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On August 31, a Texas federal district court ordered that the U.S. Department of Labor's (DOL) rule, which would have increased the minimum salary threshold for exempt “white collar” employees from $455 to $913 per week, is invalid [Nevada v. U.S. Department of Labor, No. 4:16-CV-731 (E.D. Texas, 8-31-17)].
In doing so, the court confirmed a preliminary order issued in November 2016 that temporarily blocked the rule from taking effect. The court said that the higher salary level impermissibly undercut the effectiveness of the duties test. The court also found the mechanism that would have adjusted the salary level for inflation was invalid.
Earlier in the legal proceedings, the DOL signaled that it would revise the regulation and has published a request for information in the Federal Register. Comments are due by September 25. Until new regulations are issued or there is a successful appeal of this decision, the current salary threshold and duties test remain in effect.
Pay News Now will continue to monitor the evolution of the DOL’s overtime rule as it unfolds in the coming months. Comment below and let us know what you think of the federal court’s decision to block increasing the minimum salary threshold for exempt “white collar” employees.
There will be a new 0.1% Public Transportation Payroll Tax on employee wages in Oregon, effective July 1, 2018 [H.B. 2017, L. 2017]. The new tax will fund transit projects in the state.
Who Will Be Taxed?
The tax will be imposed on state residents regardless of where services are performed and nonresidents for services performed in the state.
Nexus Required for Withholding
Employers will withhold the tax from nonresident employees’ wages and from certain resident employees’ wages. Residents subject to the new tax who work out of state for an employer not doing business in Oregon will report and pay the tax themselves (i.e., an employer with no nexus is not required to withhold the tax).
Employer Reporting and Penalties
An employer will report and pay the tax to the Oregon Department of Revenue (DOR) at the time and manner determined by the rule (the tax may be included in the Oregon combined quarterly tax report). An annual return will have to be filed with the DOR. If an employer fails to deduct and withhold the tax as required, it will be responsible for the amount of the tax and a penalty of $250 per employee, up to a maximum of $25,000, if the failure is willful.
More information, including rules and guidance issued by the DOR, will be reported in PayState Update when available.
On August 8, Oregon Governor Kate Brown signed legislation making Oregon the first state to set fair scheduling requirements for employers in certain industries [S.B. 828, L. 2017]. Several cities have already enacted similar laws, including Emeryville, New York City, Seattle, and San Francisco. Most provisions of the law are set to take effect July 1, 2018.
Covered employers include retail, hospitality, and food services establishments that employ 500 or more employees worldwide.
Employers must provide employees with:
- Good faith estimates of employee work schedules
- Advance notice of the work schedule (at least seven calendar days)
- The right to rest between work shifts
- Compensation for work schedule changes (under certain circumstances)
Notice and Recordkeeping Requirements, Enforcement
The Oregon Bureau of Labor and Industries will enforce the law and will develop a template for a notice poster that must be displayed at the workplace. The poster may be distributed electronically to employees who work remotely. An employer must maintain records that document compliance with the law for three years. Employers will be subject to penalties of up to $500 and $1,000 for certain violations under the law, effective January 1, 2019.
Pay News Now will continue to monitor or provide any updates.
California and the Virgin Islands have applied to the U.S. Department of Labor (DOL) for a Benefit Cost Rate (BCR; sometimes referred to as Benefit Cost Ratio) add-on waiver by the, deadline. California and the Virgin Islands are on the DOL’s updated list of potential Federal Unemployment Tax Act (FUTA) credit reduction states for 2017 [DOL, Potential 2017 Federal Unemployment Tax Act (FUTA) Credit Reductions, rev. July 2017]. States had until July 1, 2017, to apply for a waiver.
What Is BCR Add-on?
The BCR add-on is in addition to the 0.3% per year FUTA credit reduction (see The Payroll Source®, p. 7-8). The additional tax varies by state and is based on a complex calculation. The calculation compares the average benefits that have been paid out by the state, the taxable wages, and the average tax rate on taxable wages in the state.
California and the Virgin Islands continue to have outstanding Federal Unemployment Account (FUA) loans, and, therefore, will likely be subject to a 2017 FUTA credit reduction. The credit reduction was also predicted in the spring, with the potential total credit reduction remaining 2.1% for California and 3.2% for the Virgin Islands unless it receives the BCR waiver.
Note that California may not have been subject to the BCR add-on for 2017. The calculation is based on the difference between a state's average total Unemployment Insurance (UI) benefits paid over the past five years and the state's average UI tax rate in the previous year. The calculation, using estimated wages, came out to zero for California because its average tax rate was greater than its average UI benefits for the past five years. However, the state applied for the waiver, “just in case.”
Deadline For Credit Reduction
The final determination of FUTA credit reductions will not be made until the November 10, 2017, repayment deadline.
Pay News Now will continue to monitor any updates to the FUTA credit reductions.
On July 5, Washington Governor Jay Inslee signed paid family and medical leave insurance legislation [S.B. 5975, L. 2017]. Effective January 1, 2020, eligible employees will be entitled to paid leave to care for a new child or sick family member. Effective January 1, 2019, employers and employees will begin making contributions to fund the program. The Washington Department of Labor and Industries will administer the program.
Plan Funded Through Payroll Deductions
Employers and employees will both make contributions to the paid family and medical leave insurance program through payroll deductions.
Beginning January 1, 2019, the total premium will be 0.4% of an employee’s wages (up to a maximum amount that will be set annually). The employer will pay at least 37% and the employee will pay 63%.
Example: A full-time worker earning $15 an hour ($600 per week) would contribute $1.51 per week toward the benefit, while the employer would pay 89 cents (for a total of $2.40 per week). An employer may elect to pay all or any portion of the employee’s contribution.
Paid Family Leave Previously Enacted, Never Took Effect
On May 8, 2007, a family leave insurance program that would have provided up to five weeks of paid leave to care for a newborn or newly adopted child was signed into law in Washington. The law was set to take effect in 2009, but was delayed and never took effect. The law did not provide how the program was to be funded and a funding mechanism was never agreed upon.
Pay News Now will continue to monitor any states that enact paid family and medical leave.
The U.S. Department of Labor (DOL) published a Request for Information (RFI) on July 26th in the Federal Register for the white collar exemptions to the overtime pay requirement [82 F.R. 34616, 7-26-17]. The RFI allows the public to provide information to aid the DOL in revising the regulations that define exemptions from the Fair Labor Standards Act (FLSA) minimum wage and overtime requirements for certain employees.
The final rule, which was to go into effect on December 1, 2016, would have increased the standard salary level from $455 to $913 a week (81 F.R. 32391, see PAYROLL CURRENTLY, Issue No. 6, Vol. 24). The rule was blocked from going into effect on November 22, 2016, by a federal district court judge. The DOL appealed the court’s ruling to the Fifth Circuit. On June 30, the DOL answered the court and requested that it reaffirm the DOL’s statutory authority to establish a salary level test, without defending the salary level set in the rule. Oral arguments in the case have been tentatively scheduled for October 2.
Why the RFI Was Published
In the RFI, the DOL stated that it “is aware of stakeholder concerns that the standard salary level set in the 2016 final rule was too high.” The DOL said that employers have expressed concern that the new salary level excludes from exemption too many workers who pass the standard duties test.
The DOL requests comments on the 2016 revisions to the white collar exemption regulations, including:
- Whether the standard salary level set in that rule effectively identifies employees who may be exempt
- Whether a different salary level would more appropriately identify such employees, the basis for setting a different salary level
- Why a different salary level would be more appropriate or effective.
Comments will be accepted until September 24. They may be submitted electronically on the federal eRulemaking Portal. The DOL encourages electronic submissions, however written comments should be sent to:
Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division
U.S. Department of Labor, Room S-3502
200 Constitution Ave., N.W.
Washington, DC 20210
Respondents do not need to reply to every question and all submissions must include the agency name (DOL) and the Regulatory Information Number (RIN 1235-AA20).
Check back in with Pay News Now as we continue to monitor these updates.
On July 17, United States Citizenship and Immigration Services (USCIS) released revised versions of Form I-9, Employment Eligibility Verification, and its instructions [USCIS, What’s New, Revised Form I-9 Now Available, 7-17-17].
Up until September 17, employers may use the revised version or continue using the previous Form I-9 (Rev. 11/14/16 N). On September 18, employers must use the revised form (Rev. 07/17/17 N). The revised form and instructions are available on USCIS’s website.
Updates to the instructions include:
- The reference to the U.S. Department of Justice’s Office of Special Counsel for Immigration-Related Unfair Employment Practices has been updated to reflect the office’s new name, Immigrant and Employee Rights Section.
- Where the instructions stated that certain actions had to be completed no later than “the end of the first day of employment,” the words “the end of” have been removed.
List C Document Updates
Updates to the List C Document include:
- Form FS-240, The Consular Report of Birth Abroad, has been added to List C. Employers completing Form I-9 on a computer will be able to select Form FS-240 from the drop-down menus. E-Verify users will also be able to select Form FS-240 when creating a case for an employee who has presented this document for Form I-9.
- All state department issued certifications of report of birth (Form FS-545, Form DS-1350 and Form FS-240) have been included in selection C #2 in List C.
- All List C documents except the social security card have been renumbered.
Next Revision Expected March 2018
On July 11, USCIS published a notice in the Federal Register delaying the effective date of the changes involving the new entrepreneur parole rule to March 14, 2018 [F.R. 31887, 7-11-17; (see PAYROLL CURRENTLY, Issue No. 7, Vol. 25)]. On or before that date, USCIS expects to release an updated version of the Form I-9 to accommodate changes made by the entrepreneur parole rule. The updates will include changes to the description of certain List A documents. The terms “nonimmigrant alien” and “alien’s nonimmigrant” will be replaced by “individual,” and in List A item 5.(b)(2) the words “or parole” will be added after “status.”
Pay News Now will continue to monitor any updates to the Form I-9 and Instructions.
The New York Unemployment Insurance Appeal Board recently ruled that three Uber drivers and “all others similarly situated” are employees, rather than independent contractors, and therefore entitled to unemployment insurance (UI) benefits. Uber has indicated it will appeal the ruling to a higher level of the Appeal Board. After that, any future appeal would be heard in state court [New York Unemployment Insurance Appeal Board, A.L.J. Case No. 016-23858, 6-9-17].
Issue of Control
The administrative law judge (ALJ) concluded that “Uber did not employ an arms’ length approach” to the drivers that would be found in an independent contractor arrangement. According to the ALJ, Uber remained involved with the means by which the drivers provided transportation services for passengers. The drivers were responsible for their own cars and associated costs. The drivers testified that Uber provided them with weekly direct deposit services, and issued weekly pay statements. The pay statements were prepared by Uber, and included the fares the drivers earned based on completed rides, deductions from the fares for Uber’s fee, and any withholdings (including payments by Uber to third-party vendors on the drivers’ behalf for leases of cars that met Uber’s standards). Uber set the base rate charged to drivers, and drivers did not negotiate the terms of Uber’s fee.
The ALJ concluded that the drivers were each “subjected to substantial supervision and control by Uber.” Though the ALJ found there were some indications of the drivers’ independence, “the overriding evidence establishes that Uber exercised sufficient supervision, direction, and control over key aspects of the services rendered” by the drivers, establishing an employer-employee relationship.
Subscribe to PayState Update to keep up with the latest status of the appeal.
Recently, New York City and Emeryville, California, enacted “Fair Workweek” ordinances that will set scheduling requirements for employers in certain industries. Scheduling ordinances have previously been enacted in Seattle and San Francisco. It is important for payroll professionals to be aware of these ordinances, as more cities and possibly states start to pass them. Some key elements of the ordinances in each city are explained below.
New York City
Several bills were enacted together and are collectively called “Fair Workweek” legislation. Effective November 26, 2017, there are requirements for retail employers and fast food employers [Bill Nos. 1384-2016, 1387-2016, 1388-2016, 1395-2016, 1396-2016, L. 2017].
• Retail employers
Covered retail employers include those with 20 or more employees at one or more stores in New York City. The practice of on-call scheduling is banned, and employers are prohibited from canceling an employee’s shift or requiring an employee to come to work with less than 72 hours’ notice.
• Fast food employers
A fast food establishment is defined, in part, as one that is part of a chain of more than 30 or more establishments nationally. If changes are made to the schedule, the employer must pay schedule premiums to the employee ranging from $10 to $75 for each change to the work schedule. The amount depends on how much notice is given (less than 14 days, 7 days, or 24 hours), whether hours are added or subtracted to a shift, and whether a shift is changed or canceled. The employer is required to pay the schedule change premiums at the same time the employer pays the employee wages owed for the work performed during that workweek and must be separately noted on the pay statement. The premiums are not due under certain circumstances.
The Fair Workweek Ordinance is effective July 1, 2017. Covered employers include retail firms with 56 or more employees globally, and fast food firms with 56 or more employees globally and 20 or more employees in Emeryville. The ordinance will require employers to provide good faith estimates of work schedules and allow employees to request modifications to the schedule. Employers must provide notice of any change to the schedule. Employees have the right to decline any previously unscheduled hours if less than 14 days’ notice is provided. Compensation is required if the employee works the changed schedule:
• If the changes are made with less than 14 days but at least 24 hours’ notice, one hour of predictability pay is required.
• If the changes are made with less than 24 hours’ notice, four hours or the number of hours in the scheduled shift, whichever is less, of predictability pay is owed [Ordinance No. 16-007, L. 2017].
Read PayState Update to learn more about the “Fair Workweek” ordinances.
On May 23, the Trump administration released its proposed budget for fiscal year 2018 (October 1, 2017 – September 30, 2018). The budget proposal includes many items that would affect payroll operations.
Trump Administration Priorities
In his budget message to Congress, President Trump listed “eight pillars of reform”. Two would directly affect payroll processes.
• Health care reform
Trump reiterated his campaign promise to repeal the Affordable Care Act (ACA) and “its burdensome regulations and mandates, and replace it with a framework that restores choice and competition.” With the House of Representatives’ approval of the American Health Care Act, Congress has taken the first step in the process to repeal and replace the ACA. The Senate is reportedly working on its own health care legislation, which the Republican leadership has indicated it would like to try to pass before the July 4 recess.
The budget projects $250 billion in deficit savings associated with health care reform. It also would expand health savings accounts.
• Immigration reform
Although Trump did not specifically mention any program in his message, the budget requests necessary funding for the continued modernization of E-Verify as well as to begin the implementation of nationwide mandatory use of the E-Verify program.
Parental Leave Proposal
The budget also proposes a new parental leave program. The program would provide six weeks of paid family leave for new mothers and fathers, including adoptive parents. States would be required to establish these programs using the Unemployment Insurance (UI) system as a base. The funding for the program is described as “fully offset by a package of sensible reforms to the UI system,” including reforms to reduce improper payments, help unemployed workers find jobs more quickly, and encourage states to maintain reserves in their Unemployment Trust Fund accounts. The budget’s description of the program concludes that “the Administration looks forward to working with the Congress on legislation to make paid parental leave a reality for families across the Nation”.
Individual Agency Budgets
The budget proposal requests specific dollar amounts for various agencies, including:
• Department of Labor
The 2018 budget proposal is $9.7 billion (down from $12.1 billion), a 19.8% budget reduction. However, the Wage and Hour Division would see a slight increase from $230 million to $233 million.
The 2018 budget provides $10.975 billion for the IRS to administer the tax code and implement key strategic priorities. This is a reduction from $11.2 billion for 2017. The budget proposal also renews two provisions related to payroll service provider (PSP) fraud. First, change-of-address confirmations relating to an employer making employment tax payments must be sent to both the old and new addresses. Second, the IRS must give special consideration to an offer-in-compromise from a victim of PSP fraud.
• Social Security Administration (SSA)
The SSA would see a 0.3% increase in its budget, from $9.0 billion to $9.1 billion.
Additional informational materials, such as fact sheets and historical tables, are also available on the Office of Management and Budget website. The Appendix page contains budget estimates for individual federal agencies. It is important to remember that the items listed above are merely proposals and have not yet been enacted into law.
Check back with Pay News Now as we continue to monitor the 2018 Fiscal Year Budget Proposal.