If a 35% spike in the minimum wage, a $590-per-week increase in the salary amount required for exempt "white collar" workers, an immediate 41% rise in the cash wage required for tipped employees, and a new paid-time-off requirement are prescriptions for an economic upturn, then help might be on the way.  All are provided for in the voluminous "Rebuild America Act", S. 2252, recently introduced by Senator Tom Harkin (D-Iowa).

The Minimum Wage

Under S. 2252, the federal Fair Labor Standards Act's minimum wage would rise in three steps from the current level of $7.25 per hour to $9.80 per hour about two years after passage.  After that, the rate would be adjusted annually in tandem with the Consumer Price Index.

Experts typically disagree about the negative effects of minimum-wage increases, but many (if not most) acknowledge that at least some jobs and job opportunities are lost to a minimum-wage hike.  Consider this:  The rationales for a minimum wage might suggest that the floor should be, say, $20 per hour, but the hiring cutbacks and layoffs this would provoke are an important reason that few would favor it.

And recent experience counsels even more caution.  We first wrote in 2010 about the larger lessons to be learned from the damaging impact of minimum-wage hikes affecting American Samoa and the Northern Mariana Islands.  Since then, the General Accounting Office has noted the many adverse consequences, and those whose experience with these matters is more than academic continue to seek at least a postponement in further jumps.

Salary Amount For White-Collar Workers

Most workers who otherwise qualify for exemption as executive, administrative, or professional employees (colloquially, the FLSA's "white collar" exemptions) must be paid on a salary basis at a rate of at least $455 per week.  S. 2252 would move this floor to $655, then to $855, and later to $1,045, and would thereafter tie it to the Consumer Price Index.

The U.S. Labor Department developed the salary test decades ago as one way to distinguish those who should be considered exempt from those who should not be.  It was never intended to be a minimum wage for exempt people.  Muddying the test's purpose as S. 2252 proposes would, among other things, risk introducing the same dangers (or worse) presented by raising the hourly minimum wage.

Cash Wage For Tipped Employees

Today, a tipped employee for whom an employer takes the FLSA "tip credit" must be paid a cash wage of at least $2.13 per hour (the tips themselves must make up the difference to $7.25).  S. 2252 would immediately raise this cash minimum to $3.00 per hour and would continue the increases until the level reached 70% of the FLSA minimum wage.

A more-focused bill to similar effect was introduced in the House of Representatives last year.  As we said then, these impulses are driven by flawed or unstated premises, or both.  In any case, good intentions are not guaranteed to produce desirable results.

A Paid-Time-Off Requirement

S. 2252 would also compel most employers of at least 15 employees to accrue an hour of paid "sick time" for every 30 hours an employee works, up to at least 56 hours each calendar year.  Exempt white-collar workers would be presumed to work 40 hours each workweek for these purposes, except for those who worked a "shorter normal workweek".  A host of detailed rights, requirements, permitted uses, limitations, procedures, prohibitions, and other complications would attach to this new paid-leave mandate.

None of this will be enacted in an election year?  Recall that the subject of indexing the FLSA minimum wage has already surfaced in the Republican primary process.

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Various news items published last Friday afternoon intimated that a part of the 2012 federal omnibus appropriations law now exempts automobile-dealership service writers and similar employees* from the federal Fair Labor Standards Act's overtime requirements.  Those reports appear to have been mistaken so far as we can tell, but the spending provision does contain at least some good news in this respect.

As we noted previously, in April the U.S. Labor Department decided against acknowledging the FLSA Section 13(b)(10)(A) overtime-exempt status of dealership employees doing the typical work of service writers, service advisors, etc.  DOL thus revived its previously-disavowed interpretation that "[e]mployees variously described as service manager, service writer, service advisor, or service salesman who are not themselves primarily engaged in the work of a salesman, partsman, or mechanic as described above are not exempt under section 13(b)(10)."  29 C.F.R. § 779.372(c)(4)(emphasis added).

Section 113 of Friday's "Department of Labor Appropriations Act, 2012" says, "None of the funds made available by this Act may be used by the Secretary [of Labor] to administer or enforce 29 CFR 779.372(c)(4)."  This directive does not change the Section 13(b)(10)(A) exemption itself, but the provision does preclude DOL from devoting any of its 2012 funding to efforts to "administer or enforce" this service-writer interpretation.

However, Section 113 does not prevent current or former service writers or similar employees from pushing DOL's service-writer interpretation in support of their own FLSA overtime lawsuits.  Whether and to what extent DOL officials might explore the limits of Section 113's "administer or enforce" language by offering background assistance to any such individuals remains to be seen.  Employers facing lawsuits of this kind should certainly be alert for signs that DOL is doing so.

^*  At least one such report erroneously referred to "service technicians".

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A bill introduced in the U.S. Senate (S. 1747) would significantly expand the scope of the current exemption for certain computer employees that is found at Section 13(a)(17) of the federal Fair Labor Standards Act.  The proposed "Computer Professional Update" Act (or "CPU" Act) was submitted by North Carolina Senator Kay Hagan and three co-sponsors.  It is now pending in the Senate's Committee on Health, Education, Labor, and Pensions.

A Little History

The FLSA exemption status of employees in the computer field has been a bone of contention since the mid-1960s.  The application of the FLSA's executive exemption in the computer field has been no different over that time, but for many years the U.S. Labor Department took a particularly narrow view of what sort of computer-oriented work qualified for the FLSA's administrative or professional exemption.

Then, in 1990, Congress directed DOL to issue regulations under which computer systems analysts, computer programmers, software engineers, and other similarly-skilled workers could be exempt.  DOL finalized professional-exemption regulations for this purpose in 1992.  However, the only employees in the running for exempt status were those meeting these descriptions whose work required "theoretical and practical application of highly-specialized knowledge in computer systems analysis, programming, and software engineering . .  .."

One might infer that Congress was not satisfied with DOL's efforts, because in 1996 it amended the FLSA itself to add Section 13(a)(17) (link to reproduction below).  Among other things, Congress's own version did not require "theoretical and practical application of highly-specialized knowledge . . ..".  In 2004, DOL modified the regulatory exemption to harmonize it with the statutory one.

Still Behind The Times

The rapid evolution of computer technology, the Internet, and other areas has arguably left even these most-recent exemptions in the dust.  For example, to a considerable extent their definitions of exempt work incorporate outmoded terms and concepts dating to the early 1990s or even before.  Many believe that the exemptions, along with DOL's restrictive interpretations of them, fail to take into account substantial changes in the computer field and the occupations it encompasses.

The CPU Act would address this in a variety of ways.  For instance, unlike the present versions, it would incorporate "information technology" occupations and would expressly refer to work involving things such as databases, the Internet, intranets, networks, debugging, components and hardware, security, configuration, and systems integration and continuity.  It would also create an exemption for employees who are "directing the work of individuals" performing exempt computer or information-technology duties; presumably this would apply more-broadly than does the FLSA's executive exemption.

Even if the CPU Act becomes law, states and other jurisdictions need not provide such an exemption from their own minimum-wage and overtime laws.  Moreover, a jurisdiction that has its own computer-employee exemption would not be required to harmonize it with the CPU Act.

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FLSA Section 13 a 17.pdf (20.46 kb)

In late June, we noted legislation introduced in the Senate and in the House of Representatives that would essentially repeal the federal Fair Labor Standards Act's Section 13(a)(15) "companionship" exemption in any practical sense.  U.S. Labor Department regulations and interpretations elaborate upon how and to whom the exemption may be applied.

Recent correspondence (link below) from the 28-member Eldercare Workforce Alliance to U.S. Secretary of Labor Hilda L. Solis suggests that proponents of such a change are re-directing their focus from legislation to regulatory limitations.  This letter urges DOL to take "timely action" by imposing a "revised interpretation of the exemption that will extend greater federal minimum wage and overtime protection under FLSA to the more than 1,500,000 paid home‐ and community‐based care workers who provide essential services to our nation's older adults and people with disabilities."  It is highly likely that the "revised interpretation" this advocates will amount to gutting the exemption by regulation.  Perhaps this reflects a political calculation that the legislative prospects are unfavorable.

For some time now, DOL's regulatory agenda has included a very general item expressing an intention to revisit the exemption.  A number of questions were raised about this in the U.S. Wage and Hour Division's July 13 short-on-transparency "webchat", but these were met repeatedly with DOL's reply that it is "premature" to discuss whatever the looming "proposal" is.  The sole detail to emerge is that DOL expects to publish a Notice of Proposed Rulemaking in October.

While of course it remains to be seen what actually transpires, one may reasonably suspect that at least some of the forthcoming proposal will consist of concepts that also appear in the pending legislation.  For example, the proposal might well say that the exemption cannot apply to a worker who is employed by the agency supplying his or her services to an elderly person or to the person's family.

It is also probable that the time period for commenting on and registering objections to this proposal will be relatively brief.  Those who oppose cutting-back on the "companionship" exemption must be vigilant and should be prepared to act on short notice.

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Eldercare Workforce Alliance Letter.pdf (184.20 kb)

Another effort is afoot to limit the federal Fair Labor Standards Act's Section 13(a)(15) "companionship" exemption to the point of non-existence in any practical sense.  Last week, apparently-identical bills (S. 1273 and H.R. 2341 -- see currently available version below) were introduced in the Senate and the House which would have precisely this effect.  Similar measures were proposed last year, but the newer ones would impose even-narrower restrictions.

The FLSA's minimum-wage and overtime requirements do not apply to "any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves .  .  .."  "Domestic service employment" refers to services of a household nature the worker performs in or about the private home of the person by whom he or she is employed.  The term "companionship services" means providing care, fellowship, and protection to people who cannot care for themselves due either to advanced age or to physical or mental difficulties.  Additional U.S. Labor Department regulations and interpretations explain how and to whom the exemption may be applied.

If the proposed amendment becomes law, only an employee employed "on a casual basis" to provide companionship services could be eligible for exemption under Section 13(a)(15).  In turn, the phrase "on a casual basis" would be defined so as to make the exemption available only if:

♦   The companionship employment is irregular or intermittent;

♦   The work is not performed by someone whose vocation is to provide companionship services;

♦   The worker is employed only by the family or household using his or her services, rather than by another employer or agency (this is almost certainly designed to exclude even joint-employment arrangements involving, for instance, the worker, a home-healthcare agency, and the service recipients);

♦    The worker's employment by the employer is limited to no more than five hours "per week" (whether a calendar week, a workweek, or some other kind of "week" the bills do not say, nor do they clarify whether the five-hour limit is to be viewed as an average or as an each-"week" proposition); and

♦    The worker's employment by the employer may not extend beyond a "time period" of twelve "weeks" in a calendar year.

These last two restrictions are more stringent than was their counterpart in last year's proposed changes.

It is likely that most employees providing companionship services (and apparently all such workers employed by home-healthcare agencies and similar organizations) would no longer fall within the amended exemption.  It is entirely foreseeable that, instead of improving the circumstances of "direct care workers" and "older adults" whom the amendment purports to help, the changes would expose the interests of both groups to the principle of unintended consequences at the worst-possible time.

The bills have been referred to legislative committees at this point, so it does not appear that there will necessarily be immediate action.  Nevertheless, the Service Employees International Union supports the bills, so opponents of these measures should take them seriously and should waste no time in making their views known to their Senators and Representatives.

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S.1273 H.R. 2341.pdf (49.95 kb)

A bill introduced recently by U.S. Representative Donna Edwards (D. Md.) would amend the federal Fair Labor Standards Act to require many employers to boost their direct cash payments to tipped employees by 76% within 90 days after passage, even though these employees are already receiving (by law) at least the FLSA minimum wage in combined tips and cash wages.  A year later, the cash-wage requirement would be $5.00 (135% higher than the current level).  In two years, the figure would increase to $5.50 (158% higher than today) or 70% of the FLSA minimum wage, whichever is more.  H.R. 631 would be known as the WAGES Act ("Working for Adequate Gains for Employment in Services").

The bill's stated purpose, "to establish a base minimum wage for tipped employees," is misleading:  Tipped employees are now, and would continue be, covered by the existing FLSA minimum wage (currently $7.25 per hour).  The bill would not change or expand this obligation.  What the amendment would actually do might be more-accurately stated this way:  "To increase the employer's direct wage costs by mandating an increase in its cash wages paid to tipped employees, who are already guaranteed by law to make at least the same FLSA minimum wage that applies to all other workers."

Currently, the FLSA permits an employer to pay a "tipped employee" a direct cash wage of at least $2.13 per hour and to take a "tip credit" against the employee's tips received which is sufficient to bring the total to at least $7.25 per hour.  If the employee's tips received are too low to produce the combined hourly rate of at least $7.25, the employer must make up the difference by paying additional cash wages.

The first-tier impact of the proposal would be to require employers to boost their minimum cash payment to tipped employees from the current $2.13 per hour to $3.75 per hour.  For example, a tipped employee who this week averages $10 per hour in tips and who is also paid the minimum FLSA cash wage of $2.13 per hour is compensated at an effective average hourly rate of $12.13.  Under the WAGES Act, on those same facts the employee would instead be compensated at an effective hourly rate of $13.75.  This substantial increase in the employer's cash-wage contribution would be required even though under current law the employee already receives an all-in average hourly rate significantly higher than the $7.25 FLSA minimum.

At a teleconference with reporters, Representative Edwards reportedly acknowledged that the bill does not have much of a chance of advancing in the Republican-led House.  Nevertheless, experience suggests that such proposals can get traction as legislative sausage-making proceeds during a session.

At the same teleconference, Saru Jayaraman, Co-Director of Restaurant Opportunities United Centers, reportedly asserted that restaurant workers on average make $8.89 per hour with tips.  Jayaraman reportedly said, "People are making-do on poverty wages."

Even if one assumes for the moment that tipped restaurant workers are indeed averaging $8.89 per hour, this already exceeds the FLSA minimum wage.  Perhaps the unstated aim that Representative Edwards and Co-Director Jayaraman really have in mind is to provoke an increase in the FLSA minimum wage itself.  The present-day unemployment situation would seem to counsel against any such move.

And for the same reasons, mandatory cash-wage increases for tipped employees would likely have unintended, but predictable, negative consequences for the affected industries, for the employees in those industries, and for unemployment generally.  So much for good intentions.

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President Obama's signature recently put the finishing touch on a delay of previously-scheduled increases in the minimum wage for American Samoa and the Northern Mariana Islands.  Why should we care about this quiet action affecting these far-off places?  Because it highlights the impact that boosting a minimum wage has in the longer term.

Whenever raising the minimum wage moves back to the forefront, this inevitably renews debate about whether such action does more harm than good.  Opponents of the move contend that the resulting increased labor costs cause many employers to, among other things:

•   Eliminate or postpone hiring plans;

•   Limit any new hiring to segments of the workforce that are not affected by the minimum-wage increase either at all or at least in any material way;

•   Layoff existing employees;

•   Reduce or eliminate employment benefits, particularly those directly related to wages;

•   Shift lower-paying work offshore, or even move entire operations to other countries; and/or

•   Pass along increased costs to consumers, including those whom the minimum-wage jump is supposed to help.

Proponents of an increase usually respond that these effects are non-existent or are greatly overstated.

But for the last two years, the governments of American Samoa and the Northern Mariana Islands have fought to fend off what they saw as an approaching disaster that threatened many of these very consequences.  Island legislators cautioned that the "this legislation will, without a doubt, trigger an economic tsunami that will absolutely wipe out the Territory of American Samoa’s economic system," and that, "[w]hile short time economic benefits will be realized, unfortunately, this short lived Utopian state will be followed by a period of drastic economic devastation."  The officials' concerns included the possible off-island relocation of tuna canneries and the loss of 1,600 jobs at a major hotel.

The U.S. economy and the economies of most states are of course far larger and are more varied, complex, interconnected, and dynamic than are those of these islands.  But this is precisely why the postponement is worth noting:  When viewed in a microcosm, the damaging impact of a minimum-wage hike is seen more easily and in starker relief, so much so that many who would otherwise be quick to say that the unfavorable results of such a step can be "absorbed" were convinced otherwise when faced with the real-world details.

Perhaps in the current circumstances this suggests that, at least for the time-being, the prospects for a broader-scale rise in the minimum wage are dim.

At the same time human-resources professionals are wondering how they can keep up with the work necessitated by existing employment laws, Senators Bob Casey (D. PA). and Tom Harkin (D. IA) have introduced S. 3840 to "permit employees to request, and to ensure employers consider requests for, flexible work terms and conditions . . .."  This objective sounds benign enough; as usual, the devil is in the details, many of which would be supplied by what would no doubt be extensive regulations prepared by the U.S. Labor Department.

Under this bill, employees would have a right to submit an application for a change in how many hours they must work, the times they must work, and/or where they are assigned to work.  At a minimum, the application would have to state the change sought, the impact the employee "thinks" it would have, and how "in the employee's opinion" this effect might be handled.  The proposal does not say whether the time an employee spends preparing this application would have to be counted as hours worked.

An employer would then be required to consider this application, including that management would have to:

•   Meet with the employee about the matter within 14 days;

•   Provide a written decision with 14 days after that, including stating the grounds for any such denial in terms established by the law and regulations;

•   Entertain any request for reconsideration the employee makes pursuant to his or her "right" to do so within 14 days;

•   Meet with the employee about the reconsideration request within 14 days after it is made;

•   Provide an adequate written decision on the reconsideration request with 14 days after that;

•   Permit the employee to attend these various meetings with "a representative of [his or her] choosing" (subject only to the representative's having unspecified "qualifications" that regulations would define); and

•   Postpone any such meeting if the employee's representative is "not available" to attend.

It would be unlawful to "interfere with, restrain, or deny" the employee's exercise of these rights, as it would be to discriminate or retaliate against the employee in this regard.  Among other things, the U.S. Labor Department would be empowered to investigate alleged violations and to assess civil money penalties of from $1,000 to $5,000, and employers would face tough remedies for alleged retaliation or violations of other kinds.

It is of course difficult to say whether or how soon there might be any significant action on this measure, at least if it stands alone.  However, if recent history is any guide, this sort of proposal might find its way into an unrelated omnibus bill of some other kind, the passage of which is pressed in a post-election November rush.

The federal Fair Labor Standards Act turns 72 years old this year.  Even though today's working world is radically different from that of 1938, the FLSA's principles remain largely unchanged and have become increasingly counterproductive in a global economy.  Many believe that it is imperative to harmonize this strict, unforgiving law with modern realities, including by making it more flexible, more adaptable, and better-attuned to the practical concerns and preferences of present-day employers and employees.

Further evidence of this growing sentiment surfaced last week in the form of a letter from the HR Policy Association to U.S. Labor Secretary Hilda Solis.  In that correspondence, the organization advocated a reform-oriented collaboration among the Labor Department, the HRPA, and other interested parties.  This would be a good starting point, but any meaningful success will depend in substantial part upon whether fundamental legislative changes in the FLSA itself can be brought to fruition.

Any list of proposed FLSA statutory revisions would be a long one, but high priorities should include:

•   A provision assigning at least some legal responsibility to non-exempt employees to report their worktime accurately.  Today, employees sometimes claim months or years after-the-fact that their records reflect less time than they actually worked.  The absence of any FLSA "give" on this means that such claims are routinely credited by the courts and by U.S. Labor Department investigators, even in cases where an employer has in place a policy designed to produce accurate time records, and even when there is room to question whether an employee is being truthful.  Perhaps this could be addressed by, for example, creating a legal presumption that an employee's time records are accurate, if (i) the employee records his or her own hours worked each workday and each workweek; (ii) the employee reviews those records each workweek and certifies that they are correct; and (iii) the employer maintains, enforces, and in practice actually observes a written policy both stating how hours worked are to be recorded and requiring that all hours worked be accurately and correctly recorded each workday and each workweek.

•   An amendment stating that employees may be classified as exempt from the FLSA's minimum-wage, overtime, and timekeeping requirements based upon the amount of their compensation alone.  Even though the FLSA directs the U.S. Labor Department to establish the parameters for certain exemptions, historically the agency has taken the position that it is not currently authorized to adopt any exemption that is based solely upon an employee's compensation level.

•   A modification saying that many, most, or even all bonuses and incentive pay may be excluded from the "regular rate of pay" used to compute FLSA overtime compensation.  At present, overtime must be calculated on most such payments, including even non-cash prizes or awards of various kinds.  The added costs and complications this entails lead many employers to reduce the amounts they are prepared to offer or to forgo offering bonuses or incentives altogether.

•   A section authorizing private-sector employers and employees to have an agreement or understanding permitting the use of compensatory time off in lieu of overtime pay.  At the moment, this is not permitted under the FLSA for non-exempt employees in the private sector – most must receive overtime premium pay for all hours worked over 40 hours in a single workweek, even if they would rather have paid time off instead.  There have been some proposals in this area in recent years, but they have tended to be unduly complicated and/or too narrowly focused, and in some ways they threatened adverse consequences that outweighed the advantages. One possibility would be to adopt an appropriate version of the current FLSA public-sector compensatory-time provision to cover private employers.  Another might be to allow employees and employers to reach an understanding or agreement that overtime compensation will be due only after the employee has worked more than 160 hours in four consecutive workweeks.

•   An increase in the annual-dollar-volume threshold for FLSA "enterprise" coverage to a level higher than $500,000.  This current minimum amount was first set in 1989, and a combination of inflation and other economic developments over the last 20 years means that this sum no longer serves Congress's purpose of excluding many small businesses from the FLSA's requirements.  Consequently, the financial, regulatory, and claims-related burdens of the FLSA fall heavily upon a much-larger segment of small employers than Congress intended.

Of course, many details must be worked through before initiatives like these could be proposed or adopted.  In addition, politically speaking, the FLSA has proven to be especially difficult to change.  But perhaps high unemployment and the still-ailing economy provide atypical motivation for a coalition drawn from employees, employers, and government representatives who favor bringing the law into the 21st century.

If a recently proposed amendment becomes law, the federal Fair Labor Standards Act's Section 13(a)(15) exemption for certain "companionship" employees will essentially be eliminated.

The FLSA's minimum-wage and overtime requirements do not apply to "any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves .  .  .."  "Domestic service employment" refers to services of a household nature the worker performs in or about the private home of the person by whom he or she is employed.  The term "companionship services" means providing care, fellowship, and protection to people who cannot care for themselves due either to advanced age or to physical or mental difficulties.  Additional U.S. Labor Department regulations and interpretations limit how and to whom the exemption may be applied.

H.R. 5902 and S. 3696, introduced respectively by Representative Linda Sánchez (D-CA.) and Senator Robert Casey (D-PA.), would narrow the exemption's scope so much that it would be largely meaningless.  The amended exemption would be available only if:

•    The companionship employment is irregular or intermittent;

•   The work is not performed by someone whose vocation is to provide companionship services;

•   The worker is employed only by the family or household using his or her services (presumably, this is intended to exclude even joint-employment arrangements involving, for instance, the worker, a home-healthcare agency, and the service recipients); and

•    The worker performs the services for no more than 20 hours per week in the aggregate, taking into account all of the work done for the family or household employers served.

As a practical matter, this would mean that most employees providing companionship services (and apparently all such workers employed by home-healthcare agencies and similar organizations) would no longer be exempt.  Both bills have been referred to the appropriate legislative committees at this point, so it does not appear that action is imminent.  Even so, it is not too soon for opponents of these measures to make their views known to their Senators and Representatives.

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