing a lot more. For example, the regulations may either end or clarify the so-called “20 percent rule,” an interpretation creating a tip-credit restriction that has cost billions of dollars in litigation around the country.

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What else? How about a mysterious release from the DOL that they are issuing regulations regarding the regular rate. Although it seems no one outside the agency knows for sure what this means, many are anticipating changes or clarifications to calculations of overtime when bonuses are paid, and changes or clarifications as to what remuneration must be included in the regular rate. The reality is these regulations have the potential to dramatically change the payroll process for every employer that pays a bonus, commission, or other additional remuneration to any employee who is overtime eligible.

And speaking of overtime, the DOL has stated that it intends to address the white-collar exemptions yet again in early 2019. The extent and breadth of any proposed changes is a tightly kept secret. In a “listening session” held in Atlanta in early September, the DOL gave a few hints about what to expect.

We now know a few things for certain: (1) the DOL plans to issue proposed regulations, followed by a comment period, followed by final regulations; (2) this process, along with the implementation of any proposed rule, will likely drag out for a year or more, with many changes along the way; (3) the DOL is not ruling out considering more changes than were included in the currently enjoined “overtime rule” regulations, and the proposed regulations certainly may touch on parts of the regulation outside of the salary-level requirements.

The Finish Line

Assuming that Executive Order 13771 is followed, the Department of Labor is on the verge of implementing many new regulations, which means they will be eliminating at least twice as many as they implement. For employers that were comfortable in thinking they would have a slow, quiet four years while Secretary Acosta oversees the DOL, think again. DOL activity in 2018 so far has come quickly, and the rest of 2018 and 2019 appear to be bringing more changes to the FLSA than we have seen in years.

Martin B. Heller
Martin B. Heller is an attorney with Fisher Phillips.