Regulatory Risk

A Salary Threshold Working Over Time

On Dec. 1, the U.S. government is raising the minimum salary threshold on paying overtime to white collar workers.
By: | October 19, 2016 • 7 min read
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In December, new U.S. Department of Labor rules will require employers to pay overtime to salaried workers earning less than $47,476 a year, effectively doubling the current overtime annual salary threshold of $23,660.

Employers who have not yet audited their wage and hours practices are running out of time to make sure they are in compliance with this new base salary limit, experts warn.

The Department of Labor estimates as many as 4.2 million U.S. workers could be affected by the change.

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By some estimates, as many as 70 percent of companies are in violation of the rules.

“For anybody who hasn’t looked at this yet, this is the ‘all-nighter before the test’ window,” said Noel P. Tripp, a principal at Jackson Lewis P.C., who represents employers in wage and hour cases.

Those that don’t comply may find themselves joining an ever growing club of litigants, including well-known companies such as DuPont Co. and Tyson Foods, scrambling to prove they paid their workers fairly.

Even before this change, the number of lawsuits filed under the Fair Labor and Standards Act (FLSA) more than tripled in the past decade and is expected to hit an all-time high this year.

With the election of Donald Trump to the presidency and his promise to roll back regulations, it’s unclear whether this new rule will be revoked in 2017.

Nonetheless, it’s important to conduct an audit of your workforce and bring all employees to compliance if they are not already, said Catherine K. Ruckelshaus, general counsel at the National Employment Law Project.

“For anybody who hasn’t looked at this yet, this is the ‘all-nighter before the test’ window,” — Noel P. Tripp, principal, Jackson Lewis P.C.

With many existing state rules already much higher than the federal threshold, companies often find they are already in compliance, which is much more cost effective than defending a wage and hour claim.

That’s because the company bears the legal burden of proof; it’s hard to manage payroll records on time worked for every single worker if the proper systems are not in place, and it takes a lot of money and time away from the core responsibilities of a business to fight a case in court.

With so many companies at risk of being non-compliant, this looming deadline is as good a time as any to review for problems, said Chris Williams, an employment practices liability product manager at Travelers.

“If you haven’t fixed it by Dec. 1 [and you are sued] you paint yourself in an even worse light in a courtroom,” said Lisa Doherty, co-founder and CEO of Business Risk Partners, a specialty insurance underwriter and program administrator.

States and business organizations have tried to delay the rule change by filing complaints recently with the federal courts. Experts say those are unlikely to prevail, so companies should proceed with greatest caution and keep the Dec. 1 deadline as the target.

Wal-Mart Stores was most likely aiming for broad-based compliance ahead of the deadline when just last month it raised all salaries for its entry-level managers to just above the threshold at $48,500 from $45,000 annually, according to Reuters.

A Change Long Overdue

The FLSA was enacted in 1938 and established the 40-hour work week salary threshold, which entitled workers to time-and-a-half their regular hourly wage for any overtime.

White collar workers making more than the threshold and meeting certain “duties tests” were exempt from receiving overtime pay if they worked more than 40 hours in a week. The current threshold of $455 a week or $23,660 annually, has been in place since 2004.

“It’s a long time overdue,” Ruckelshaus said. “Workers could be making around $23,000 and be called exempt white collar workers, which is kind of crazy.”

Chris Williams, employment practices liability product manager,Travelers.

Chris Williams, employment practices liability product manager,Travelers.

The new rule more than doubles the minimum to $913 per week, or $47,476 annually.  And to make sure there’s not such a long gap before the threshold goes up again, it will now automatically increase every three years based on wage growth.

Employers with exempt salaried workers within this range generally face three options.

One: Raise the annual pay to above $47,476 to maintain the exempt status. This option works best for employees paid a salary close to the new level, such as those Walmart managers.

Two: Reclassify salaried employees as hourly and pay time and a half when they exceed 40 hours in a week. This approach works best when there are only occasional spikes that require overtime for which employers can plan for and budget.

Three: Strictly limit employees’ time to 40 hours and hire additional workers. That’s not always a welcome path if it triggers a new record-keeping system to track hours. It can be difficult to get workers to change their behavior to start recording when they arrive at work and leave.

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Establishing a 40-hour week was meant to encourage employers to hire more people rather than pay one worker overtime, but often adding staff is not in the labor budget.

In many cases, there’s tremendous pressure from the higher level to the middle level to be more efficient and less costly, said attorney Thomas More Marrone who represents employees in FLSA cases.

“A mid-level manager with a labor budget and no compliance training regarding overtime rules is a loaded weapon you have pointed at the business because you have given that manager an incentive with no context,” Tripp said.

What’s at Stake? Legal Cases Are Growing

There were 8,000 FSLA wage and hour claims filed last year, making it the single fastest growing type of employment litigation, Doherty said.

One reason for that claims volume is that there are a variety of ways a company can violate the rules.

There’s straight-out failure to pay overtime when a worker is entitled to it. There’s “donning and doffing” claims when an employer doesn’t include the time to put on protective gear as part of the work day. DuPont and Tyson were both targets of class action lawsuits citing donning and doffing.

“A mid-level manager with a labor budget and no compliance training regarding overtime rules is a loaded weapon you have pointed at the business because you have given that manager an incentive with no context.” — Noel P. Tripp, principal, Jackson Lewis P.C.

DuPont argued that the employees recouped that time by taking paid breaks throughout the day.

“It has been the law for many decades; if you don’t keep track of it there’s a presumption against you,” said Marrone, who is representing employees against DuPont.

Some newly emerging FLSA cases involve the time employees spend checking email and on computers at home, Williams said.

Often, it’s not until a claim is filed that employers — who bear the burden of proof in most cases — realize they haven’t maintained the appropriate records to defend the business, Williams said.

He adds that it is not unusual to see wage and hour claims filed after an employee is fired. That’s why it is so important to keep in compliance and maintain accurate records.

FLSA cases are often “lawyer driven,” he said. It’s not uncommon for a fired employee to inquire with a lawyer about a wrongful termination case.  “The lawyer says, ‘I don’t care about [your termination] but answer these 10 questions about the hours you worked and how you were paid.”

Something to keep in mind: Employers who are liked by their workers are far less likely to get sued, said Tripp.

Protect Your Business

It’s important that companies talk to a broker about coverage for some of that exposure, Williams said.

Lisa Doherty, co-founder and CEO, Business Risk Partners

Lisa Doherty, co-founder and CEO, Business Risk Partners

A coverage endorsement attached to employment practices liability insurance (EPLI) policy forms may cover the cost of defending claims alleging that an employer failed to pay overtime to a nonexempt employee — that is, an employee who is not exempt from, and therefore eligible to receive, overtime pay under the FLSA.

Travelers can provide a $100,000 defense expenses sublimit for wage and hour claims for most clients, Williams said. No coverage typically applies under these endorsements to settlements or judgments (i.e., they cover only defense costs), and a sublimit usually applies.

As for when to be ready for the higher threshold, Williams said “the prudent employer should plan on the law going into effect on Dec. 1 until there’s a definitive word to the contrary.”

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A group of 21 states filed a complaint in the Eastern District of Texas challenging the new U.S. Department of Labor regulations that redefine the white collar exemptions to the overtime requirements of the FLSA. The States argue the DOL overstepped its authority by, among other things, establishing a new minimum salary threshold for those exemptions.

More than 50 business groups including the U.S. Chamber of Commerce, the National Association of Manufacturers and the National Retail Federation also filed a lawsuit in the same court, on the same day, contending the new regulations were implemented in violation of the federal Administrative Procedure Act.

Travelers recommendations to protect against wage and hour claims:

  • Consult with an attorney and a human resources representative to understand all obligations required by the law.
  • Review all employee job responsibilities and wages to determine whether they are entitled to overtime, and document those decisions.
  • Ensure you have a process in place to document all hours worked for non-exempt employees.
  • Communicate and train managers on the new regulations and requirements.
Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]
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Employment Practices

Distress Signals

There are a growing number of resources available to address employee mental health issues.
By: | October 15, 2016 • 5 min read
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What happens when an employee starts exhibiting signs of mental illness after they’re hired? It can be difficult for organizations to balance the need to reasonably accommodate mentally ill people with productivity needs and fears of potential violence.

But the amount of resources available to help employers support such workers is rising.

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“Work is such an important influence on a person’s quality of life, including their financial well-being, that giving up a job is not an option,” said Debra Lerner, director of the Program on Health, Work and Productivity at Tufts Medical Center in Boston.

For many, the onset of mental health issues can make it difficult to perform a job, even one the person did well before becoming ill, Lerner said. For example, some people dealing with depression have trouble with memory or being organized.

Others may not sleep well, which can make it difficult for them to get to work on time or to “hit the ground running” after arriving.

“Staying on task, especially when interruptions occur, can be difficult,” Lerner said. “Interpersonal issues are common and interfere with relationships with customers, supervisors or co-workers.”

Employers can get recommendations from the Equal Employment Opportunity Commission’s job accommodation network, which are tailored to the person’s illness and limitations as well as their job demands. Employers can also refer workers to resources such as Tufts’ Be Well at Work program to help people suffering from depression learn approaches to being effective on the job.

“One of the program’s benefits is a method for assessing which aspects of working are most difficult and intervening with specific suggestions for improving ability to function,” Lerner said.

Tom Parry, president, Integrated Benefits Institute

Tom Parry, president, Integrated Benefits Institute

Another resource is the Integrated Benefits Institute, a San Francisco-based research organization that aims to demonstrate the connection between improved health, well-being and business performance at companies, said Tom Parry, president.

“We take a very broad view of these issues, so that employers make proper investments in health and understand the much broader outcomes that are more important to their business than just health care costs,” Parry said.

Most employers have typically used medical and pharmaceutical claims data to identify key health conditions. But since behavioral issues tend to be underreported, they typically “don’t rise to the top,” Parry said.

IBI provides employers with information from third parties to find ways to identify issues and conditions, without violating privacy rules per the Health Insurance Portability and Accountability Act. Alternatives include working with their employee assistance programs and conducting well-being surveys.

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“One of the real challenges to improved behavioral health management is the stigma that goes along with those conditions, which has made it hard for employees to self-identify around those issues and seek help,” Parry said. “That’s changing, but it’s still a big part of the problem.”

Need Can Be Implied

Sometimes the employer must initiate the interactive process required by the Americans with Disabilities Act, said Carla O’Sullivan, education programs manager at Disability Management Employer Coalition.

“The employer always has to take the employee’s privacy into account, and they should not request information or ask inappropriate questions,” O’Sullivan said.

“But it is absolutely in the employer’s best interests to speak to the employee … particularly if the employee had been doing great but then all of a sudden they are not. It could be that the employee needs to be referred to an employee assistance program, or maybe it’s just a matter of being supportive.”

While the onus is typically on employees to request accommodations, they don’t have to actually use the words “reasonable accommodation” if the need is obvious, said Frank C. Morris, Jr., of Epstein Becker & Green P.C.

“For example, if an employee tells a supervisor that they need to go twice a week for medical treatment for the next six months, or requests time off for extended medical treatment, the EEOC and the courts will likely find this to be sufficient notice of an accommodation request,” Morris said.

One potential accommodation could be allowing employees time off to adjust to new medications or a new combination of medications, he said. But it should be for a reasonable and finite period of time until the problem can be controlled and for the employee to resume being productive at work.

Carla O’Sullivan, education programs manager, DMEC

Carla O’Sullivan, education programs manager, DMEC

Employers can ask workers for the medical opinion that demonstrates their disability, and then get a second opinion by their own medical professional, said J. Bradley Young, partner, Harris, Dowell, Fisher & Harris LC. Those professionals can help structure reasonable accommodations.

“For example, if the employee’s psychiatrist has prescribed the anti-psychotic Thorazine, that medication typically makes people sleep 20 hours a day — and it would not be reasonable to have the employer provide a bed to sleep on the job,” he said.

“However, a reasonable accommodation would be to have a different psychiatrist prescribe different medications instead of Thorazine that would not make the person too sleepy, allowing them to continue in their job.”

Outside Assistance

Employers do not have to accommodate people who are violent or make any threats of violent action, even if the employee has a mental disorder, Young said.

“They can be removed from the property and terminated,” he said. “But if an employee is simply acting erratically, that’s a completely different story.”

Employers can ask to have the person taken to a psychiatric hospital for evaluation, and if the employee is diagnosed with a mental disorder, the employer and employee have to work together to try to come to a mutually agreeable decision on a reasonable accommodation, Young said.

Some disability carriers have mental health consultants who can assist employers with proactive accommodations to help at-risk employees avoid a disability leave, or with return-to-work plans that can help an employee transition back to the workplace after taking a leave, said Brian Kost, director of the workplace possibilities program at The Standard, a disability insurer based in Portland, Ore.

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For employers that have at-risk employees, mental health consultants can help ensure that employees are connected with resources — such as an EAP or wellness program — for assistance, Kost said.

“Above all, a consultant can help an employer and employee communicate better by keeping everyone involved up-to-date on an employee’s condition, his or her medical restrictions, when they may be returning to work and potential accommodations,” he said.

“This collaboration and communication can go a long way to ensure success.”

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]
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Sponsored Content by Nationwide

Hot Hacks That Leave You Cold

Cyber risk managers look at the latest in breaches and the future of cyber liability.
By: | December 1, 2016 • 5 min read

Nationwide_SponsoredContent_1016Thousands of dollars lost at the blink of an eye, and systems shut down for weeks. It might sound like something out of a movie, but it’s becoming more and more of a reality thanks to modern hackers. As technology evolves and becomes more sophisticated, so do the occurrence of cyber breaches.

“The more we rely on technology, the more everything becomes interconnected,” said Jackie Lee, associate vice president, Cyber Liability at Nationwide. “We are in an age where our car is a giant computer, and we can turn on our air conditioners with our phones. Everyone holds data. It’s everywhere.”

Phishing Out Fraud

According to Lee, phishing is on the rise as one of the most common forms of cyber attacks. What used to be easy to identify as fraudulent has become harder to distinguish. Gone are the days of the emails from the Nigerian prince, which have been replaced with much more sophisticated—and tricky—techniques that could extort millions.

“A typical phishing email is much more legitimate and plausible,” Lee said. “It could be an email appearing to be from human resources at annual benefits enrollment or it could be a seemingly authentic message from the CFO asking to release an invoice.”

According to Lee, the root of phishing is behavior and analytics. “Hackers can pick out so much from a person’s behavior, whether it’s a key word in an engagement survey or certain times when they are logging onto VPN.”

On the flip side, behavior also helps determine the best course of action to prevent phishing.

“When we send an exercise email to test how associates respond to phishing, we monitor who has clicked the first round, then a second round,” she said. “We look at repeat offenders and also determine if there is one exercise that is more susceptible. Once we understand that, we can take the right steps to make sure employees are trained to be more aware and recognize a potentially fraudulent email.”

Lee stressed that phishing can affect employees at all levels.

“When the exercise is sent out, we find that 20 percent of the opens are from employees at the executive level,” she said. “It’s just as important they are taking the right steps to ensure they are practicing what they are preaching.”

Locking Down Ransomware

Nationwide_SponsoredContent_1016Another hot hacking ploy is ransomware, a type of property-related cyber attack that prevents or limits users from accessing their system unless a ransom is paid. The average ransom request for a business is around $10,000. According to the FBI, there were 2,400 ransomware complaints in 2015, resulting in total estimated losses of more than $24 million. These threats are expected to increase by 300% this year alone.

“These events are happening, and businesses aren’t reporting them,” Lee said.

In the last five years, government entities saw the largest amount of ransomware attacks. Lee added that another popular target is hospitals.

After a recent cyber attack, a hospital in Los Angeles was without its crucial computer programs until it paid the hackers $17,000 to restore its systems.

Lee said there is beginning to be more industry-wide awareness around ransomware, and many healthcare organizations are starting to buy cyber insurance and are taking steps to safeguard their electronic files.

“A hospital holds an enormous amount of data, but there is so much more at stake than just the computer systems,” Lee said. “All their medical systems are technology-based. To lose those would be catastrophic.”

And though not all situations are life-or-death, Lee does emphasize that any kind of property loss could be crippling. “On a granular scale, you look at everything from your car to your security system. All data storage points could be controlled and compromised at some point.”

The Future of Cyber Liability

According to Lee, the Cyber product, which is still in its infancy, is poised to affect every line of business. She foresees underwriting offering more expertise in crime and becoming more segmented into areas of engineering, property, and automotive to address ongoing growing concerns.”

“Cyber coverage will become more than a one-dimensional product,” she said. “I see a large gap in coverage. Consistency is evolving, and as technology evolves, we are beginning to touch other lines. It’s no longer about if a breach will happen. It’s when.”

About Nationwide’s Cyber Solutions

Nationwide’s cyber liability coverage includes a service-based solution that helps mitigate losses. Whether it’s loss prevention resources, breach response and remediation expertise, or an experienced claim team, Nationwide’s comprehensive package of services will complement and enhance an organization’s cyber risk profile.

Nationwide currently offers up to $15 million in limits for Network Security, Data Privacy, Technology E&O, and First Party Business Interruption.

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Products underwritten by Nationwide Mutual Insurance Company and Affiliated Companies. Not all Nationwide affiliated companies are mutual companies, and not all Nationwide members are insured by a mutual company. Subject to underwriting guidelines, review, and approval. Products and discounts not available to all persons in all states. Home Office: One Nationwide Plaza, Columbus, OH. Nationwide, the Nationwide N and Eagle, and other marks displayed on this page are service marks of Nationwide Mutual Insurance Company, unless otherwise disclosed. © 2016 Nationwide Mutual Insurance Company.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Nationwide. The editorial staff of Risk & Insurance had no role in its preparation.




Nationwide, a Fortune 100 company, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by both A.M. Best and Standard & Poor’s.
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