Interstate Labor Standards Association - Part 541

Dr. David Weil addressing ILSA

I spent almost a week in Oklahoma City at the 50^th Annual Meeting of the Interstate Labor Standards Association (ILSA).  It is a national group of government officials who administer and enforce wage payment related laws.  This year there were 21 states represented, but I think most interesting is the number of federal representatives from four different agencies that came to listen and present. 

The federal presentations focused on partnering with the states to provide more effective coverage;  human trafficking preventions, enforcements and victim services; and exemptions from the Fair Labor Standards Act (FLSA).  This blog addresses what was characterized as the most expensive mistake, misclassification of a non-exempt individual as an exempt individual under the FLSA Part 541, and the source of some lively discussion.  While no commitments were made, the feds did agree they were in Oklahoma City to listen and understand where the problems currently exist with the salaried Executive, Administrative and Professional exemptions from minimum wage and overtime .  Hawaii has similar salaried “white collar” exemptions from minimum wage and overtime, plus a Supervisory exemption. (See Hawaii Administrative Rules 12-20-2 through 12-20-5)  No federal draft of proposed regulation changes has been created yet so ILSA state representatives had an opportunity to provide some perspective.

Present at the ILSA 50^th Annual Conference were many of the individuals at the state level who had contributed to the current Part 541 regulations adopted in 2004.  The session with Dr. David Weil, Administrator of Wage and Hour Division, United States Department of Labor and Michael Hancock, Assistant Administrator for Policy, Wage and Hour Division, United States Department of Labor, was insightful from the perspective of both the state administrators as well as the candid comments from the feds.  Anticipating a federal minimum wage increase naturally causes the element of guaranteed salary minimum to be looked at although substantive concerns surrounding the Administrative exemption were clearly evident as well.

I had planned a trip to Maui to talk with SHRM-Maui on August 8^th which was postponed (because of Hurricane Iselle) to Sept. 19.  Now I’ll be able to share all the national perspectives in addition to our Hawaii rules.  I'm looking forward to having the local discussion on these issues.  See you in Maui!

If They Work, You Must Pay Them.

    

George Ricky sculpture outside
of Honolulu Museum of Art
powered by wind

 This blog is generated based on the number of calls we've had after many employees were sent home early or told to stay home Friday August 8, 2014, due to the weather forecast for Hurricane Iselle.  Employees want to know if they should be paid for that day.  Generally, the answer is no, there is nothing in the law that says an employee should be paid for an afternoon or day off.  The employer determines the schedule. With that said, if an employee has an agreement in writing that provides for how to handle leave from work, that document would prevail, for example a collective bargaining agreement between union and management. 

In preparation of Hurricane Iselle
protecting it from too much wind.

      On the flip side of  our  mantra to employers and the title of this blog, is the answer to employees "if you don't work, the law does not require them to pay you".  The definition of "work" having nothing to do with the quality or productivity of an individual, but that's for another day.

    

ACT 208 Pay Cards Allowed With Conditions

House Bill 1814 CD1 became Act 208 on July 2, 2014, and the section related to pay cards is effective September 1, 2014.  Act 208 overrules the notice to employers suspending the use of pay cards.  Act 208 formally allows employers to pay wages by direct deposit or pay cards if the employee chooses.  The voluntary requirement on the part of the employee is the same as the declaratory order issued in 2006 that allowed pay card use, although  Act 208 now puts some additional employee safeguards in place that employers will need to comply with if they want to offer the option of using pay cards in Hawaii or are already using pay cards and want to continue. Some of the highlights of the new law are included below.

 Written Consent
As of September 1, 2014, before an employer can use a pay card for the payment of wages, the employer must get written consent that an employee was offered a choice of being paid by check, direct deposit, or pay card, and that a written notice of the pay card rules for getting wages out without a fee, and what fees if any will be incurred if the card is used in circumstances outside the free parameters.  The notice must be at least 10 pt font.  Likewise, if an employee changes their mind, the employee must provide a written request to their employer to change their method of payment from pay card to another method and give the employer two pay periods to execute that change.

Three Free Withdrawals
Each pay period an employee must be able to make at least three free withdrawals from the pay card, one of which is equal to the net amount of wages due for that pay period.  Previously, the declaratory order had only provided one free withdrawal where the whole amount could be withdrawn. This will likely require employers to set up local accounts that have local access to avoid fees at the ATM, but as we are not bankers, we also wait to see how this will work, and will keep you up to date on any new developments.

Ability to access balance of account 24/7
Employees must be able to access their balance by phone or by electronic means 24/7. This is one of the several requirements that will likely depend on how the employer sets up the pay card and the banking issues and agreements that are related to those issues.

21 days notice before changes to the pay card program
This is the first time a specific time frame has been identified for an employer to provide notice of changes to payment programs.  In contrast, Section 388-7 (2), Hawaii Revised Statutes, (HRS) has only the requirement that notice be given "prior" to the change.

Pay statement and record keeping under Section 387-6, HRS is required.
Employers using pay cards are specifically required to follow the increased record keeping and pay statement requirements of Act 70, 2013, regardless of applicability to Hawaii Wage and Hour Law, Chapter 387, HRS.   Hawaii Wage and Hour Law, is generally considered to apply to small businesses because if an employer's employees are subject to the Fair Labor Standards Act, they would be excluded from Chapter 387,  except for minimum wage and overtime provisions.  (See Section 387-1, HRS Definition of "employee" paragraph (12).) During the 2013 Legislative Session, Act 70, imposed additional pay statement and record keeping provisions that employers subject to Chapter 387, HRS were subject to follow.  Guidelines on those provisions can be found on the Wage Standards web page.

The highlights that have been outlined above are  items we perceive as important issues for enforcement of the law by the Wage Standards Division.  There are additional details in the Act that employers should attend to when setting up their pay card programs with their banking associates.   Employers must remember what hasn't changed is that employees must be paid their full wages earned.  If fees and costs are charged to the employee outside the scope of the law or agreed upon fee schedule, it is the employer that will be responsible to reimburse the employee.  It will be the employer's duty to work with the bank or other entity for any unauthorized fees charged to the employee.

It is apparent that pay cards have been working successfully for many employees.  Here's hoping the provisions of Act 208, 2014 Session Laws of Hawaii, will make the cards even more useful to employees who have chosen them in the past and will assist employers in setting up pay card programs that help make wage payments in a timely and accurate manner.

2014 Legislative Session

 May Day was adjournment sine die for the second year of the 27th Legislature.  The Wage Standards Division is anticipating that Governor Abercrombie will sign the four measures Wage Standards has been watching that passed out in conference drafts.  Here is what we see is important for folks to pay attention to:

Minimum wage
SB2609, CD1 eventually raises the current minimum wage of $7.25 to $10.10 by January 1, 2018.  The minimum wage will be increased by 50 cents in 2015, 75 cents in 2016, 75 cents again in 2017, then an 85 cent increase in 2018 to reach $10.10.  The tip credit will be increased also, from the current 25 cents to 50 cents in 2015 then to 75 cents by 2016.  The proposed law also requires employees to earn at least $7.00 above minimum wage before an employer can take the tip credit.  This threshold used to be 50 cents.   How the $7.00 figure was arrived is included in the update of the April 22 blog.

Pay Cards and Direct Deposit
HB1814 CD1 when signed will officially legalize the use of direct deposit and pay cards as a method of payment of wages.  Previously, only a declaratory order had allowed the use of pay cards.  The law did not change an essential element that has always been required for both which is the use of either must be voluntary on the part of the employee.   The signing of this measure will make the suspension notice issued in April moot.  The effective date of the measure, Sept. 1, 2014, should provide adequate opportunity for companies using pay cards to come into compliance with the new requirements of the law.

Prevailing Wage Penalties
SB2260 CD1 increases the penalty from $1,000 to $10,000, for interference or delay including falsification of certified payrolls.  It also increases the daily penalty for delay from $100 to $1,000 a day.  The measure also makes some housekeeping amendments to the law to facilitate enforcement.

HB2413 CD1 clarifies that construction of private-public partnerships is subject to the Chapter 104, Hawaii Revised Statutes.

More to come on these issues.

Hawaii Domestic Workers Have Rights

 

Yesterday was the kick-off of an educational campaign that in Hawaii Domestic Workers Have Rights.  The Governor's wife, Dr. Nanci Caraway, convened the working group that brought public agencies and private community organizations together to develop a multi-lingual outreach program.  A website on the DLIR provides the information about the new protections.  http://labor.hawaii.gov/domestic-workers-rights/. 

     Who is covered?
      The new domestic worker rights cover individuals working in the homes of their employers who  clean, cook, do laundry, care for children, do the landscaping and other domestic jobs around the house.  Unless a domestic worker is considered a "casual" worker, one who works less than 20 hours a week, domestic workers have a right to receive at least minimum wage for every hour worked and to receive overtime for any hours worked over 40 in one work week.  The law covers  workers who live at their employers home and workers who come just for their shifts.

    A video of the launch can be found at http://www.youtube.com/watch?v=fqKuuJruwWg

Elevator Admin Rules Hearing set for May 14

   The Elevator and Boiler Branch of the Hawaii Occupational and Safety Health Division (HIOSH) is having a hearing on the proposed elevator rules May 14, at 1:00 in room 427, 830 Punchbowl St.  A review of the Small Business Regulatory Review Board on January 22, 2014, is summarized in the Board minutes.    The hearing notice and proposed rules can be found on the HIOSH website at:
http://labor.hawaii.gov/hiosh/proposed-rules/.

Minimum Wage Update

     The minimum wage measures that were reported out from the money committees before crossover  SB 2609 SD1 and HB 2580 HD1, were completely different proposals that came out of the subject matter committees as I wrote about them on February 21.  These bills, as modified by the Senate Committee on Ways and Means  and the House Committee on Finance, had no Consumer Price Index adjustments and tip credit was back on the table. 

    Only SB2609 SD1 survived the crossover early in March.

Poverty and minimum wage
    The House Labor and Public Employment Committee worked to use the poverty standards as a trigger threshold to allow tip credit.  Using a 250% variable of the poverty threshold, the trigger mechanism was to limit the ability of the employer to take the tip credit until workers earned that amount.  See SB2609 SD1 HD1.   In 2014, the 250% amount of Hawaii poverty guidelines is calculated out to $33,500, using the 2014 Hawaii poverty guidelines.

    In the Finance Committee hearing April 2, Representative Ward posed the question whether the enforcement  would use an accrual or cash basis.  A cash basis would mean tip credit could be taken after the worker earned $33,500.  Accrual basis would disperse the amount out over the year, i.e. $2,792 per month, or $644 per week; or $16 per hour, and the tip credit would be taken at that point.The HD2 version offered the answer to Representive Ward's question, the accrual basis.

Tip Credit

      "Tip credit" is a term used to indicate the amount of money an employer can subtract from the minimum wage to determine the cash wage required to be paid to regularly tipped employees.  For example, federal minimum wage is $7.25, with a minimum cash wage of $2.13, so the maximum tip credit under the Federal Labor Standards Act ("FLSA") is $5.12.  This means a restaurant employer can pay $2.13 per hour to a server and use $5.13 of the server's tips to make up the minimum wage.

     In Hawaii, the current tip credit is twenty-five cents that can be deducted from Hawaii's minimum wage of $7.25, or a minimum cash wage of $7.00 as long as the total earned in wages and tips is at least $7.75.   SB2609 HD2, provides for a tip credit increase to 75 cents by 2016 as long as the worker earns at least $15.50 per hour, and $17.00 per hour by 2018.   For tipped workers this works out to a cash wage of $7.75 in 2016, $9.25 in 2018. 


Recent Developments in Tip Credit

      Testimony from many employers in the restaurant industry indicate that the tip credit is essential to their survival and to the benefit of the lower paid un-tipped "back of the house" employees.  Representative Johanson asked these employers, "Why not share the tips with dishwashers, cooks, and managers too?"  The simple response is the U.S. Department of Labor has had a long-standing enforcement policy that wages belong to the employee and if there was an agreed upon pooling of tips, only those who were regularly tipped could partake in the sharing of tips, effectively eliminating those "back of the house" folks from receiving any of the tips.

     This is just part of the answer, since the Oregon Restaurant Association sued the USDOL Wage and Hour Division challenging  their exercise of authority in passing regulations that legitimized the USDOL tip pooling enforcement policy.  The court decision which came out in June 2013 and sided with the Oregon Restaurant Association says that if an employer does not take a tip credit, there is no authority for the USDOL to determine how an employer could contract with employees regarding the distribution of tips collected in the employer's establishment.  In essence, the court said if no tip credit was taken, tip pools could be shared by anyone. See Oregon Restaurant and Lodging, et al., v. Hilda L. Solis, et al., 948 F.Supp. 2nd 1217 (2013).

      The Oregon Restaurant Association wrinkle in the enforcement of tip pooling may create a new paradigm from the federal perspective for employers with regularly tipped employees.  From the Hawaii point of view, a tipped employee is still considered to be someone who receives  more than $20 a month in tips.  See Hawaii Administrative Rule 12-20-11.

What's next?

     The current minimum wage bill, SB 2609 is in Conference Committee with Senator Hee, Chair, Senator Ige Co-Chair; Senators Ihara, Kouchi, and Shimabukuro as conferee members along with Representatives Nakashima and Luke as Co-Chairs; and Representatives Ichiyama, Nishimoto, and Thielen as conferee members.  Conference hearings already held on April 17 and 21, have continued the matter with no resolution as of today.  The next conference meeting is on April 23, at 10:30 a.m. in Conference Room 325 at the State Capitol.