Many employers are utilizing or considering same-day pay and daily pay-type arrangements that allow their employees early access to their wages, in exchange for a fee being paid by the employee to the same-day pay vendor. In addition to such arrangements having the risk of regulatory oversight due to payday loan terms that are imposed on unsuspecting employees, there are wage and hour and tax implications that are often overlooked by employers in their desire to provide cash-strapped employees with convenient wage access.
In this article, we discuss federal employment tax rules. As background information, the IRS expects employment taxes to be deposited by employers based on the date that the employee was actually paid, or “constructively” paid. From the IRS’s standpoint, an employee is considered to be in constructive receipt of wages when an amount is set apart or otherwise made available so that the employee may draw upon that amount at any time or when an employee has unfettered control over the date on which the employee actually receives their wages. Due to these “constructive receipt” concerns, employment taxes may be due to the federal government for same day pay on an earlier basis than most employers are paying such wages now.
This year’s “Green Book,” published by the Treasury Department maintains that employees with early access to wages via an on-demand pay arrangement may be in constant constructive receipt of their wages. Thus, the IRS affirmatively recognizes that this is a problem. As such, Treasury advises employers to withhold and pay employment taxes on employees’ earned wages on a daily basis.
To ease employers’ burdens associated with same day arrangements, the Treasury has proposed amending the Internal Revenue Code (“IRC”) to address these on-demand pay programs. The Treasury would treat any same-day pay as having been paid on a weekly pay period, so that employment tax deposits would be due to the IRS from that “weekly pay” date.
The Treasury’s proposal would amend the IRC as follows:
Code Sec. 7701 to provide a definition of an on-demand pay arrangement as an arrangement that allows employees to withdraw earned wages before their regularly scheduled pay dates.
Code Sec. 3401(b) to provide that on-demand pay arrangements are treated as a weekly payroll period, even if employees have access to their wages during the week
Code Sec. 3102, Code Sec. 3111, and Code Sec. 3301 to clarify that on-demand pay arrangements are not loans
Code Sec. 6302 to provide special payroll deposit rules for on-demand pay arrangements
If and until these changes are implemented, employers utilizing same-day programs are strongly cautioned to consult their accountants or tax attorneys to ensure that they do not run afoul of the employment tax rules.
As most employers know, for weeks, the New York State Legislature was considering passing a wage theft law (referred to as the “SWEAT” bill) that would have allowed alleged “victims” of wage theft to obtain a temporary lien against their employer’s (or alleged employer’s) assets upon the filing of a “wage claim.” (The term “wage claim” was not defined in the law and, thus it was unclear if a lawsuit had to be filed in order for the law’s provisions to be triggered, or whether a complaint to the Department of Labor would suffice). In other words, the law would have allowed a current or former employee to file a claim against their employer (or former employer) and immediately place a lien on that employer’s personal and real property. The lien, once filed, would be in the amount of the alleged claim (which could be a class claim), plus liquidated damages. In effect, the employee lien could prevent an employer from conveying, selling or transferring real or personal property while the employee lien is in place. The lien could impede a business’s attempts to sell the business or secure financing.
After weeks of hard lobbying by business groups, the legislative session ended before this bill was advanced. So, for at least several more months, employers can breathe a sigh of relief!
As many companies are struggling to attract talent, they are considering the reduction of a standard 5-day workweek to a 4-day workweek. This article highlights some considerations in that analysis.
The idea and experimentation of a four-day workweek in the United States has been commonly discussed since the 1990s, and given the COVID-19 pandemic and increase of working from home and hybrid office implementation, the discussion of a four-day workweek is picking up even greater traction. Here, we review some high level considerations for any employer considering the switch.
Employer Benefits of a Four-Day Workweek
Not only can employees improve their quality of life, but employers can benefit as well with the reduction of a five-day workweek through:
Increased sales
Reduced employee burnout and improved employee retention
Lower operating costs for an office
Larger applicant pool for all positions
Environmental benefits from reduced commuting and traffic congestion
Challenges Relating to a Four-Day Workweek
The change from 40-hour workweeks to 32-hour workweeks could lead to decreased pay and benefits.
10-hour workdays can be incompatible with wage regulations or prove too grueling for employees in some states.
The allowance of four-day workweeks is highly industry specific. For example, hospital employees, fire departments, and police officers taking 3 days off with no coverage seem impracticable. Also, there is a limit on how many items Amazon Warehouse employees can pick per hour and how many delivery locations a UPS driver can hit in a day, therefore possibly making four-day workweeks less efficient.
Strategies Successful Companies Implemented With a Four-Day Workweek
Prioritize and reevaluate tasks
Increase automation
Emphasize human creativity
Limit work-based social events
Reduce and shorten meetings
Set goals that are achievable within a shorter workweek
On January 25, 2022, New York Governor Kathy Hochul signed a bill into law that dramatically alters wage payment obligations for contractors and subcontractors. The stated purpose of the law is to alter the current wage theft law to expand the probability that exploited workers in the construction industry will be allowed to attain payment, collect unpaid wages, and collect benefits from work already performed.
Key Changes to Wage Theft Law
The new law has two main sections that alter the construction industry’s approach to wage theft:
Increased Liability for Construction Contractors: Construction contractors are now liable for any unpaid wages, benefits, damages, and attorney fees related to a civil or administrative action against a subtractor.
Additional Payment Clarification: Clarifications that a contractor can withhold payment to a subcontractor or lower tier subcontractor for failing to provide certain payroll records.
These two new sections increase liability for prime contractors of a construction project, making them liable for all subcontractors that they choose to use on the jobsite for up to three years.
Helpful Tips for Prime Contractors
Prime contractors can take-charge by self-policing themselves to avoid costly claims by:
Developing programs to allow all works on their projects to be paid timely and adequately.
Amending their contracts with subcontractors and lower tier contractors to incorporate expanded indemnity, extra insured provisions for wage theft actions, compliance provisions, and incorporating a vetting process to ensure compliance and adequate financial coverage for the prime contractor.
Providing training to their employees to allow for the acceptable inspection of subcontractor payroll records and apply the withholding of payments to their subcontractors if there is a potential violation.
Employers with 10 or more employees in New York will be required to automatically enroll their employees into a retirement savings program.
The New York Secure Choice Savings Program Act (the “program”) was enacted into law as part of the 2018-19 New York State Budget. The program was designed to create a system where employees that work for employers who do not already offer a retirement saving plan could voluntarily opt in to fund an individual retirement account (IRA) through payroll deductions. The program – as originally designed – never really took off because it was voluntary. However, recently, New York amended the program to make it mandatory for covered employers to enroll their employees into the savings program. Here, we describe the program, as amended, and where it stands.
Coverage and Applicability
Initially, the program applies to for-profit and non-profit employers in New York state that meet the following:
the employer had at all times during the previous calendar year at least 10 employees in New York,
the employer has been in business for at least 2 years, and
the employer does not offer a qualified retirement plan such as a 401(k) or 403(b).
All three of these requirements have to be met in order for an employer’s participation in the program to be mandatory.
A “qualified retirement plan” most often comes in the form of a 401(k) or 403(b), but the definition includes other types of retirement plans too.
The legislation contains a provision prohibiting an employer from terminating a employer sponsored retirement plan for purposes of participating in the Secure Choice Savings plan.Thus, employers who already have a qualified retirement plan in place are not required to participate in the State’s program.
What are Covered Employers Required to do?
A participating employer’s duties under the program are intended to be administrative. Participating employers must:
set up a payroll deposit retirement savings arrangement,
automatically enroll each employee who does not opt out of the program,
withhold and remit employee contributions to the program, and
disseminate the state’s employee informational materials (which have not yet been published).
This program is designed with the intention of not creating an employer-sponsored retirement plan subject to ERISA. Thus, unlike with a 401(k) plan, for example, participating employers will not have to perform nondiscrimination testing or the like for the plan.
For employees who do not elect a deferral amount, the default election will be 3% of wages. Additionally, the individual retirement accounts created under this program will be Roth which means they will be after tax contributions. Pre-tax contributions are not permitted.
To what Employees does this Apply?
This program covers all employees in the State who are at least 18 years old and who earned wages working for an employer in the State. Interestingly, the program does not distinguish between part-time and full-time employees, so all must be included. Nonetheless, employees can opt-out of participation in the program at any time.
When is this Effective?
This is unclear. The legislation technically became effective immediately, but it calls for enrollment of employees to begin no later than December 31, 2021. The implementing regulations and guidance from the State will need to be issued before the law’s requirements can even take effect. Additionally, participating employers must set up their payroll deposit arrangements within 9 months of the program opening for enrollment. However, the State may delay implementation of the program by up to 12 months if they determine it is necessary.
Operating and Maintaining the Program
The program is designed to be run by a 7-member New York Secure Choice Savings Program Board (the “Board”). This Board is a fiduciary of the program and they are tasked with designing and operating the program. The implementing legislation provides just a general framework for the Board to work within and leaves the Board to make many important decisions, such as the investment options offered to the participants.
It should be noted that participating employers are not fiduciaries under this program. This means they will face no liability with regard to investment returns, program design, and benefits paid to program participants.
Who is paying for this?
The legislation allows the State to pay administrative costs associated with the creation and management of the program until the program has sufficient assets to cover these costs itself. At that point, costs associated with the program–including any repayment of start-up funds provided by the State–must be paid out of money deposited in the program.
Will this impact the NYC auto-IRA law?
This is unclear, but it seems likely. Earlier this year, New York City (NYC) became just the second city to enact a mandatory auto-IRA law. The NYC legislation, however, provides that if the State enacts a retirement savings program that “requires a substantial portion of employers who would otherwise be covered employers to offer to their employees the opportunity to contribute to accounts through payroll deduction” the NYC program will be discontinued. Thus, there would seem to be pre-emption of the NYC law by the NYS law. However, there is some uncertainty because the NYC program applies to employers with 5 or more employees in NYC while the New York State program applies to employers with 10 or more employees in the State. Despite this difference, there is a possibility that New York City will discontinue its program.
Penalties for Noncompliance
The law does not specify a penalty, however, this might change once implementing regulations or guidance are issued.
NYS Minimum Wage Rate Set to Increase on December 31, 2021
The “upstate” minimum wage rate will be increasing from $12.50 to $13.20 effective December 31, 2021. Upstate employers paying minimum wage should ensure that this increase is effective for all work performed on December 31. The first date for when the new minimum wage rate will take effect is not January 1, 2022. As previously established, the minimum wage in Long Island and Westchester County will increase to $15.00/hour effective December 31, 2021.
Employers should consider the impact of the minimum wage increase on issues such as spread of hours, as the “credit” for the spread of hours will now decrease for non-exempt employees whose base wages are only slightly higher than the minimum wage.
Please let us know if you have any questions about these minimum wage changes.
Under NY’s amended Whistleblower Law, employers will have to be more cautious about how they interact with their employees.
Although New York has had an employment-related whistleblower statute for decades, many employers may not have been aware of it. That is because the statute itself – N.Y. Labor Law Section 740 – has been fairly limited in its scope and application. Indeed, it has only protected employees who disclose employer activity that violates laws relating to public health and safety or to health care fraud. Disclosures of other unlawful activities have not been protected by Section 740.
Starting next year, this is about to change. Gov. Hochul has signed a bill that will amend and expand Section 740. The amended law, which is scheduled to take effect on January 26, 2022, drastically expands the breadth and scope of Section 740 by making it significantly easier for New York workers to bring a claim, lengthening the statute of limitations, and imposing a notice requirement on employers.
The Key Changes to Section 740:
Independent contractors can bring claims too: As a starting point, under the amended law, not only will current and former employees be able to assert legal claims against the employer, but so will independent contractors.
Broad expansion of protected activity: Perhaps the most noteworthy aspect of the amendment is how it expands the types of employee activities that are protected under Section 740 of the Labor Law.
Previously, Section 740 was a narrow statute that primarily barred employers from taking retaliatory action against employees only where the employee had disclosed or threatened to disclose to a supervisor or public body, or had objected to or refused to participate in “an activity, policy or practice of the employer that is in violation of law, rule or regulation which violation creates and presents a substantial and specific danger to the public health or safety, or which constitutes health care fraud.” The prior version of the law thus required that an actual legal violation have occurred – i.e., an employee’s reasonable belief that a violation had occurred was insufficient – and was intended to curb only activities that posed a substantial and specific danger to public health or safety or that constituted health care fraud.
The amended statute, however, broadly expands this scope of protected activity. Specifically, the law now bars employers from taking retaliatory action where the employee discloses or threatens to disclose to a supervisor or public body, or objects to or refuses to participate in “an activity that the employee reasonably believes is in violation of law, rule or regulation or that the employee reasonably believes poses a substantial and specific danger to the public health or safety.” The new definition, therefore, essentially protects, and bars employers from retaliating against workers who report any actual, or reasonably perceived by the employee, violation of any law, rule, regulation, executive order, or judicial or administrative decision, ruling, or order at all, regarding of its subject matter.
Broadened definition of retaliatory action: Section 740 has always barred employers from taking retaliatory action against employees who engage in activity that is protected by the statute. However, previously, “retaliatory action” was defined to include only the discharge, suspension, or demotion of an employee, or other adverse employment action. Under the revised statute, the definition of “retaliatory action” has been expanded. It now includes any actual or threatened (i) adverse employment actions, (ii) actions that would adversely impact the individual’s current or future employment, or (iii) reporting of the suspected citizenship or immigration status of an employee or their family or household members.
Lengthened statute of limitations: To date, Section 740 has provided for a one-year statute of limitations for whistleblower claims. As amended, the statute of limitations for filing a retaliation claim will be increased to two years.
Additional forms of relief: Previously, Section 740 provided that a plaintiff-employee could seek injunctive relief, reinstatement to the same or an equivalent position, reinstatement of full fringe benefits and seniority rights, compensation for lost payments and benefits, and attorney’s fees. Under the revised statute, a prevailing plaintiff may now also be entitled to recover front pay, punitive damages, and a civil penalty of up to $10,000. The amended law also makes clear that parties to a Section 740 claim are entitled to a jury trial (though this portion of the law may well be preempted by the Federal Arbitration Act).
Notice requirement: The prior iteration of Section 740 contained no notice requirement. The amended statute, however, requires that all Empire State employers post a notice of employee whistleblower protections, rights, and obligations in an easily accessible, well-lighted place that is often frequented by employees and applicants. Note, Section 741 of the N.Y. Labor Law, which pertains to the health care industry, was also amended to include a notice requirement, but otherwise, it remains substantively unchanged.
Employer recommendations
Employers should immediately train their human resources personnel and supervisors about this new law and update any relevant policies (including but not limited to whistleblower policies, retaliation policies, and complaint procedure policies). These expanded provisions will create a very easy way for disgruntled employees to sue their employers. Thus, managers and first-line supervisors will need to be trained to better recognize these new “traps.”
Lastly, employers should ensure that a notice of employee whistleblower protections, rights, and obligations is posted by January 26, 2022.
Employers who reserve the right to view employees’ email and other electronic communications must comply with a new NY law.
On November 8, 2021, Governor Hochul signed legislation amending the State civil rights law to add a new provision requiring employers who engage in electronic monitoring to notify workers of such.The amendment (A.430/S.2628), which takes effect 180 days after the governor’s signature, applies to any private employer with a place of business in New York that “monitors or otherwise intercepts” any employee’s telephone conversations, emails, or internet access or usage by “any electronic device or system.”
Under the new provision, a private employer who engages in such monitoring of employees must give prior written notice upon hire to all employees who are subject to electronic monitoring. This notice must be in writing or in an electronic record, and must be acknowledged by the employee in writing or electronically.
Employers must also post the notice of electronic monitoring “in a conspicuous place which is readily available for viewing by its employees who are subject to electronic monitoring.”
The contents of the notice must advise employees that:
“[A]ny and all telephone conversations or transmissions, electronic mail or transmissions, or internet access or usage by an employee by any electronic device or system, including but not limited to the use of a computer, telephone, wire, radio or electromagnetic, photoelectronic or photo-optical systems may be subject to monitoring at any and all times and by any lawful means.”
The amendment additionally imposes fines on employers violating the new requirement: a maximum of $500 for the first offense, $1,000 for the second offense, and $3,000 for the third and each subsequent offense.
In addition to providing and posting the notice as required, any private employer with a place of business in New York is advised to add an additional policy to their handbook in response to this new requirement.
On September 23, 2021, New York State issued updated model airborne infectious disease exposure prevention plans for employer use pursuant to the HERO Act. While a general model plan appropriate for office workplaces and separate plans for certain specific industries were previously issued by the New York State Department of Labor (NYDOL), these have now been updated and reissued with substantive changes to two sections – face coverings and social distancing.
With regard to face coverings, the model plans now provide that, in workplaces where all individuals on premises, including but not limited to employees, are fully vaccinated, face coverings are “recommended, but not required.” For all other workplaces, the model plan now states: “Employees will wear appropriate face coverings in accordance with guidance from State Department of Health or the Centers for Disease Control and Prevention, as applicable.” Previously, the model plans stated that “employees will wear face coverings throughout the workday to the greatest extent possible” and “[f]ace coverings and physical distancing should be used together whenever possible.”
With regard to social distancing, the revised model plans remove prior references to “avoiding unnecessary gatherings” and “using a face covering when physical distance cannot be maintained.” Now, the section states only: “Physical distancing will be used to the extent feasible, as advised by guidance from State Department of Health or the Centers for Disease Control and Prevention, as applicable.” The revised plans still, however, require the employer to list the health and safety controls it will implement in circumstances where distancing cannot be maintained.
As a reminder, the foregoing Hero Act requirements are applicable to LHCSA office staff, fiscal intermediary office employees, and personal assistants in CDPAP.
The Department of Labor’s Latest Final Rule Publication Regulates Managers Who Receive Tips.
The Wage and Hour Division of the U.S. Department of Labor has published its final rule addressing managers who receive tips and penalties for violations of the Fair Labor Standards Act (FLSA) (the “September Tip Final Rule”). These regulatory amendments will be effective Nov. 23, 2021.
Managers Who Receive Tips
As expected, the Tip Final Rule tracks the 2018 Consolidated Appropriations Act (CCA) by prohibiting managers, supervisors and employers from keeping employees’ tips, and it defines managers and supervisors in line with the executive exemption from overtime. Also as expected, the September Tip Final Rule allows mandatory tip pools to include employees who do not customarily and regularly receive tips if the employer pays all employees in the pool the full minimum wage and does not take a tip credit.
The DOL clarified that managers, supervisors and employers who receive tips could contribute to a tip pool, but they could not receive tips from a tip pool. “[T]he Department adopts changes to its regulations to clarify that, while an employer may not allow a manger or supervisor to keep other employees’ tips by receiving tips from a tip pool or tip sharing arrangement, section 3(m)(2)(B) does not prohibit an employer from requiring a manager [or] supervisor who receives tips directly from customers to contribute some portion of those tips to eligible employees in an employer-mandated tip pooling or tip sharing arrangement.” Even if a manager or supervisor meets the requirements to be paid with a tip credit and to participate in a tip pool, the DOL explained that if they qualified as a manager or supervisor under section, they cannot receive tips from the tip pool or keep other employees’ tips. The DOL also noted that employers could similarly contribute tips to a tip pool.
A key change is the DOL’s decision to emphasize that supervisors and managers can keep tips only for services that they directly and solely provide. The DOL added the term “solely” in the September Tip Final Rule to “prevent managers and supervisors from keeping tips when it is not possible to attribute the tip solely to the manager or supervisor.” Thus, the supervisors and managers in compliance with the FLSA are not keeping “any portion” of other employees’ tips. As an example, the DOL explains that a manager who “simply runs food to a table for which a server is otherwise responsible” may not keep any portion of the tip left for the server because “that tip was not earned solely by the manager or supervisor.”
Penalties for Violations of the FLSA
The 2020 Tip Final Rule added to the DOL’s regulations civil money penalties (CMPs) for violation of section 3(m)(2)(B) – the statutory prohibition of employers keeping employees’ tips. See 29 U.S.C. § 216(e)(2) (adding new penalty language to the FLSA). The DOL took issue with the 2020 Tip Final Rule’s limitation of CMPs to only willful or repeated violations of section 3(m)(2)(B). So, the September Tip Final Rule follows the March 25, 2021 NPRM and does not restrict CMPs for violation of section 3(m)(2)(B) to only “repeated or willful” violations. The DOL reasoned that the CCA did not limit the DOL’s power to assess CMPs for violations of section 3(m)(2)(B) to only willful or repeated violations and, instead, granted to the DOL the authority to assess CMPs “as the Secretary determines appropriate.” With these amendments, the DOL has “adopt[ed] the same rules, procedures, and amount considerations for tip CMP assessments as the [DOL] applies for other FLSA CMP assessments, which will promote the goals of consistency and familiarity.” For employers, this means the DOL can assess CMPs when an employer keeps employees’ tips without having to establish the employer’s violation was willful or repeated.
The September Tip Final Rule goes beyond regulation of tipped employees by publishing amendments to the regulations governing when a violation of the FLSA overtime or minimum wage provisions is willful. The September Tip Final Rule amends sections 578.3(c)(2) and 579.2 in accordance with the NPRM so “an employer’s receipt of advice from [the Wage and Hour Division] that its conduct is unlawful is ‘not automatically dispositive’ of a knowing violation . . . and . . . should not ‘automatically subject’ an employer to CMPs where the employer has a legitimate disagreement with the [Wage and Hour Division] concerning the FLSA’s coverage.” But employers should not get too excited, because the amendments also emphasize that other circumstances showing the employer knew its conduct was unlawful can be sufficient to show that a violation is knowing. “All facts and circumstances surrounding the violation must be taken into account when determining willfulness.”
The September Tip Final Rule also defines willfulness to include “reckless disregard of the FLSA.” According to the DOL, these amendments establish that “an employer is in reckless disregard of the FLSA when, among other situations, the Department determines based on all of the facts and circumstances that the employer should have inquired into whether its conduct was lawful but failed to do so adequately.” However, the DOL intended these amendments “to make clear that reckless disregard can be proven by evidence other than that the employer should have inquired further but did not do so adequately.”
Employers should exercise caution when managers or supervisors keep tips received from customers even for services they directly provided, because amended section 531.52(b)(2) does not allow a manager or supervisor to keep such tips if another employee provided services for the same customer. Additionally, while the DOL provided some clarity in the regulations governing CMPs, it also included language the DOL interprets as expanding the scope of evidence that the DOL can use to support a willful violation.
