This has been a big week for employee compensation, specifically, pay equity and overtime. A federal Judge issued an injunction that, at least for now, reinstates an EEOC rule that requires employers who file EEO-1 Reports to include information about wages and hours by gender, race, and ethnicity. In addition, the U.S. Department of Labor (“DOL”) proposed changes to the FLSA’s overtime rules (https://www.dol.gov/whd/overtime/overtime2019-nprm.pdf). The proposed changes focus on the amount of salary that an employer must pay to satisfy the salary test for so-called “white collar” exemptions.
What you Need to Know
On Monday, a federal Judge reinstated an EEOC rule that requires employers with at least 100 employees to report employee wage and hour information by gender, race, and ethnicity. This is part of an effort to fight pay discrimination.
Currently, the deadline for the EEO-1 Report is May 31, 2019. Requiring employers to provide wage and hour information by gender, race, and ethnicity by the end of May would place a significant administrative burden on large employers. Time will tell whether we will see additional litigation, administrative action, or other developments that delay the requirement to provide such data.
Regardless of what happens with the EEO-1 Report, it is important to remember that pay equity continues to be a significant area of litigation. Pay discrimination cases often are candidates for class actions.
If you operate in a jurisdiction that allows you to ask candidates about salary history (some jurisdictions prohibit such inquiries), be aware that attempts to defend pay discrepancies based on salary history may be challenged as perpetuating past discrimination. Even if you end up being able to justify initial pay discrepancies (upon hire) because of salary history, that justification is much less compelling after a period of employment when actual job performance of comparators can be evaluated.
If you have not assessed your compensation programs for pay equity, consider doing so with the following in mind:
- Analyze pay not only in terms of gender, but also in terms of other protected classes.
- As with investigations of harassment or other sensitive issues, consider working with legal counsel at the outset of your pay analysis to protect the analysis with the attorney-client privilege. Otherwise, potentially damaging information may be used against the company in a lawsuit. Legal counsel can help you document results and final decisions outside of the more detailed, privileged analysis.
- Analyze not only total compensation, but also each category of compensation (examples: bonuses, commissions, profit sharing, and other forms of incentive pay). Each component of pay is subject to challenge in a pay discrimination lawsuit. Discretionary elements of compensation demand particular attention.
- Disparities are not necessarily illegal, but they do trigger a need to drill down on the reasons. If you do not know the reason for a disparity, that is not good. In a pay discrimination lawsuit, it can be important to give the reason for a disparity and, as appropriate, to show that related policies and practices are consistently applied to similarly situated employees.
- If you decide to make changes (for example, by increasing an employee’s pay), the message is critical. Avoid inadvertently making damaging admissions.
According to a March 8, 2019 article in Bloomberg Law’s Daily Labor Report, Vermont and Minnesota rank Nos. 1 and 2 respectively as the best States for gender equality (Wisconsin ranks 15th, and Indiana 40th). The ranking was based on U.S. Census data and the following metrics: Median pay ratio by gender (16+ years old); percentage of civilian, non-institutional female population ages 20-64 in labor force; college degree attainment by female 25+; healthcare coverage and poverty level for the female population. “Vermont, Minnesota Are the Best States for Gender Equality” by Shelly Hagan and Wei Lu.
The DOL’s proposed changes to overtime rules include the following:
- Increase the salary threshold for the executive, administrative, professional, and computer employee exemptions from $455/week ($23,660 annualized) to $679/week ($35,308 annualized) ($455/week for employees in the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands; $380/week for employees in American Samoa).
- Allow employers to satisfy up to ten percent (10%) of the salary threshold by payment of non-discretionary bonuses, commissions, and other incentive pay no less frequently than annually (in which case the weekly salary could be as low as $611.10).
- The proposal does not impact an employer’s right to pay an exempt computer employee an hourly wage of at least $27.63 as provided by statute.
- The proposal contains no changes to the duties tests that an employee must satisfy for exempt status.
- An employee with total annual compensation of at least $147,414 is exempt if the employee regularly performs one or more of the exempt duties of an executive, administrative, or professional employee as defined in the regulations. “Total annual compensation” must include at least $679/week paid on a salary or fee basis but may include commissions and non-discretionary bonuses above that threshold.
The DOL expressed its intent to update the thresholds every four (4) years. The public would have an opportunity to comment.
To be exempt from overtime under the FLSA, an employee must, with few exceptions, satisfy both a “duties test” and a “salary test.” Payment of a salary alone, regardless of the amount, is not sufficient.
Damages for misclassifying an employee as exempt and failing to pay overtime can be significant and include, among others, twice the amount of unpaid overtime for the relevant period and the employee’s costs/attorneys’ fees to collect. In the preamble to its proposed rule, the DOL estimated the average amount employers paid for attorneys’ fees, administrative fees, and other costs (but not including damages paid to the employees) per FLSA lawsuit between 2012 -2015 was $654,182, noting this figure is “conservative.”
Employers do not necessarily have to make any changes now. The DOL’s rule is “proposed.” Several commentators expect the proposed rule to be challenged through litigation. Even absent litigation, the DOL will consider comments prior to finalizing a rule.
Comments to the proposed rule are due within 60 days after the proposed rule is published in the Federal Register, which should occur any time now.
(This post is not legal advice. Consider consulting with a lawyer about specific situations.)