compensation 101: the regulatory environmentaztotalrewards.com/images/meeting/050819/...5/5/2019 6...

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Compensation 101:

The Regulatory Environment

Eric Knott

© 2019FinePoint HR

Housekeeping

Eric Knott

[email protected]

This content is for informational/educational purposes only and should not be construed as advice. If you would like advice regarding your specific situation, consult with a qualified HR consultant or an

employment attorney

Agenda

Minimum Wage (for Nonexempts)

Exemptions

Pay Deductions and Garnishments

Independent Contractors

Equal Pay Day and EEO-1

Pay Equity in the News

Record Retention

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Agenda


Exemptions





Record Retention

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Minimum Wage for Nonexempts

Changing Year-to-Year• $11.00/hour as of January 1, 2019

• $12.00/hour as of January 1, 2020

Beginning 2021• Minimum wage adjusts annually based on Consumer

Price Index (i.e. cost of living)

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Minimum Wage for Nonexempts

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Tipped Employees• May earn up to $3.00 less than the minimum wage

• Employer must prove employee is earning at least minimum wage when tips are included in the earnings

Local, Higher Minimum Wages Still Permissible• Flagstaff has a higher minimum wage

• Check the localities where employees work

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Agenda


Exemptions





Record Retention

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Fair Labor Standards Act

Key Items with FLSA• Establishes exemptions

• Governs meals and rest breaks

• Some child labor restrictions

• Minimum wage and overtime

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FLSA – Nonexempt vs. Exempt

Nonexempt• Not exempt from the provisions outlined in the Act

• Paid for time spent working

• Subject to overtime, minimum wage, etc.

Exempt• Exempt from the provisions outlined in the Act

• Meets both the duties test and the salary test

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Various Exemptions -- Duties

Duties Related with Various Exemptions• Executive• Administrative• Learned Professional• Creative Professional• Computer Professional• Outside Sales

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Primary duty is management of a department or subdivision thereof

Spends a substantial amount of time leading & directing the activities of others• Hiring & firing• Performance ratings



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Primary duty is the performance of office or non-manual work

Spends a substantial amount of time exercising independent judgment over matters of significance to the organization



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Primary duty is the performance of work in a field requiring advanced knowledge of science or learning customarily acquired through prolonged coursework• Lawyer, doctor,

architect, engineer,etc.

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Primary duties require invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor• Artist, graphic designer• Marketing, some R&D



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Performs systems analyst, programmer, or software engineer duties

Does not exempt help desk, installers, and some network administrators



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Primary duty is making sales, obtaining orders or contracts, etc.

Customarily away from employer’s place of businesses (no regular in-office commitments)

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Salary Test for FLSA Exemption

Current Minimum Salary for Exempt EEs• $23,660 annually (or $455 per week)

Changes on the Horizon• 2016: Proposed increase to $47,476

• 2019: Proposed increase to $35,308• New weekly salary of $679

• DOL’s goal: establish the change well before the 2020 election

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Two Options: $23,660 → $35,308

Option 1: Move Impacted EEs to New Salary• More favorable option for employee morale

• No risk of benefit loss among employees

• Significant budgetary impact given the potential ripple effect

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Two Options: $23,660 → $35,308

Option 2: Convert Impacted EEs to Nonexempt• Factor-in current overtime (by job title, not by

specific EE, per se) along with targeted wage

• May have to reduce employee pay to avoid significantly surpassing budget

• Significant loss of morale; potential for benefits loss

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Two Options: $23,660 → $35,308

Option 2

Convert Impacted EEs to Nonexempt

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Option 1

Move Impacted EEs to New Salary

Change to “Highly Compensated”

Proposed Change to Threshold• Current highly compensated employee threshold is

$100,000

• Proposed change is to $147,414, reclassifying 200k U.S. workers

Highly Compensated Employees• Qualify for exempt status based on the elevated

salary and a reduced duties test

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Agenda


Exemptions





Record Retention

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Pay Deductions

Permissible Deductions for Exempt Employees• Full-day deductions for absences due to personal

reasons or sickness (if a sick leave policy is in place)

• Unpaid disciplinary suspension for one or more full days due to a major safety violation or a conduct violation

• Reduction of salary proportionate to time actually worked when an exempt employee takes unpaid leave under FMLA• Employers may deduct available time from vacation

and sick leave before reducing employee’s pay

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Pay Deductions

Prohibited Deductions for Exempt Employees• Partial-day absences, other than for intermittent

FMLA leave

• Partial day disciplinary suspensions

• Jury duty, witness proceedings, and temporarymilitary leave where the employee worked at anyperiod during the week

• Lack of work when the employee is ready, willing, and able to work

• Furloughs of less than a full work week

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Pay Deductions

Notes About Deductions• Deductions cannot take the hourly rate of the

employee below Arizona minimum wage

• Requiring employees to repay losses occurring during the course and scope of their work• Repay cash shortages

• Pay for vehicle or property damage

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Garnishments

Employers Must Respond Timely to Garnishments• Garnishments generally must be withheld from an

employee’s earnings

• Nonexempt employee can be charged up to $5.00per pay period for the completion of garnishmentdocuments

• Garnishments to support another person take priority for an employee with multiple garnishments

• Complex guidelines on maximum garnishment amounts per pay period

• Organization is liable for missed or delayed payments

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Agenda


Exemptions





Record Retention

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Criteria Very Difficult to Meet• IC maintains sole control over the economic aspects

of their business (i.e. no reimbursing for expenses, no office provisions or equip., etc.)

• No assessing IC’s employees

• IC maintains sole control over the manner and means in which services are performed (i.e. work hours, specific techniques, etc.)

• IC has no benefits, vacation, office space, or access to employee meetings

• DOL’s new PAID program (May 2018)

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Company’s Story• Drivers were ICs all over the U.S.

Attractiveness of ICs• No overtime pay, vacation, benefits, etc.

• No payroll taxes, social security, retirement

• Company takes ~45% of salary in deductions (i.e. uniforms, fuel, maintenance, etc.)

• Cannot unionize, sue for discrimination

• No workers’ comp risk

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History of Fighting for IC Status• 2009: DC Court of Appeals sided with FedEx Ground

• 2010: Federal district court ruled drivers can’t unionize because they’re not employees

• August 2014: 9th Circuit declared CA and OR drivers are employees

• October 2014: Kansas Supreme Court ruled drivers are, in fact, employees

• May 2015: Missouri Supreme Court ruled the drivers are, in fact, ICs

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Settlement Reached in 2015

FedEx Ground Settles Dispute with Drivers• $228m settlement with 2,300 FedEx Ground CA

drivers

• One of the largest private employment settlements in DOL history

• More than the DOL has collected in back wages in the last 7 years

• Undisclosed settlements with other states’ drivers

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DynamexRuling in CA

New Test for Independent Contractors• Court supports a simpler, more rigid three-factor test

versus the eleven-factor test from the last thirty years (in California)

• Legislation mirroring this language being considered in Arizona and other states

• Most restrictive test, most difficult to satisfy

• California, Massachusetts, and Connecticut now adhere to this guideline


DynamexRuling in CA

New Three-Factor “ABC” TestA. Worker is free from control and direction by hiring

entity related to the performance of the worker’s role

B. Worker performs work outside of the hiring entity’s usual course of business

C. Worker is customarily engaged in their independent trade or occupation for others, performing the same work


Agenda


Exemptions





Record Retention

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Equal Pay Initiatives

Equal Pay Practices from April 2nd Initiative1. Not asking job candidates about their salary history

2. Using an offer standards calculator to determine starting pay

3. Providing the pay range of a position when requested by a candidate

4. Publishing pay equity progress annually

5. Conducting comprehensive compensation analyses

6. Analyzing compensation decisions before they are finalized

7. Not retaliating or discriminating against EEs who ask about, or discuss, wages

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Asking Candidates Salary History

Paycheck Fairness Act (Proposed)• Passed House vote on March 27th

• Prohibits employers from asking candidates about salary history

• Requires employers prove gender-based pay disparities are job-related

• Generally, amends the Equal Pay Act

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Asking Candidates Salary History

Inquiries Already Prohibited in Some Locales

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States Other Locales

CA Cincinnati

CT New York City

DE Philadelphia

HI Puerto Rico

MA San Francisco

ME (2019)

OR

VE









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Standardizing Offers

Benefits• Protects against decentralized decision making and

potential for inequity with offers

• Guards against potential discriminatory practices

• Equalizes candidates’ offers based solely on experience

Drawbacks• Minimizes (or eliminates) the ability to pay for

performance

• Removes hiring manager’s ability to customize offers to attract talent

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Providing Pay Ranges

Publicizing Pay Ranges Not Uncommon Currently• Most government positions include a pay range in the

posting

• Pay ranges available on consumer-driven sites (e.g. Glassdoor, etc.)

• Internal candidates for large organizations generally have access to pay ranges

Driving Discussions Related to Performance• Leaders more likely to have to explain pay disparity,

forcing performance conversations

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EEO-1 Data

Qualifying for Reporting• At least 100 employees

• Federal contractors with at least $50,000 in federal contracts

Ongoing Regulatory Maneuvering• Previous administration added pay data to EEO-1

• Reporting on the new form was suspended in 2017

• March 18th: EEOC opened the EEO-1 submissionportal but used the old version that doesn’t include pay data

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EEO-1 Data

Component 1• Reporting employer’s headcount by race, ethnicity,

and sex

Component 2 (New)• New component that adds wage data

• Chunks employees into 1 of 12 pay bands

• Starts with 2017 and 2018 data, which is due on September 30th

• 2019 data will be reported in 2020, returning to the regular annual schedule

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Managing Workplace Chatter

Current Protections• Allow non-management employees to discuss wages

• Protections based on laws governing unionizing (i.e. “…protected concerted activity for mutual aid and comfort…”)

• No harm or retaliation can befall non-management employees engaged in discussions related to wages, benefits, etc.

Proposed Paycheck Fairness Act• Seeks to reaffirm this protection

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Key Messages re: Pay Equity

Increased Regulatory Audits and Complaints• Few defenses justify inequity

• Citing old salary is no longer material

• Offer wages consistent with internal equity and candidate experience, education, etc.


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Agenda


Exemptions





Record Retention

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Pay Equity


Pay Equity

Based on 2013 BLS Analysis• Median earnings of full-time female workers is 77

percent of the median earnings of full-time male workers


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Pay Equity

Key Messages re: Pay Equity

Analysis of 2014 Earnings Data Through BLS• Evaluated 116 occupations with a minimum 50k

workers

• 109 of 116 occupations: women earn less than men

• 27 of the occupations had a gap greater than 25cents

• Average gap was ~11 cents


Google and Pay Equity

Routine Audit by OFCCP• Claimed to have uncovered wage disparities by

gender in 2015 wage data

• “Extreme” gender pay disparity

• Company provided 2,300 hours of documentproduction• $500,000 spent on compiling documents

• Hundred of thousands of documents satisfying 18previous document requests


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Google Stops Providing Data• Google stopped providing documents after the 18th

document request was satisfied

OFCCP Sued Google (May 2017)• Wanted contact information for employees from

2015

• Wanted 54,000 job interview documents (costing$1,000,000 to produce)

• Total contract value was $600,000




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Agenda


Exemptions





Record Retention

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Pay Stubs

Pay Stubs or Statements Must Be Provided• Even for pay cards and direct deposit

• Must include the three additions from the Fair Wages and Healthy Families Act• The amount of paid sick leave (PSL) currently

available to the employee

• The amount of PSL taken by the employee year-to-date

• The amount of pay the employee has received by using PSL in the current year

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Record Retention

Four Year Retention (At Least) from Separation• Wages, hours worked, earned and used paid sick

leave

• Timecards for nonexempt employees

• All payroll records (including all pay stubs, the dates covered by each paycheck, all tips and commissions, etc.) and wage tables

• Typical schedule for the exempt employee

Current Employees Can Look at Their Entire Pay History

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