by William Haut, Densborn Blachly LLP
The start of 2020 brings new rules and regulations that may impact business and financial planning. To understand how these impact you, it is wise to consult with qualified legal, tax or other professional advisors.
The topic of joint employment is not necessarily one that excites business managers, but it is a topic that may arise more frequently as the manner in which businesses employ human capital continues to evolve. In light of the Department of Labor’s (DOL) recently announced final rule addressing joint employment under the Fair Labor Standards Act (FLSA), the following is a reminder about the joint employment doctrine and its potential impact on applicable employment practices.
- Joint Employment Basics. Briefly, joint employment exists when an individual employed by one employer can also be considered employed by another employer. In this context, both employers are two independent entities, rather than related entities under common ownership and control. The relationship between an employer and a staffing agency supplying employees to the employer is a common situation giving rise to joint employment considerations. If a joint employment relationship exists, both employers must comply with various federal, state and local labor and employment laws with respect to their joint employees. For example, aggregation of the joint employees can result in application of certain laws to small employers that would not otherwise be subject to such requirements (for example, the 15-employee threshold under Title VII of the Civil Rights Act of 1964 prohibiting discrimination based on race, color, religion, sex or national origin, and the 50-employee threshold under the Family and Medical Leave Act).
- New DOL Rule for FLSA. The DOL recently announced a final rule updating and clarifying its standard for determining joint employment status under the FLSA, which is the federal law establishing minimum wage, overtime pay, recordkeeping requirements and child labor standards. The final rule becomes effective on March 16, 2020. The DOL had not revised its standards in this area in over 60 years.
- New Rule Basics. In short, the final rule is intended to provide guidance on joint employment status in two common joint employment scenarios. First, the new rule contains a four-factor balancing test for determining joint employment status in situations where one employer hires an employee to work, and another person simultaneously benefits from that work. Second, the new rule provides guidance for determining whether multiple employers are joint employers if they are sufficiently associated in situations where they employ the employee to work a separate set of hours in the same workweek. If the multiple employers are joint employers, they must aggregate the hours worked for each of them to comply with the FLSA. Because courts have considered guidance under the FLSA when faced with cases addressing other employment-related laws (the Family and Medical Leave Act, for example), courts may consider the guidance provided by this new rule in future joint employment cases.
Overtime – Increased Compensation Levels for Certain Exemptions
Effective Jan. 1, 2020, the minimum salary threshold (referred to as the “standard salary level” by the U.S. DOL) for employees to be exempt from federal overtime pay requirements as executive, administrative and professional employees increased to $684 a week (equivalent to $35,568 annually). Additionally, the total annual compensation threshold for the highly compensated employee exemption is now $107,432 and requires weekly pay on a salary or fee basis of at least $684.
- Administration of the Rule. Employers may use nondiscretionary bonuses and incentive payments, including commissions, that are paid at least annually, to satisfy up to 10% of the minimum salary threshold for exempt executive, administrative and professional employees. If, despite such payments, an employee’s salary falls short of the minimum threshold, an employer may make a final catch-up within one pay period after the end of that period (i.e., the next standard payroll payment made by the employer).
- Update Exempt Classifications. Employers that have not already updated their exempt classifications to reflect the new minimum salary threshold should do so. Keep in mind that paying an employee on a salaried basis does not make the employee exempt; the salary component is just one part of the analysis. It is also important to ensure correct classification of individuals as employees versus independent contractors. The costs for misclassifying employees as exempt or non-exempt employees for overtime purposes, and as employees rather than independent contractors, can be substantial.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was signed into law in December 2019. The Act and a recent appropriations act made significant changes to the rules governing employer-provided retirement plans and IRAs. Here are a few key highlights.
- Required Minimum Distributions (RMDs). The age at which retirement plan participants, including IRA account owners, must start receiving RMDs increased from 70½ to age 72. This applies only to those reaching age 72 after Dec. 31, 2019.
- Elimination of Stretch IRAs. Unless the beneficiary is an eligible designated beneficiary (i.e., surviving spouse, minor child, disabled or chronically ill individual), the account balance must be distributed within 10 years of the participant’s date of death. The 10-year rule applies regardless of whether the participant is receiving RMDs at the time of death.
- Elimination of Age Limit on IRA Contributions. As long as an IRA account owner has earned income, he or she can continue to make IRA contributions. Previously, the individual could not make contributions after age 70½.
Densborn Blachly is here to support you with any questions related to these new rules and regulations.
The information contained in this publication should not be construed as legal advice or opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are encouraged to consult your own legal counsel on any legal questions you may have concerning your particular situation. Please see our disclaimer.