Salary Threshold Increases Require Employer Review Of Salaried Worker FLSA Exemption Qualification

September 25, 2019

Beginning January 1, 2020, only employees earning at least $684 per week (equivalent to $35,568 per year for a full year worker) can qualify for payment on a salaried basis as employees exempt from the Fair Labor Standards Act (“FLSA”) minimum wage and overtime requirements under the “White Collar Exemption” for executive, administrative, professional, outside sales, computer employees and at least $107, 342 per year to qualify as exempt from the minimum wage and overtime requirements as a “highly compensated employee” (“HCE”). 

As the Department estimates that these changes will cause more than 1.3 million additional workers to qualify for minimum wage and overtime pay, employers who  treat any employees as exempt from FLSA overtime, minimum wage and recordkeeping requirements based on the FLSA White Collar or HCE Exemption should reconfirm continued applicability of the exemption and take other steps in preparation for the January 1 rule change.

White Collar & HCE Exemption Salary Threshold Increase On  January 1, 2020

A final rule announced by the U.S. Department of Labor Wage and Hour Division (“WHD”) on September 24, 2019 and currently awaiting assignment for official publication in the Federal Register will raise the minimum earnings threshold that WHD regulations require as a prerequisite to an employer treating an employee as exempt from the FLSA under the White Collar Exemption for the first time since 2004[1]. WHD estimates that the increase in the salary threshold implemented by the final rule will make 1.2 million additional workers entitled to minimum wage and overtime pay and that an additional 101,800 workers will be entitled to overtime pay as a result of the increase to the HCE compensation level.

Under the final rule, beginning January 1, 2020, the salary threshold amount for the White Collar Exemption will increase from $455 per week to $684 per week.

In addition to these changes in the White Collar Exemption salary threshold, the final rule also will:

  • Increase the total annual compensation level for “highly compensated employees (HCE)” from the currently-enforced level of $100,000 to $107,432 per year;
  • Revise the special salary levels for workers in U.S. territories and in the motion picture industry as follows:
    • Maintain the current special salary level of $380 per week for American Samoa because minimum wage rates there have remained lower than the federal minimum wage;
    • Set a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands; and
    • Increase the special “base rate” threshold for employees in the motion picture producing industry. proportionally to the increase in the standard salary level test, resulting in a new base rate of $1,043 per week (or a proportionate amount based on the number of days worked).
  • Permit nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to an employee to be counted as compensation to the employee to satisfy up to 10% of the standard White Collar Exemption salary threshold ($68.40 per week) for purposes of determining if the employee earns sufficient compensation to satisfy the salary threshold for the White Collar Exemption but not the HCE Exemption; and
  • Announce the intention by the WHD to increase these threshold amounts more regularly in response to inflation through notice and rulemaking, while abandoning a prior proposal to accomplish these updates automatically through inflation indexing.

Treatment of Nondiscretionary Bonuses and Incentive Payments

In the final rule, in recognition of evolving pay practices, the Department also permits employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.  This is just one of the fringe benefit related refinements WHD recently made or proposed to make  to its regulations that impact the implications of noncash compensation and other perks in the past couple years. See e.g., Proposed FLSA Base Pay Rule Clarifies Overtime Treatment Of Perks.  Understanding the existing and proposed rules and enforcement positions is important for employers to properly manage their FLSA obligations.  

If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the Department permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid

Employer Actions Required

Employers paying or planning to any employee on a salaried basis in reliance upon the employer’s treatment of that employee as covered by the White Collar Exemption or HCE Exemption to the FLSA minimum wage and overtime rules should evaluate whether that employee continues to qualify for coverage under the applicable exemption taking into account the modifications implemented by the final rule.  By December 31, 2020, employers of any employee currently classified and paid on a salaried basis in reliance upon the White Collar or HCE Exemptions will need to:

  • Confirm whether the employee earns sufficient compensation to qualify for continued coverage by the applicable exemption taking into account the changes implemented by the final rule;
  • For employees disqualified for continued classification as exempt due to the increase in the required salary threshold, either increase the compensation that the employer pays the employee to meet the increased threshold or reclassify as nonexempt and treat the disqualified employee as covered by the FLSA minimum wage, overtime, timekeeping and recordkeeping requirements no later than January 1, 2020; and
  • For any employee who will not qualify for exemption after January 1, 2020, implement necessary procedures to ensure that the applicable time and other recordkeeping, minimum wage and overtime requirements are met.

Employers anticipating that they will employ employees impacted by the changes of the final rule also generally will want to take into account these impending changes when reviewing and designing their base, incentive and other compensation and benefit practices for these employees as well as in compensation, budget, product or service bidding and contracting and other impacted business practices.  

When conducting this analysis and planning employers should keep in mind that while the final rule allows employers satisfy up to 10% of the salary threshold for the White Collar Exemption with nondiscretionary bonuses and incentive payments paid to the employee, nondiscretionary bonuses and incentive payments will not count as compensation for purposes of the HCE threshold.  Employers also should carefully review existing guidance to verify their understanding of what bonuses and incentive payments qualify as nondiscretionary for purposes of the WHD regulations as employers frequently underestimate and inappropriately fail to take into account bonus or other incentive compensation when calculating overtime that WHD views as nondiscretionary and therefore required to be included when calculating and paying overtime.

Additionally, employers relying upon the White Collar Exemption to treat employees as exempt from the FMLA are encouraged to reconfirm that any employee paid on a salary basis otherwise continues to fulfill all conditions required to qualify for that exemption.  WHD enforcement history contains an already voluiminous and continuously growing list of employers nailed for FLSA minimum wage and overtime violations due to their reliance upon overly optimistic or otherwise inappropriate determinations regarding the applicability of the White Collar Exemption to various members of their workforces.  Employers should keep in mind that employers bear the burden of proof when raising the White Collar or other exemptions as a defense to a minimum wage, overtime, recordkeeping or other FMLA violation.

Employers staffing or making use of labor or services provided by employee leasing, temporary staffing, day labor, contractors, or other contingent worker sources also are encouraged to keep in mind the growing aggressiveness by WHD and private litigants in challenging and obtaining reclassification of contingent workers as employees of the businesses receiving these services, holding the recipient of these contingent worker services liable as a joint employer or both.  Given the growth in both the frequency and success of these challenges, businesses using contingent workforce workers generally should (1) realistically reevaluate their potential exposure to minimum wage and overtime liability from services received from contingent workers; and (2) pursue opportunities to mitigate these exposures by reconfiguring these relationships, contracting for assurances and access to documentation necessary to prove that the contingent workforce provider properly classifies and pays minimum wage and overtime and maintains time and other records, and ensuring that the business can access records that it likely would need to investigate and defend itself against potential FLSA liability claims that the WHD or a private litigant might assert against it with regard to services performed by contingent workers.

Need more information about this article  or have questions about your company’s responsibilities under the FLSA  or other wage and hour, leave or other workforce, compensation or employee benefit concerns?   You can contact the author of this update, Cynthia Marcotte Stamer, by e-mail here or telephone her at (214) 452.8297.

About the Author

Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Labor and Employment Law and Health Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, and a Fellow in the American College of Employee Benefit Counsel, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and public speaker widely known for 30+ years of management focused employment, compensation and employee benefits and other workforce and performance management, public policy leadership and advocacy, coaching, teachings, and publications.

Highly valued for using her detailed legal and operational knowledge and experience to help clients find and implement pragmatic strategies and solutions, Ms. Stamer’s clients include health industry, employee benefit, insurance and financial services and a diverse array of other employers and other workforce management organizations; employer, union, association, government and other insured and self-insured health and other employee benefit plan sponsors, benefit plans, fiduciaries, administrators, and other plan vendors;   domestic and international public and private health care, education and other community service and care organizations; managed care organizations; insurers, third-party administrative services organizations and other payer organizations;  and other private and government organizations and their management leaders.

Throughout her 30 plus year career, Ms. Stamer has continuously worked with these and other management clients to design, implement, document, administer and defend hiring, performance management, compensation, promotion, demotion, discipline, reduction in force and other workforce, employee benefit, insurance and risk management, health and safety, and other programs, products and solutions, and practices; establish and administer compliance and risk management policies; manage labor-management relations, comply with requirements, investigate and respond to government, accreditation and quality organizations, regulatory and contractual audits, private litigation and other federal and state reviews, investigations and enforcement actions; evaluate and influence legislative and regulatory reforms and other regulatory and public policy advocacy; prepare and present training and discipline;  handle workforce and related change management associated with mergers, acquisitions, reductions in force, re-engineering, and other change management; and a host of other workforce related concerns on both a real-time, “on demand” basis with crisis preparedness, intervention and response as well as ongoing engagements on compliance and risk management; plan and program design; vendor and employee credentialing, selection, contracting, performance management and other dealings; strategic planning; policy, program, product and services development and innovation; mergers, acquisitions, bankruptcy and other crisis and change management; management, and other opportunities and challenges arising in the course of workforce and other operations management to improve performance while managing workforce, compensation and benefits and other legal and operational liability and performance.

A former lead consultant to the Government of Bolivia on its Pension Privatization Project with extensive domestic and international public policy concerns in pensions, healthcare, workforce, immigration, tax, education and other areas, Ms. Stamer has been extensively involved in U.S. federal, state and local health care and other legislative and regulatory reform impacting these concerns throughout her career. Her public policy and regulatory affairs experience encompasses advising and representing domestic and multinational private sector health, insurance, employee benefit, employer, staffing and other outsourced service providers, and other clients in dealings with Congress, state legislatures, and federal, state and local regulators and government entities, as well as providing advice and input to U.S. and foreign government leaders on these and other policy concerns.

Current ABA Intellectual Property Section Law Practice Management Committee Chair;  ABA International Section Life Sciences & Health Committee Vice Chair; ABA RPTE Section Employee Benefits & Other Compensation Group Past Group Chair and a current or past Chair of various of its committees, ABA Health Law Managed Care & Insurance Interest Group Past Chair and , a Fellow in the American Bar Foundation and the Texas Bar Foundation and the author of a multitude of highly regarded publications on wage and hour and other labor and employment, compensation and benefits, performance management and other related concerns, Ms. Stamer also is widely recognized for her extensive authorship, work and leadership on leading edge employment, health care, employee benefits and other compensation, benefits, health and safety, insurance and other legal and operational compliance and risk management, government and regulatory affairs and operations concerns.

For more information about Ms. Stamer or her health industry and other experience and involvements, see here or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here.

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[1] A 2016 final rule to change the overtime thresholds was enjoined by the U.S. District Court for the Eastern District of Texas on November 22, 2016, and was subsequently invalidated by that court. As of November 6, 2017, the U.S. Court of Appeals for the Fifth Circuit has held the appeal in abeyance pending further rulemaking regarding a revised salary threshold. As the 2016 final rule was invalidated, the Department has consistently enforced the 2004 level throughout the last 15 years.

 

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Posted by Cynthia Marcotte Stamer

Obama Administration Proposal Would Extend FLSA Minimum Wage & Overtime Requirements To 5 Million+ Workers

June 30, 2015

U.S. should brace for potentially huge increases in their federal minimum wage overtime costs and liabilities if the U.S. Department of Labor Wage and Hour Division (WHD) implements a Proposed Fair Labor Standards Act Rule Change (Proposed Rule) that would extend overtime pay rights to nearly 5 million additional workers by guaranteeing overtime pay to most salaried workers earning less than an estimated $50,440 next year.  While the Proposed Rule has not yet been published in the Federal Register, the WHD released a prepublication copy for public review in connection with President Obama’s announcement of plans to implement the change yesterday.

The FLSA currently requires that covered employees be paid at least the federal minimum wage of $7.25 for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers also must maintain accurate time and payroll records. The FLSA provides that employers who violate the law are liable to employees for their back wages and an equal amount in liquidated damages. Liquidated damages are paid directly to the affected employees.

These FLSA rules generally apply to all common law employees other than those that the employer can prove meet the requirements of one of a limited number of exemptions to these rules.  The Proposed Rule would change the requirements for one of the exemptions most commonly relied upon by employers for not paying overtime to salaried workers – the “White Collar Exemption.”

Since 1940 and last updated by the WHD while President George W. Bush was President, generally have required an employer prove that an employee meets each of three tests for one of the FLSA’s White Collar Exemptions to apply:

  • The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed;
  • The amount of salary paid must meet a minimum specified amount; and
  • The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.

Among other things, the Proposed Rule if adopted as presently proposed would update current WHD regulations governing which executive, administrative, and professional employees (white collar workers) qualify as exempt from the FLSA minimum wage and overtime requirements often referred to as the “White Collar Exemption”:

  • Immediately raise the threshold under which most salaried workers are guaranteed overtime to equal the 40th percentile of weekly earnings for full-time salaried workers. As proposed, this would raise the salary threshold from $455 a week ($23,660 a year) to a projected level of $970 a week ($50,440 a year) in 2016.  WHD says nearly doubling the minimum salary threshold for a worker to qualify as exempt “minimizes the risk that employees legally entitled to overtime will be subject to misclassification based solely on the salaries they receive, without excluding from exemption an unacceptably high number of employees who meet the duties test.”;
  • Increase the total annual compensation requirement needed to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and
  • Establish a mechanism for automatically updating these qualifying standard salary and HCE total annual compensation requirements.

Beyond these changes, the WHD also is considering various changes to the duties test and invites suggestions for additional occupational examples in the current White Collar Exemption as well as comments on whether its regulations should require employers to take into account nondiscretionary bonuses when determining whether an employee meets the standard salary requirement.

The Administration claims that the Proposed Rule is needed to workers and their employers with greater “clarity” about when workers qualify for overtime.  Employers concerned about minimum wage, overtime and other wage and hour costs should recognize that the Proposed Rule would accomplish this clarification by substantially expanding the income and number of white collar workers that entitled to be paid in accordance with the FLSA’s minimum wage and overtime rules.

Even without the adoption of the Proposed Rule, U.S. businesses already face huge and ever-growing FLSA minimum wage, overtime and recordkeeping exposures.  The availability of substantial actual and punitive damages plus attorneys fees and difficulties that unprepared employers frequently encounter meeting their burdens of proof make wage and hour and overtime claims attractive lawsuits for disgruntled employees and their plaintiff’s counsel.  Meanwhile, the pro-worker’s rights Obama Administration has made enforcement of these rules a high priority.  Increasingly, the reach of these exposures has expanded further as plaintiffs and the WHD have challenges effectively many employers’ classification of workers as independent contractors.  See  $1.4M FLSA Back Pay Award Demonstrates Worker Misclassification Risks.  Amid these already substantial exposures, most employers will view proposals to expand the scope of workers eligible for FLSA rights and protections as extremely concerning.

Employers concerned about the potential implications of this rule should begin reviewing the Proposed Rule in preparation of providing comments and feedback to members of Congress, the WHD through its rulemaking comment process, and the public.  The deadline for commenting to the WHD will be 60 days from the date of publication of the Proposed Rule in the Federal Register.

For Legal or Consulting Advice, Legal Representation, Training Or More Information

If you need help responding to these new or other workforce, benefits and compensation, performance and risk management, compliance, enforcement or management concerns, help updating or defending your workforce or employee benefit policies or practices, or other related assistance, the author of this update, attorney Cynthia Marcotte Stamer may be able to help.

Recognized as a “Top” attorney in employee benefits, labor and employment and health care law extensively involved in health and other employee benefit and human resources policy and program design and administration representation and advocacy throughout her career, Cynthia Marcotte Stamer is a practicing attorney and Managing Shareholder of Cynthia Marcotte Stamer, P.C., a member of Stamer│Chadwick │Soefje PLLC, author, pubic speaker, management policy advocate and industry thought leader with more than 27 years’ experience practicing at the forefront of employee benefits and human resources law.

A Fellow in the American College of Employee Benefit Counsel, past Chair and current Welfare Benefit Committee Co-Chair of the American Bar Association (ABA) RPTE Section Employee Benefits Group, Vice Chair of the ABA Tort & Insurance Practice Section Employee Benefits Committee, former Chair of the ABA Health Law Section Managed Care & Insurance Interest Group,  an ABA Joint Committee on Employee Benefits Council Representative and Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, Ms.Stamer is recognized nationally and internationally for her practical and creative insights and leadership on health and other employee benefit, human resources and insurance matters and policy.

Ms. Stamer helps management manage. Ms. Stamer’s legal and management consulting work throughout her 27 plus year career has focused on helping organizations and their management use the law and process to manage people, process, compliance, operations and risk. Highly valued for her rare ability to find pragmatic client-centric solutions by combining her detailed legal and operational knowledge and experience with her talent for creative problem-solving, Ms. Stamer helps public and private, domestic and international businesses, governments, and other organizations and their leaders manage their employees, vendors and suppliers, and other workforce members, customers and other’ performance, compliance, compensation and benefits, operations, risks and liabilities, as well as to prevent, stabilize and cleanup workforce and other legal and operational crises large and small that arise in the course of operations.

Ms. Stamer works with businesses and their management, employee benefit plans, governments and other organizations deal with all aspects of human resources and workforce management operations and compliance.  She supports her clients both on a real time, “on demand” basis and with longer term basis to deal with daily performance management and operations, emerging crises, strategic planning, process improvement and change management, investigations, defending litigation, audits, investigations or other enforcement challenges, government affairs and public policy.  Well known for her extensive work with health care, insurance and other highly regulated entities on corporate compliance, internal controls and risk management, her clients range from highly regulated entities like employers, contractors and their employee benefit plans, their sponsors, management, administrators, insurers, fiduciaries and advisors, technology and data service providers, health care, managed care and insurance, financial services, government contractors and government entities, as well as retail, manufacturing, construction, consulting and a host of other domestic and international businesses of all types and sizes.  Common engagements include internal and external workforce hiring, management, training, performance management, compliance and administration, discipline and termination, and other aspects of workforce management including employment and outsourced services contracting and enforcement, sentencing guidelines and other compliance plan, policy and program development, administration, and defense, performance management, wage and hour and other compensation and benefits, reengineering and other change management, internal controls, compliance and risk management, communications and training, worker classification, tax and payroll, investigations, crisis preparedness and response, government relations, safety, government contracting and audits, litigation and other enforcement, and other concerns.

Ms. Stamer uses her deep and highly specialized health, insurance, labor and employment and other knowledge and experience to help employers and other employee benefit plan sponsors; health, pension and other employee benefit plans, their fiduciaries, administrators and service providers, insurers, and others design legally compliant, effective compensation, health and other welfare benefit and insurance, severance, pension and deferred compensation, private exchanges, cafeteria plan and other employee benefit, fringe benefit, salary and hourly compensation, bonus and other incentive compensation and related programs, products and arrangements. She is particularly recognized for her leading edge work, thought leadership and knowledgeable advice and representation on the design, documentation, administration, regulation and defense of a diverse range of self-insured and insured health and welfare benefit plans including private exchange and other health benefit choices, health care reimbursement and other “defined contribution” limited benefit, 24-hour and other occupational and non-occupational injury and accident, ex-patriate and medical tourism, onsite medical, wellness and other medical plans and insurance benefit programs as well as a diverse range of other qualified and nonqualified retirement and deferred compensation, severance and other employee benefits and compensation, insurance and savings plans, programs, products, services and activities.  As a key element of this work, Ms. Stamer works closely with employer and other plan sponsors, insurance and financial services companies, plan fiduciaries, administrators, and vendors and others to design, administer and defend effective legally defensible employee benefits and compensation practices, programs, products and technology. She also continuously helps employers, insurers, administrative and other service providers, their officers, directors and others to manage fiduciary and other risks of sponsorship or involvement with these and other benefit and compensation arrangements and to defend and mitigate liability and other risks from benefit and liability claims including fiduciary, benefit and other claims, audits, and litigation brought by the Labor Department, IRS, HHS, participants and beneficiaries, service providers, and others.  She also assists debtors, creditors, bankruptcy trustees and others assess, manage and resolve labor and employment, employee benefits and insurance, payroll and other compensation related concerns arising from reductions in force or other terminations, mergers, acquisitions, bankruptcies and other business transactions including extensive experience with multiple, high-profile large scale bankruptcies resulting in ERISA, tax, corporate and securities and other litigation or enforcement actions.

Ms. Stamer also is deeply involved in helping to influence the Affordable Care Act and other health care, pension, social security, workforce, insurance and other policies critical to the workforce, benefits, and compensation practices and other key aspects of a broad range of businesses and their operations.  She both helps her clients respond to and resolve emerging regulations and laws, government investigations and enforcement actions and helps them shape the rules through dealings with Congress and other legislatures, regulators and government officials domestically and internationally.  A former lead consultant to the Government of Bolivia on its Social Security reform law and most recognized for her leadership on U.S. health and pension, wage and hour, tax, education and immigration policy reform, Ms. Stamer works with U.S. and foreign businesses, governments, trade associations, and others on workforce, social security and severance, health care, immigration, privacy and data security, tax, ethics and other laws and regulations. Founder and Executive Director of the Coalition for Responsible Healthcare Policy and its PROJECT COPE: the Coalition on Patient Empowerment and a Fellow in the American Bar Foundation and State Bar of Texas, Ms. Stamer annually leads the Joint Committee on Employee Benefits (JCEB) HHS Office of Civil Rights agency meeting and other JCEB agency meetings.  She also works as a policy advisor and advocate to many business, professional and civic organizations.

Author of the thousands of publications and workshops these and other employment, employee benefits, health care, insurance, workforce and other management matters, Ms. Stamer also is a highly sought out speaker and industry thought leader known for empowering audiences and readers. Ms. Stamer’s insights on employee benefits, insurance, health care and workforce matters in Atlantic Information Services, The Bureau of National Affairs (BNA), InsuranceThoughtLeaders.com, Benefits Magazine, Employee Benefit News, Texas CEO Magazine, HealthLeaders, Modern Healthcare, Business Insurance, Employee Benefits News, World At Work, Benefits Magazine, the Wall Street Journal, the Dallas Morning News, the Dallas Business Journal, the Houston Business Journal, and many other publications. She also has served as an Editorial Advisory Board Member for human resources, employee benefit and other management focused publications of BNA, HR.com, Employee Benefit News, InsuranceThoughtLeadership.com and many other prominent publications. Ms. Stamer also regularly serves on the faculty and planning committees for symposia of LexisNexis, the American Bar Association, ALIABA, the Society of Employee Benefits Administrators, the American Law Institute, ISSA, HIMMs, and many other prominent educational and training organizations and conducts training and speaks on these and other management, compliance and public policy concerns.

Ms. Stamer also is active in the leadership of a broad range of other professional and civic organizations. For instance, Ms. Stamer presently serves on an American Bar Association (ABA) Joint Committee on Employee Benefits Council representative; Vice President of the North Texas Healthcare Compliance Professionals Association; Immediate Past Chair of the ABA RPTE Employee Benefits & Other Compensation Committee, its current Welfare Benefit Plans Committee Co-Chair, on its Substantive Groups & Committee and its incoming Defined Contribution Plan Committee Chair and Practice Management Vice Chair; Past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group and a current member of its Healthcare Coordinating Council; current Vice Chair of the ABA TIPS Employee Benefit Committee; the former Coordinator and a Vice-Chair of the Gulf Coast TEGE Council TE Division; on the Advisory Boards of InsuranceThoughtLeadership.com, HR.com, Employee Benefit News, and many other publications.  She also previously served as a founding Board Member and President of the Alliance for Healthcare Excellence, as a Board Member and Board Compliance Committee Chair for the National Kidney Foundation of North Texas; the Board President of the early childhood development intervention agency, The Richardson Development Center for Children; Chair of the Dallas Bar Association Employee Benefits & Executive Compensation Committee; a member of the Board of Directors of the Southwest Benefits Association. For additional information about Ms. Stamer, see www.cynthiastamer.com, or www.stamerchadwicksoefje.com   the member of contact Ms. Stamer via email here or via telephone to (469) 767-8872.

About Solutions Law Press, Inc.™

Solutions Law Press, Inc.™  provides human resources and employee benefit and other business risk management, legal compliance, management effectiveness and other coaching, tools and other resources, training and education on leadership, governance, human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press, Inc.™ resources at www.solutionslawpress.com including:

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©2015 Cynthia Marcotte Stamer. Non-exclusive right to republish granted to Solutions Law Press. All other rights reserved.

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Posted by Cynthia Marcotte Stamer

Medical Resident Stipend Ruling Shows Health Care, Other Employers Should Review Worker Classification, Payroll & Other Practices

January 12, 2011

Stipends paid to medical residents to provide on patient care and other medical services for 40 or more hours per week as part of an accredited graduate medical education program are wages paid to employees for Federal Insurance Contributions Act (FICA) payroll taxes purposes and do not qualify as exempt from FICA tax or withholding as student stipends according to January 11, 201 U.S. Supreme Court ruling in Mayo Foundation v. U.S.   The decision is the latest reminder to health care providers and others of the need to critically review and update as necessary their organizations existing worker and wage characterization in light of evolving interpretations and the growing success of regulators and private plaintiffs in challenging these classifications.

In Mayo Foundation, the U.S. Supreme Court denied the plea of Mayo Foundation For Medical Education And Research (Mayo) that it overrule an Internal Revenue Service (IRS) Regulation that provides that medical students or others providing full-time services as part of their course of instruction do not qualify as “students” for purposes of the “student” exemption of Code § 3121(b)(10) regardless of whether “the services performed . . . may have an educational, instructional, or training aspect.” See Treas. Reg.§31.3121(b)(10)–2(d)(3)(iii).   Mayo Foundation, the Supreme Court ruled against Mayo Foundation.  It ruled the IRS’ regulation construing Code § 3121(b)(1) as inapplicable to medical students or other workers providing full-time services as part of a residency or other educational program should stand as Congress has not directly spoken to foreclose that interpretation and because the Treasury Department’s rule is a reasonable construction of what Congress has said. 

Beyond its specific holding, the Mayo Foundation decision also serves as another reminder that health industry and other employers should not take the defensibility of their worker classification and associated income and payroll tax, employee benefit, employment and other practices for granted. 

Recent developments send a clear message that  health industry and other employers must remain constantly diligent about confirming and documenting the defensibility of their worker classifications and other associated practices in light of evolving rules and standards, enforcement, the growing frequency and success of regulators and private plaintiff challenges, and changing workforce practices.  See e.g. Review of Worker Classification Needed As Classification Scrutiny Rises;Minimum Wage, Overtime Risks Highlighted By Labor Department Strike Force Targeting Residential Care & Group Homes; Review & Strengthen Defensibility of Existing Worker Classification Practices In Light of Rising Congressional & Regulatory Scrutiny; 250 New Investigators, Renewed DOL Enforcement Emphasis Signal Rising Wage & Hour Risks For Employers;  Quest Diagnostics, Inc. To Pay $688,000 In Overtime Backpay.

The IRS, Department of Labor and other federal and state regulators are stepping up scrutiny of and enforcement of worker classifications and claims of exemption from applicable employment, tax and other requirements.  In light of these and other developments, health industry and other employers should take reasonable steps to guard against these and other growing risks of worker misclassification and associated non-compliance.  To minimize their potential exposure, health industry and other employers should consult with qualified legal counsel for advice within the scope of attorney-client privilege concerning the need to audit or otherwise act to strengthen the defensibility of their existing worker classification, employee benefit, fringe benefit, employment, wage and hour, and other workforce policies to mitigate exposures to potential IRS, Labor Department or other risks of worker misclassification or the handling of associated payroll, employment or other responsibilities.

For Help With Investigations, Policy Updates Or Other Needs

If you need assistance in conducting a risk assessment of or responding to an IRS, Labor Department or other legal challenges to your organization’s existing workforce classification or other labor and employment, employee benefit or compensation practices, please contact the author of this update, attorney Cynthia Marcotte Stamer here or at (469)767-8872 .

Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, management attorney and consultant Ms. Stamer is nationally and internationally recognized for more than 23 years of work helping employers; employee benefit plans and their sponsors, administrators, fiduciaries; employee leasing, recruiting, staffing and other professional employment organizations; and others design, administer and defend innovative workforce, compensation, employee benefit  and management policies and practices. The Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, and the Managing Editor of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, Ms. Stamer recently was a featured panelist on the ABA Joint Committee on Employee Benefits Teleconference on “Worker Classification & Alternative Workforce: Employee Plans & Employment Tax Challenges” and has worked, published and spoken extensively on worker classification and other related matters.  She also is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications. For additional information about Ms. Stamer and her experience or to access other publications by Ms. Stamer see here or contact Ms. Stamer directly.

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Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, compensation, data security and privacy, health care, insurance, and other key compliance, risk management, internal controls and other key operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources available for review here.

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©2010 Cynthia Marcotte Stamer, P.C.  Non-exclusive license to republish granted to Solutions Law Press.  All other rights reserved.

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Posted by Cynthia Marcotte Stamer

Military Leave Differential Payments Subject To Income Tax, Not FICA or FUTA

April 17, 2009

Employers that pay differential pay to employees absent on active duty military leave job must withhold income tax, but need not withhold or pay Federal Insurance Contributions Act (“FICA”) or Federal Unemployment Tax Act (“FUTA”) taxes on those payments, according to an Internal Revenue Service (IRS) ruling to be published May 4, 2009.

According to Revenue Ruling 2009-11, employers must withhold income tax and include military duty differential pay in wages reported on the recipient employee’s Form W-2. It also states employers may use the aggregate procedure or optional flat rate withholding to calculate the amount of income taxes required to be withheld on these payments.

Proper tax withholding and reporting is one of the expanding responsibilities that employers must juggle when a member of their workforce is a current or former members of the military and their family members including, for example, federal and state military leave mandates and new military caregiver and other family leave requirements for family members of members of the military that took effect during the past year. Employers should review their employment and employee benefit practices to confirm they are up to date with these expanded requirements.

Cynthia Marcotte Stamer and other members of Curren Tomko and Tarski LLP are experienced with advising and assisting employers with these and other labor and employment, employee benefit, compensation, and internal controls matters. If your organization needs assistance with assessing, managing or defending its wage and hour or other labor and employment, compensation or benefit practices, please contact Ms. Stamer at e-mail, (214) 270-2402; or your favorite Curren Tomko Tarski, LLP attorney.  For additional information about the experience and services of Ms. Stamer and other members of the Curren Tomko Tarksi, LLP team, see the Curren Tomko Tarski Website or Cynthia Marcotte Stamer, P.C. Website.

More Information

We hope that this information is useful to you. You can register to receive future updates and information about upcoming programs, access other publications by Ms. Stamer and access other helpful resources at CynthiaStamer.com For additional information about Ms. Stamer and her experience, see here or contact Ms. Stamer directly. If you or someone else you know would like to receive updates about developments on these and other human resources and employee benefits concerns, please be sure that we have your current contact information – including your preferred e-mail- by creating or updating your profile at CynthiaStamer.com.  If you would prefer not to receive these updates, please send a reply e-mail with “Remove” in the subject line to support@SolutionsLawyer.net. You also can register to participate in the distribution of these updates by registering to participate in the Solutions Law Press HR & Benefits Update Blog here.

 

 

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Posted by Cynthia Marcotte Stamer