The U.S. Department of Labor (DOL) has issued its final rule regarding minimum salary requirements for the “white collar” (executive, administrative, and professional) overtime exemptions. CIRT had actively participated in the rulemaking, filing comments on behalf the membership and the industry. The new rule goes into effect on January 1, 2020.

Per the rule: annual salary level for the executive, administrative, and professional exemptions will increase to $35,568. The new minimum salary represents a fifty percent (50%) increase from the current level of $23,660. [However, it is well below the $47,476 salary level proposed by the Obama administration]. Among the matters DOL rejected, were proposals to establish regional salary levels or separate industry-specific salary levels. Along with the general standard minimum salary level for exempt employees, the rule also addressed the matter of highly compensated employees (HCEs), setting that new minimum level at $107,432.

Employers will be permitted to use nondiscretionary compensation, including commissions, to satisfy up to 10% of the new standard salary level. This nondiscretionary compensation may be paid annually rather than quarterly, providing employers with more flexibility in paying exempt employees nondiscretionary bonuses and commissions to satisfy the salary level requirement.   [For further details see, Notice of DOL Final Rule at 84 FR 51230 (09/27/2019)]

In yet another U.S. District Court opinion, the judiciary has weighed-in to chastise a controversial Obama-Era rulemaking on the “Waters of the U.S.” (WOTUS) as being an overly expansive grab of power.  Judge Lisa Godbey Wood noted that while EPA has authority to interpret the phrase ‘‘waters of the U.S.” that authority isn’t limitless; writing in her stinging rebuke “. . . vast expansion of jurisdiction over waters and land traditionally within the states’ regulatory authority cannot stand.”  CIRT applauds this new ruling, which is in keeping with its comment on the subject including the conclusion that furthers the importance of states rights in the face of overreaching by unelected, and often times unaccountable, federal bureaucrats. [See, Stories on CIRT’s views regarding this matter].

The hotly debated 2015 EPA rulemaking has been under scrutiny by the Trump Administration, which has sought to find a more restricted definition, one that is more consistent with long held views taking into account a proper understanding of the constraining phrase passed by Congress in the Clean Waters Act (CWA) that adds the modifier “navigable.”  As court states: “inclusion of all interstate waters in the definition of ‘waters of the United States,’ regardless of navigability, extends [the federal government’s] jurisdiction beyond the scope of the CWA because it reads the term navigability out of the CWA.”  

To put this matter to rest, U.S. Senators Mike Braun (R-IN) and Joni Ernst (R-IA) recently introduced a bill entitled “Define WOTUS Act,” which seeks to reassert Congressional authority and responsibility over the definitions of terms, like “waters of the United States.’

While voicing general support for the Trump Administration’s overall direction and decision to address America's skills gap and expand the apprenticeship model to new industries, as proposed by the U.S. Department of Labor rule under the National Apprenticeship Act (NAA) to establish a process for recognizing Standards Recognition Entities (SREs), which will in turn acknowledge “Industry-Recognized Apprenticeship Programs,” CIRT urged DOL to expand the scope to include the A/E/C apprenticeship and training programs in the final application of the new rule.

The Round Table pointed-out that the A/E/C industry has pursued an active effort to address its critical workforce shortages with apprenticeship-like training programs conducted by individual private sector firms, at great cost to the companies, without these programs always being fully recognized. The comment noted: “These programs don’t only have a long track record, but they could help set the quality standards and expectations for the DOL’s proposal when it comes to such “industry programs.”  The acceptance, growth, and quality of the A/E/C “industry programs” would greatly benefit from recognition under the proposed DOL rulemaking.”  [See, CIRT Comment for details]. 

The Department of the Treasury, the Department of Labor, and the Department of Health and Human Services (the Departments) have jointly released the final expanded Health Reimbursement Arrangement (HRA) regulations. The new rules will allow HRAs to be used to pay for individual health insurance policies and creates a new type of stand-alone limited benefit HRA. 

By way of background: Until now, “current” guidance prohibits employers from paying for an employee’s individual health insurance policy. HRAs that reimburse more than excepted benefits must also be integrated with a group health plan, meaning that HRA coverage can be offered only to employees and dependents who are also covered by the group health plan. The Departments first issued proposed HRA regulations designed to expand the use of HRAs in October 2018; those regulations have now been finalized. The new rules are effective for plan years beginning 01/01/2020.

New HRA Rules Summary -- The new rules create two new types of HRAs:
(1)  Individual Coverage HRA
(i)   An HRA funded by employers and used by employees to pay for individual health coverage.
(ii)  This HRA can also be designed to reimburse other eligible §213(d) expenses.
(iii) This type of HRA cannot be offered to a class of employees who are eligible for group health plan coverage. Allowable employee classes are defined in the regulations. 

(2)  Excepted Benefit HRA
(i)  A limited stand-alone HRA with an $1,800 annual maximum benefit that can be used to reimburse §213(d) medical expenses for eligible employees and dependents.
(ii) Unlike an individual coverage HRA, an excepted benefit HRA can be offered only to employees who are also eligible for an employer sponsored group health plan.

Summary
The new rules make no changes to the employer’s ability to integrate an HRA with group health plan coverage. Employers are also still allowed to offer a stand-alone HRA for the reimbursement of excepted benefits, and to offer a full stand-alone HRA to retirees. These rules provide additional options that employers may want to explore, although many may not be ready to adopt such changes by early 2020. The attractiveness of such options will depend on the employer’s staffing and benefit-offering goals and on the individual coverage options and vendor solutions available (which may vary from market to market and may change over time).

A copy of the final regulations can be found here – https://www.federalregister.gov/documents/2019/06/20/2019-12571/health-reimbursementarrangements-and-other-account-based-group-health-plans. 

The Departments also released a FAQ, found here – https://www.cms.gov/CCIIO/Programsand-Initiatives/Health-Insurance-Market-Reforms/Downloads/HRA-FAQs.pdf.

The Dept. of Labor’s Wage & Hour Division issued an notice of rulemaking regarding the agency's “joint employer” status as defined by the Fair Labor Standards Act. The proposed changes are designed to promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.  [See, 84 FR 14043 (04/09/2019); Doc’t. No. 2019-06500. For details on the proposed rule go to: https://www.federalregister.gov/documents/2019/04/09/2019-06500/joint-employer-status-under-the-fair-labor-standards-act].  The issue of joint employees or employer responsibility does come-up on project work sites; therefore, if your firm is interested in the matter – submittals must include the Regulatory Information No. (RIN) 1235-AA26.  Electronic Comments sent through the eRuling Portal at: http://www.regulations.gov.  Comments on the proposed rule are due June 10, 2019.

Background

Although the FLSA does not use the term “joint employer,” the Act contemplates situations where additional personsare jointly and severally liable with the employer for the employee's wages due under the Act. 

Over 60 years ago, in 1958, the Department promulgated a regulation, codified at part 791 of Title 29, Code of Federal Regulations (CFR), interpreting joint employer status under the Act.  The Department has not meaningfully revised this regulation since its promulgation. Under part 791, multiple persons can be joint employers of an employee if they are “not completely disassociated” with respect to the employment of the employee.  However, Part 791 does not adequately explain what it means to be “not completely disassociated” in one of the joint employer scenarios—where the employer suffers, permits, or otherwise employs the employee to work one set of hours in a workweek, and that work simultaneously benefits another person. In that scenario, the employer and the other person are almost never “completely disassociated,” and the real question is not whether they are associated but whether the other person's actions in relation to the employee merit joint and several liability under the Act.

To make the determination simpler and more consistent, the Department proposes to adopt a four-factor balancing test derived (with one modification) from Bonnette v. California Health & Welfare Agency.  A plurality of circuit courts use or incorporate Bonnette' s factors in their joint-employer test. The Department's proposed test would assess whether the potential joint employer:

• Hires or fires the employee;
• Supervises and controls the employee's work schedule or conditions of employment;
• Determines the employee's rate and method of payment; and
• Maintains the employee's employment records.

DOL believes: these factors are consistent with section 3(d) of the FLSA, which defines an “employer” to “include[ ] any person acting directly or indirectly in the interest of an employer in relation to an employee,” 29 U.S.C. 203(d), and with Supreme Court precedent. They are clear and easy to understand. They can be used across a wide variety of contexts. And they are highly probative of the ultimate inquiry in determining joint employer status: Whether a potential joint employer, as a matter of economic reality, actually exercises sufficient control over an employee to qualify as a joint employer under the Act.

A coalition representing a cross-section of the business community, including CIRT, has urged Senate Majority Leader, Mitch McConnell, to move expeditiously on a vacancy in the Equal Employment Opportunity Commission (EEOC) that effectively deprives the commission of a quorum or ability to act. The group points out that: “The inability of the Commission to act has had grave consequences for employers and other stakeholders” as evidenced by the lack of action on responding to a court ruling that has brought back a discredited rule-making (see below).  A similar message was communicated to Shahira Knight in the White House.

In addition, the U.S. Chamber of Commerce and the HR Policy Association has filed an amicus brief in the U.S. District Court for the District of Columbia regarding the EEO-1 pay data rule.  Other trade organizations joined the filing, which is part of an effort to stay the District Court’s ruling that invalidated the Trump Administration’s efforts to stop an over-reaching Obama era rule that ran afoul of the Paperwork Reduction Act and other legal requirements.  If the judge’s ruling is not stayed or overturned, countless hours of detailed data must be amassed on all employees to comply with the rule’s search for evidence of discrimination. Further, discussions are continuing with the Department of Justice and with OMB regarding the EEO-1 pay data rule. [See, Attached Wall Street Journal editorial regarding this issue entitled “An Obama Zombie Returns.”]

The association composed of S-Corporation organization is asking: Why can C-Corporations deduct all their SALT while individual pass-through business owners are subject to a $10,000 cap on their SALT deductions? The IRS is still developing regulations that address the SALT workarounds some states have created for S-Corp parity on this matter.  However, it appears the IRS will seek to restrict or invalidate such state actions attempting to level the playing field.  

The S-Corp association reports that the following issues are in play regarding the IRS’s regulatory provisions:

• The current treatment of SALT deductibility for pass-through businesses is unpopular and a source of uncertainty for businesses and states alike.
• Treasury added "Guidance on applying the state and local deduction cap under §164(b)(6) to pass-through entities" to their priority list last November, suggesting that something is in the works.
• Treasury and the IRS would have to issue guidance on this topic regardless of state activity. The uncertainty surrounding the application of the SALT cap to pass-through business would require clarifying guidance either way.
• Whether this guidance might attempt to block companies from deducting their entity-level state taxes is entirely unclear, as is the legal basis for doing so.

Legal representatives for the state workaround efforts contend in a memorandum (see, memo) that:

State income taxes paid by S corporations and partnerships, limited liability companies and other entities treated as partnerships (collectively, "pass-through entities") under 2017 Wisconsin Act 368 ("Wisconsin Act 368") should not be subject to the new $10,000 state tax deduction limitation under section 164(b)(6) of the Internal Revenue Code of 1986, as amended (the "Code"). The Internal Revenue Service (the "Service") has consistently held that income and other taxes imposed upon and paid by pass-through entities are simply subtracted in calculating non-separately computed income at the entity level, and are not separately passed through or incorporated into the various provisions and calculations applicable to itemized deductions at the individual level, such as the standard deduction, alternative minimum tax and the Pease reduction. In discussing the final provisions of the Tax Cuts and Jobs Act, the Conference Committee Report explicitly reiterated and relied upon this principle in describing the scope of new section 164(b)(6) of the Code.

While the memo focuses on the new Wisconsin law, its analysis is relevant to other states as they move forward to restore SALT parity. Bills modeled after the Wisconsin effort have been introduced; these initiatives make states a more attractive place to invest and create jobs, all without reducing state revenue. The new legal analysis explains the authority behind these initiatives, and it's designed to help more states move forward and begin the process of restoring parity for S-Corp organizations.

President Trump signed an executive order today (January 31, 2019) – titled “Strengthening Buy American Preferences for Infrastructure Projects” – intended to further bolster one of the key pillars of his economic program – that is, keeping jobs in the United States, by expanding the scope of the program to recipients of federal funds. The White House pointed out as part of its roll-out: “Each year, more than 30 federal agencies award over $700 billion in federal financial assistance to more than 40,000 non-federal recipient organizations. This assistance comes in the form of loans, loan guarantees, grants, cooperative agreements, insurance and interest subsidies. . . this federal financial assistance reveals that billions of taxpayer dollars fall through possible gaps in Buy American coverage.” It was further noted that in “the 2016 fiscal year, of the 265 listings in the Catalog of Federal Domestic Assistance for infrastructure or construction projects, more than 200 did not require Buy American considerations. . . [adding] up to over $45 billion of expenditures.” 

The new Buy American/Hire American E.O. the president signed is targeted at reaching some of these projects and associated spending.  For details see: https://www.whitehouse.gov/presidential-actions/presidential-executive-order-buy-american-hire-american/

As part of its coalition efforts, CIRT is a member of the American Tort Reform Association (ATRA), which released its 2019 edition Tort Reform Outlook.  The report contains a detailed compendium of the civil justice reform activity expected in the states during their upcoming legislative calendars.

Get the report: ATRA 2019 Outlook.pdf

Today, the U.S. Environmental Protection Agency (EPA) and the Department of the Army (Army) released the outlines of what to expect in a soon to be published rule proposing a clear, understandable, and implementable definition of “waters of the United States” that clarifies federal authority under the Clean Water Act. Unlike the Obama administration's 2015 definition of “waters of the United States,” the new proposal will attempt to provide a straightforward definition that would hopefully result in significant cost savings, protect the nation’s navigable waters, help sustain economic growth, while reducing uncertainty and barriers to business development. The proposal represents the second step in a two-step process to review and revise the definition of “waters of the United States” consistent with President Trump's February 2017 Executive Order entitled “Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the ‘Waters of the United States’ Rule.”

The agencies’ proposed rule will try to provide clarity, predictability and consistency so that the regulated community can easily understand where the Clean Water Act applies—and where it does not. Under the agencies’ proposal, traditional navigable waters, tributaries to those waters, certain ditches, certain lakes and ponds, impoundments of jurisdictional waters, and wetlands adjacent to jurisdictional waters would be federally regulated. It also details what are not “waters of the United States,” such as features that only contain water during or in response to rainfall (e.g., ephemeral features); groundwater; many ditches, including most roadside or farm ditches; prior converted cropland; storm-water control features; and waste treatment systems.

The agencies will take comment on the proposal for 60 days after publication in the Federal Register. EPA and the Army will also hold an informational webcast on January 10, 2019, and will host a listening session on the proposed rule in Kansas City, KS, on January 23, 2019.  More information including a pre-publication version of the Federal Register notice, the supporting analyses and fact sheets are available at: https://www.epa.gov/wotus-rule.