High Court Agrees Pension Plans Sponsored by Church-Affiliated Hospitals Are ERISA-Exempt and Upholds Decades of IRS, PBGC and DOL Guidance

In a much-anticipated decision, on June 5 the U.S. Supreme Court held that a pension plan sponsored by a religious affiliated nonprofit hospital qualifies as an ERISA-exempt church plan even though the plan was not initially established by a church. In this decision the Court reversed three consolidated decisions by the Third, Seventh and Ninth Circuits holding that defined benefit pension plans initially established and sponsored by church affiliated nonprofit hospitals and healthcare facilities were not ERISA-exempt church plans specifically because they were not initially established by a church.  These courts held that since the church plan exemption did not apply, the plans must comply with ERISA’s funding, participation, vesting, reporting and disclosure rules.  In doing so, the Court affirmed long-standing guidance by the Internal Revenue Service, the Department of Labor, and the Pension Benefit Guaranty Corporation that ERISA’s church-plan exemption applies to plans sponsored and maintained by religious affiliated nonprofit hospitals regardless of whether a church initially established the plans.  Advocate Health Care Network v. Stapleton.

The Court focused on the plain meaning of ERISA’s church plan exemption and noted that while the term “church plan” was initially defined in ERISA to include only those plans “established and maintained . . . for its employees . . . by a church or by a convention or association of churches,” the definition was later amended to include additional plans.  The Court found that Congress specified that “for purposes of the church-plan definition, an ‘employee of a church’ would include an employee of a church-affiliated organization (like the hospitals here)” which the Court referred to as principal-purpose organizations. The Court found that Congress supplemented ERISA’s definition of church plan with the following provision: “A plan established and maintained for its employees . . . by a church or by a convention or association of churches includes a plan maintained by an organization . . . the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.”  In effect, the Court held, “The church-establishment condition thus drops out of the picture.”

While the benefit plans at issue in this case were defined benefit pension plans, this holding has broad application to all benefit plans that are established by a principal-purpose organization and would otherwise be subject to ERISA’s funding, participation, vesting, reporting and disclosure rules.

For more information about this decision and its impact on your organization and your employee benefit plans, please contact Patrick W. McGovern, Esq., pmcgovern@nullgenovaburns.com or Gina M. Schneider, Esq., gmschneider@nullgenovaburns.com in the Firm’s Employee Benefits Practice Group.

How to Avoid Disney’s Not-So-Fairy Tale $3.8 Million Payment of Employee Back Wages

On Friday, March 17, 2017, the U.S. Department of Labor (“DOL”) and two subsidiaries of The Walt Disney Co. (“Disney”), the Disney Vacation Club Management Corp., and the Walt Disney Parks and Resorts U.S. Inc., reached an agreement to resolve claims under the Fair Labor Standards Act (“FLSA”), requiring the payment of back wages of over $3.8 million to more than 16,000 employees of the two Florida-based Disney companies.

According to the DOL, Disney deducted a uniform (or “costume”) expense from employee pay, which lead some employees’ hourly rate to fall below the federal minimum wage rate of $7.25 per hour. The subsidiaries also did not compensate the employees for performing pre- and post-shift duties while additionally failing to maintain required time and payroll records.

As part of the agreement, Disney agreed to start training all Florida-based managers, supervisors, and non-exempt employees on what constitutes compensable worktime and emphasizing the need to record all records pertaining to time accurately.

There are certain steps that employers can do to avoid the significant damages Disney incurred including:

  • Maintain accurate payroll, time, and schedule related records. This is particularly important to our hospitality and restaurant clients where record keeping can be especially difficult.  Also, remember that under the FLSA, the records must be  maintained for a minimum of three years for payroll records and six years under New Jersey and New York law.
  • Deductions are an easy target for the plaintiffs’ bar. Employers must make sure that any deductions are legal under state law and that the deductions if permissible do not bring the affected employee below the state or federal minimum wage;
  • Perform a wage and hour self-audit every two years to avoid misclassification issues and to ensure your recordkeeping and pay practices are consistent with the law;
  • To avoid donning and duffing claims (claims involving changing into and out of uniforms, costumes, and protective equipment for example), employers must take care to distinguish between non-compensable time when changing into and out of the uniform is merely for the employees’ convenience as opposed to compensable time when the job cannot be accomplished without wearing the designated uniform or costume or safety equipment and it is impractical to arrive at work wearing same.

If you have any questions or would like to discuss best practices in complying with federal wage regulations, please contact John R. Vreeland, Esq., Partner & Chair of the  Wage and Hour Compliance Practice Group at jvreeland@nullgenovaburns.com or call 973-533-0777 or Harris S. Freier, Esq., a Partner in the Employment Law and Appellate practice groups, at hfreier@nullgenovaburns.com, or call 973-533-0777.  Mr. Vreeland and Mr. Freier routinely work together in defending wage and hour class actions.  Please visit our free Labor & Employment Blog at www.labor-law-blog.com to stay up-to-date on the latest news and legal developments affecting your workforce.

Key 2017 Legal Changes that Employers and Federal Contractors Must Know About

Ready or not, 2017 is upon us and with it come many regulatory changes and important deadlines for employers and individuals. Make sure your New Year’s resolutions include compliance with the following changes and deadlines pertinent to employers and federal contractors.

Affordable Care Act

Employer Reporting. In November, the IRS extended the deadline for employers to meet their ACA reporting requirements. Employers required to furnish employees with Forms 1095 now have until March 2, 2017 to do so. The deadline to submit the Forms to the IRS remains February 28, 2017 for paper returns or March 31, 2017 for electronically-filed returns.

Marketplace Insurance. The deadline for individuals to obtain marketplace insurance coverage beginning January 1, 2017 expired on December 15, 2016. Individuals who want to enroll in marketplace insurance coverage for the balance of 2017 must do so by January 31, 2017. After the January 31 deadline, individuals may enroll in marketplace coverage only if they qualify for a Special Enrollment Period.

Required Contribution Percentages. For tax years and plan years beginning on and after January 1, 2017, the IRS increased to 9.69% of employee household income the maximum cost of coverage the employer can charge the employee for purposes of the employer mandate penalty. The IRS also increased to 8.16% of the employee’s household income the maximum cost of coverage the employer can charge the employee for purposes of determining whether the employee is eligible for an affordability exemption from the individual mandate.

IRS 2017 Contribution Limits for Retirement Plans and IRAs

The following are the IRS contribution limits for 2017:

  • 401(k) and 403(b) employee contribution limit: $18,000.
  • 401(k) and 403(b) catch-up contribution limit: $6,000.
  • IRA employee contribution limit: $5,500.
  • IRA employee catch-up contribution limit: $1,000.
  • 401(a)(17) compensation limit: $270,000.

Benefit Plan Changes

In May, the HHS Office of Civil Rights issued final rules implementing Section 1557 of ACA. Health programs must comply with these nondiscrimination rules effective January 1, 2017. Additionally, in May, the EEOC issued rules implementing Title I of the ADA and Title II of GINA as they relate to employer wellness programs. Employers must conform their wellness programs with these rules effective January 1, 2017. Plan sponsors that made material modifications to their benefit plans in the past plan year must provide participants with a Summary of Material Modifications within 210 days after the end of the plan year of the modification. For plan years ending on December 31, 2016, the SMM must be provided by July 30, 2017.

New York Minimum Wage and Overtime Salary Exemption Increase

Effective December 31, 2016, the N.Y. minimum wage and salary threshold exemption for time-and-a-half overtime pay increase based on the employer’s size and region as follows:

Minimum Wage Increase

  • New York City: Large Employer (11 or more employees): $11.00 per hour.
  • New York City: Small Employer (10 or fewer employees): $10.50 per hour.
  • Nassau, Suffolk and Westchester Counties: $10.00 per hour.
  • Remainder of New York: $9.70 per hour.

Overtime Salary Exemption Increase

  • New York City: Large Employer (11 or more employees): $825.00 per week.
  • New York City: Small Employer (10 or fewer employees): $787.50 per week.
  • Nassau, Suffolk and Westchester Counties: $750.00 per week.
  • Remainder of New York: $727.50 per week.

New Jersey Minimum Wage Increase

Effective January 1, 2017, the New Jersey minimum wage increases to $8.44 per hour.

EEO-1 Report

During 2017, no federal contractor or subcontractor is required to file an EEO-1 Report with the EEOC or DOL Office of Federal Contract Compliance Programs. The next filing date is March 31, 2018. For the March 31, 2018 filing and all future filings, EEOC and DOL will not accept paper filings. All filings must be done online. Finally, the snapshot pay period for the EEO-1 Report due on March 31, 2018 will be from October 1 to December 31, 2017 instead of July 1 to September 30.

Pay Transparency

Beginning January 1, 2017, pursuant to E.O. 13673 and the DOL Final Rule, a federal contractor or subcontractor must furnish a wage statement to each individual performing work under the federal contract if the individual is subject to the wage requirements of the FLSA, the Davis Bacon Act or the Service Contract Act. The wage statement must be provided each pay period and must include 1) the number of straight time hours worked; 2) the number of overtime hours worked; 3) the rate of pay; 4) gross pay; and 5) itemized additions to or deductions from gross pay. The federal contractor or subcontractor must inform an overtime-exempt individual in writing of the exempt status. For individuals treated as independent contractors, the federal contractor or subcontractor must provide a written notice that the individual is classified as an independent contractor.

Paid Sick Leave

Beginning January 1, 2017, pursuant to E.O. 13706 and the DOL Final Rule, a federal contractor or subcontractor must provide an employee with at least 56 hours per year of paid sick leave or permit an employee to accrue not less than one hour of paid sick leave for every 30 hours worked under a covered federal contract.

If you have any questions or would like to discuss how these changes and dates affect you or your business, please contact Patrick W. McGovern, Esq. at 973-535-7129 or pmcgovern@nullgenovaburns.com, or Nicole L. Leitner, Esq. at 973-387-7897 or nleitner@nullgenovaburns.com.

Major Changes to Federal Overtime Regulations Take Effect December 1. Are You Prepared?

This week, President Obama and Secretary of Labor Thomas Perez announced the publication of a final rule to take effect December 1 that will overhaul the Fair Labor Standard Act’s overtime regulations. The U.S. Department of Labor (USDOL) estimates that these changes will add more than four million employees to the overtime rolls.

Right now, in general, an employee is exempt from overtime pay if the employee satisfies three tests:

  • Duties Test: The employee’s primary job duties qualify as executive, administrative, or professional in nature, as these terms are defined in the regulations.
  • Salary Basis Test: The employee is paid on a salary basis, meaning the employee receives a predetermined and fixed salary that is not reduced because of variations in the quality or quantity of the work performed (i.e., no docking).
  • Salary Level Test: The employee’s weekly salary meets the minimum amount specified in the regulations.

The most significant change in the USDOL’s new rule is to the Salary Level Test. Today, the minimum salary needed to qualify for exempt status is $455 per week, or $23,600 annually. On December 1, 2016, this minimum will increase to $913 per week! This means in order to be exempt, an employee must be paid an annual salary of at least $47,476.

By more than doubling the minimum salary amount, many salaried employees who work long hours and currently qualify for an overtime exemption will on December 1 become eligible for overtime pay unless their salaries are increased. An employee whose weekly salary is below $913 will become overtime-eligible and you will have to track the employee’s hours of work through a verifiable timekeeping method and pay time-and-a-half for each hour worked over 40 in a workweek.

Employers need to start preparing now. First, you must identify your exempt employees whose salaries are below the new salary threshold. Then perform a business analysis to determine whether it is more cost effective to increase employee salaries to the minimum threshold, or treat these employees as overtime-eligible. We also recommend that you take this opportunity to evaluate whether your exempt employees are satisfying the other two tests. Many times we find that an employee’s exempt status is based on a job description that no longer accurately reflects the employee’s actual job duties. We recommend that employers self-audit their job classifications at least every two years to ensure employees classified as exempt currently satisfy a duties test and that pay practices for exempt employees meet the Salary Basis Test. Periodic self-audits are especially important now because the USDOL’s new rule establishes a mechanism for automatically updating the salary level every three years.

Employers cannot afford to be out of compliance with the FLSA. The Departments of Labor at both the federal and state levels have already signaled that they intend to aggressively enforce wage and hour laws. In addition, plaintiffs’ lawyers have become focused on wage and hour claims. Wage and hour litigation is by far the fastest growing type of employment litigation. Last year, more than 9,000 FLSA lawsuits were filed in the United States; many of them were filed as “collective actions” – the FLSA’s version of a class action. That is a 450% increase since 2000. This trend will almost certainly continue as plaintiffs’ lawyers hope to catch employers flat-footed and out of compliance with the new overtime regulations.

Wage and hour litigation can be expensive for employers. The FLSA provides for 100% liquidated damages – or double damages. It also shifts the plaintiff’s legal costs to the employer, meaning if the plaintiff proves a single violation of the law, the employer pays the plaintiff’s attorneys’ fees. This typically makes it difficult to resolve these types of suits early as the FLSA creates an incentive for a plaintiff’s lawyer to work the case and then recover attorneys’ fees when the lawsuit finally ends.

Again, the time to prepare is now, not when you receive the lawyer’s demand letter or the Department of Labor’s enforcement notice. A thorough self-audit, especially with the assistance of counsel, is an employer’s best protection against costly wage and hour enforcement actions and lawsuits.

For more information regarding these recent developments, please contact John R. Vreeland, Esq. Director of the firm’s Wage & Hour Compliance Practice Group, at jvreeland@nullgenovaburns.com or 973-533-0777.

EEOC to Require Pay Data From Employers Starting in 2017

In an on-going effort to close the pay gap for women and minorities, on January 29, 2016, the Obama Administration announced that the U.S. Equal Employment Opportunity Commission (EEOC) will now require federal contractors and employers with 100 or more workers to provide data related to pay practices. Starting in September 2017, the EEOC will request data on pay ranges and hours worked for all employees in addition to the information collected on employer EEO-1 reports. The EEO-1 report, also known as the “Employer Information Report,” is a compliance survey mandated by federal statute and regulations which must be submitted and certified no later than September 30th, annually. The report currently requires federal government contractors and companies with 100 or more employees to disclose employment data to be categorized by race, ethnicity, gender and job category.  In addition, employers will must report job categories and pay bands but will not be required to report specific salaries of each individual employee.  Employers will also be required to report on the total W-2 earnings as the measure of pay.

The new requirement will provide the EEOC and the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) with more insight into pay disparities across different industries and occupations as well as assist the agencies in investigating those employers who appear to be engaged in wage discrimination.  The EEOC’s announcement was made on the seventh anniversary of the Lilly Ledbetter Fair Pay Act which provides employees with a 180-day statute of limitations for filing an equal-pay lawsuit regarding pay discrimination after each paycheck.

The Obama Administration estimates that compliance with the new EEO-1 reporting requirements will cost less than $400 per employer the first year and a few hundred dollars per year after that.  The EEOC’s proposed revisions to the EEO-1 report were published as of February 1, 2016. Public Comment on the proposed changes will be open until April 1, 2016.

What This Means For Employers:

  • For the 2016 EEO-1 reporting cycle, all employers will submit information that is identical to the information collected by the currently approved EEO-1 report.
  • Starting in 2017, federal contractors and employers with 100 or more employees will submit the EEO-1 report with pay and related information before September 30th. These employers must report all W-2 earned income.
  • Although EEO-1 reporting is due on or before September 30th each year, the EEOC guidelines suggested that W-2 data can be imported into a human resources information system (HRIS), and a data field can be established to accumulate W-2 data for the EEO-1. Alternatively, employers could obtain this pay information by utilizing quarterly payroll reports for the previous four quarters. Employers that do their payroll in-house will be able to report this data utilizing most major payroll software systems or by using off-the-shelf payroll software that is preprogrammed to compile data for generating W-2s. For employers that outsource their payroll, there would be a one-time burden of writing custom programs to import the data from their payroll companies into their HRIS systems. Employers then must count and report the number of employees in each pay band. During the comment period, the EEOC seeks employer input with respect to how to report hours worked for salaried employees.
  • Beginning in 2017, all filers will be required to submit the proposed EEO-1 report electronically.

Given the EEOC’s new requirement, employers should start to audit their pay policies and practices as those employers who are engaging in pay disparity can expect an increase in pay discrimination cases based on the data collected as a result of the revised EEO-1 reports.

For more information regarding compliance with EEO-1 reporting obligations and how the new rule will affect your business, please contact Dina M. Mastellone, Esq., Director of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com or 973-533-0777.