The Risks of Driving for Uber or Lyft

Driving Uber LyftUber and Lyft are ridesharing services that have quickly gained popularity. At this point, they are available in most parts of the country, especially metropolitan areas. With a few taps on your phone, you can call a driver to your location. Or, sign up through the same app to become a paid driver yourself.

Many people have turned to these services as drivers for extra income because of its ease-of-use. Just sign into the app and you’re in business. You can work wherever you want, whenever you want, even if it’s just for a few minutes. It can be a convenient way to make a few bucks in the evenings or weekend.

Unfortunately, it’s not that simple. While many people are lauding Uber and Lyft for disrupting the traditional taxi model and giving people an easy employment option, working for either of these services comes with some risk worth considering.

Financial risks
As a ridesharing driver, you are an independent contractor, not an employee of the parent company. Any losses or expenses you incur are your problem. Both services compensate drivers for damage to vehicles caused by passengers, but standard wear and tear, fuel, tolls, maintenance, taxes, and insurance are costs of the job. While injury is unlikely, you are not eligible for worker’s compensation insurance.

Since you are technically working while you drive for Uber or Lyft, standard car insurance won’t cover you if you get into an accident. Most drivers are taking this risk.

Furthermore, the job isn’t as lucrative as it used to be. Both services have increased their percentages of the last few years. Uber and Lyft now takes 20% off the top, which makes it difficult for many drivers to handle the expenses.
Uber says you can make about $25/hour. Lyft reports $35/hour. The truth, however, is far lower once you deduct expenses. The amount you can earn varies widely depending on the area, but at the end of the day, most drivers make about $9-15/hour.

Lyft’s app has functionality for passengers to tip drivers, which can improve the hourly rate significantly. Uber, however, says they want “riders and drivers to know for sure what they would pay or earn on each trip — without the uncertainty of tipping.”

Safety risks
Originally, ridesharing companies pitched their product as a safer alternative to taxis. Using social media logins, driver and passenger identities were public, making assault or crime less likely. Rating systems were designed to penalize people who behaved inappropriately.

But the rapid growth of the industry has made these basic safety features (and they are basic) less effective. Ridesharing services have to recruit new drivers constantly. A reputation-based system doesn’t work when you’re likely to never see that passenger again anyway.

Neither ridesharing app provides safety training for drivers (as this would force them to classify drivers as employees). Both services provide some basic tips for drivers to look out for themselves, but this information is sparse and unhelpful in a dangerous encounter.

OSHA reports that “data indicates that annual homicide rates for taxi drivers (and chauffeurs) from 1998 to 2007 ranged from 9 per 100,000 workers to 19. During that period the rate for all workers was at or below 0.5 per 100,000 workers.” This means that taxi drivers are killed 21 and 33 times higher than the national average.

Presumably, that’s less of a concern for ridesharing drivers because there is no cash exchange. You’ve probably seen sensational headlines, but that’s only because the industry is new and people are adjusting. The real danger lies in motor accidents, of which there are substantially more for ridesharing drivers than the average.

Finally, the background check system is weak. Lyft performs a background check on all drivers. Uber checks the background in only certain states. But there are reports in both apps of people passing the background check who know they shouldn’t.

Decide for yourself
It has become clear the rideshare driving isn’t the “way of the future” it was marketed to be. It’s a reasonable job considering its low barrier to entry, but it’s not something to build a future around. The safety risks aside, driving for Uber or Lyft doesn’t offer a strong financial incentive anymore.

Karen Consiglio
Commercial Claims
kconsiglio@srfm.com

Karen-Consiglio

COBRA Refresher: 4 Important Notices That You Need to Know About

COBRAAccording to the Consolidated Omnibus Budget and Reconciliation Act (COBRA), employers who offer a group health plan for more than 20 employees must offer temporary continuous coverage to qualifying beneficiaries after qualifying events.

A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is either an employee, the employee’s spouse, or an employee’s dependent child.

A qualifying event is a circumstance that would cause the qualified beneficiary to lose their group plan. The type of event determines the length of coverage offered, but continuous plans range between 18 and 36 months. Here are some examples of qualifying events:

  • The death of a covered employee
  • A covered employee’s termination or reduction of hours
  • The covered employee’s new entitlement to Medicare
  • Divorce or legal separation from a covered employee
  • A dependent child ceasing to be a dependent under the plan’s requirements

Employees must be offered health care, dental, vision, medical spending accounts, hearing, prescription, substance abuse, and mental health plans, but only if you offered those services under your group plan.

Generally, the qualified beneficiary pays the entire cost of the continuous coverage plus two percent to account for your administrative costs. Employees who take COBRA coverage for a disability can be charged 150% of their premiums for coverage after month 18.

Per regulations, employers are required to provide certain COBRA notices with specific information and timeframes, depending on the circumstances.  Failure to comply with these regulations can result in fines of $100 to $400 per day per qualifying beneficiary.

4 Notices Required by COBRA

General Notice

This document describes employees’ COBRA rights and the employer’s responsibilities. It must be given to each covered employee and each employee’s spouse within the first 90 days of coverage. It needs to have the following information:

  • Name of plan and contact information of the plan’s COBRA administrator.
  • A description of the coverage provided by the plan.
  • Instructions for beneficiaries to notify the administrator of qualifying events or disabilities.
  • An explanation of the importance of notifying the administrator about address changes.
  • A statement that the notice does not fully describe COBRA or the plan, and that more information is available through the plan’s administrator.

Click here to see a sample General Notice.

Election Notice

This document explains the employee’s rights to continuation coverage and how to elect it. The administrator must send an election notice to each beneficiary who loses their coverage due to a qualifying event within 14 days.

  • Name of plan and contact information of the plan’s COBRA administrator.
  • Identification of the qualifying event and qualified beneficiaries.
  • An explanation of the beneficiaries’ right to elect continuation coverage.
  • The date coverage will terminate if continuation coverage is not elected.
  • The process to officially elect the coverage.
  • Outcomes if coverage is waived or not elected.
  • How coverage might terminate early.
  • Premium information, including amounts, grace periods, and schedules.
  • The type and scope of coverage available and how it can be extended for disability or other qualifying events.
  • An explanation of the importance of notifying the administrator about address changes.
  • A statement that the notice does not fully describe COBRA or the plan, and that more information is available through the plan’s administrator.

Click here to see a sample Election Notice.

Unavailability of Continuation of Coverage Notice

Should an individual request continuous coverage, but the plan administrator determines that the individual is not entitled to coverage, the administrator must send a notice of unavailability. This simple document must be provided within 14 days of the original request and explain the reason for denial.

Click here to see a sample Unavailability of Continuation of Coverage Notice.

Termination of Coverage Notice

If an individual’s coverage is terminated early, the employer must provide a termination notice. This notice must include the following information:

  • The date coverage will terminate.
  • The reason coverage is being terminated.
  • Any rights the qualified beneficiary has under the plan (or the law) to elect alternative coverage, such as the right to convert the plan to a private policy.

There is no timeframe to provide this notice, but regulations say it should be delivered as soon as the decision to terminate coverage is made.

Click here to see a sample Termination of Coverage Notice.

Providing proper COBRA documentation with the right content is an important part of staying compliant with the legislation, but you also need to document the method, timing, and last address of your deliveries. This is for your protection in case you are required to provide evidence that you upheld your obligations.

For more information about disclosure rules (such as the allowed methods for delivery and specific timing requirements), see CFR 2520.104b-1(B). For a detailed breakdown of your obligations and FAQ’s, visit the Department of Labor’s website.

Navigating the rules and requirements of COBRA can be confusing and overwhelming. If you have questions or concerns, Sinclair Risk is here to help – Give us a call!

Shannon Hudspeth
Human Resource Director
shudspeth@srfm.com

Shannon Hudspeth

Contractors: Get your subcontractor insurance house in order!

subcontractorIt’s a tough landscape for the building trades in Connecticut. Jobs are out there, but bidding is competitive and margins are tight.

We’re nearly 10 years past its beginning, but we’re still not fully recovered from the Great Recession that wiped out trillions of dollars in real estate equity.

Given that reality, it doesn’t surprise me when a construction firm — super eager to get started on a newly won job — starts bringing subcontractors into the tent without worrying about “little things” like insurance.

The work needs to get done now, so paperwork can wait, right?

If you don’t mind owning all the risk for the mistakes of your subcontractors, sure, but that’s not a healthy way to do business and it’s a dangerous approach that all but guarantees you won’t be in business very long.

At Sinclair Risk & Financial Management, we teach our clients about an important concept called “risk transfer.” Like a game of hot potato, you want to hold as little risk as possible when you’re working with others, and you want to make sure your subcontractors are operating in a way that minimizes their own risks…after all, you are relying on them to help you complete an important job. You need them to be stable and healthy.

Two important concepts here are “contractual risk transfer” and making sure your subcontractors have adequate worker’s compensation insurance.

Whenever you plan to bring a subcontractor on board, it’s an industry best practice to have a contract in place that clearly spells out the terms of the arrangement. You should also verify that the subcontractor has proper amounts of liability, auto, and worker’s compensation insurance. As part of your agreement with the subcontractor, you should be named as an “additional insured” on their policy, which means that their coverage will extend to you should something go wrong. This transfers risk to their carrier and prevents you from having to tap into your insurance (and run the risk of premium increases) for a situation where you were not at fault.

Some people think getting a “certificate of insurance” is proof of coverage, but it’s not, it’s just informational about the kind of policies your subcontractor has…unless very specific language is included on it. The certificate must accurately name you as an additional insured and include language to the effect that the coverage is binding as per the contractual agreement between you and the subcontractor. The agreement you put in place with your subcontractors needs to specify the amount and type of insurance they must carry, and that you are to be named as an additional insured for a particular period of time.

Some smaller contractors will carry liability and auto insurance but not worker’s compensation insurance, especially if they are a very small firm. This is a mistake, and opens you up to tremendous liability if they get hurt on your job. You don’t want your worker’s compensation policy paying out claims to individuals who don’t work for you.

So what kind of worker’s compensation do they need, and how much? Like contractual risk transfer, these are complicated questions with multiple factors at play. At Sinclair Risk, we specialize in helping construction firms manage their risk in a smart, efficient way, saving lots of dollars on the bottom line.

Besides helping you navigate contractual risk transfer, Sinclair’s Risk Safeguard Advantage program includes accident investigation programs, claims management, OSHA compliance, DOT compliance, return-to-work programs, safety seminars, supervisor safety training, pre/post injury management, workplace wellness, worker’s compensation cost containment, and much more.

We can even help you attract and retain top talent. (Check out my recent white paper about construction industry best practices for getting and keeping awesome employees.)

Drop me a line to learn more.

Jonathan Belek
Risk Management Consultant
jbelek@srfm.com

Jon Belek

Should You Buy or Lease That Car?

buy or lease carCars are a big part of our culture. Many of us work in places where cars are required to get around. At some point, you’ll need to purchase a car that costs more money than you have on hand. You’ll ask yourself “Should I buy or lease that car?”

People have been purchasing vehicles forever, but leasing (the practice of only financing the depreciation of a vehicle, not its entire cost) was once only accessible to wealthy people or companies with generous budgets. That isn’t the case anymore. As vehicle costs continue to rise, leasing becomes an attractive solution for every segment of the car industry.

Some people will tell you “It’s smart to buy the car,” or “Save yourself the hassle and lease.” Truthfully, there’s no simple answer. Which option is better depends on your situation, your finances, and your needs? We’ve laid out the advantages and disadvantages of both options.

Advantages to leasing a car

  • Your lease payment is usually less than a finance payment would be.
  • You can have a new car every year if you wanted (with all of the new gadgets).
  • You can drive a better car than you can afford.
  • A lease can be written off business taxes, making it a good company vehicle.
  • Perfect choice if you’ll only be in the area for a year or two.
  • The leasing dealership issues a warranty that covers much of the repairs.
  • You aren’t making a purchase, so sales tax is less.
  • There is no trade-in vehicle to deal with.
  • If the car is worth less than the lease predicted at the end, it’s not your problem.

Disadvantages to leasing a car

  • At the end of the lease, you don’t own the car. You have to return it (although there is an option to buy, but it’s often not in your favor financially.)
  • Terminating a lease early can lead to expensive fees.
  • Putting too much wear or mileage on the car can lead to expensive fees.
  • If you plan to keep the car for years, leasing is more expensive than buying.
  • Lease contracts are made to be confusing so you pay more in fees.
  • Your mileage is often limited to 12,000/year, which is easy to overcome.
  • You can buy extra mileage, but it’s expensive.
  • Typically the lease requires you to have excellent credit.
  • Failing to perform basic maintenance can result in extra fees.

Advantages of purchasing a car

  • You can modify or augment the car in any way you wish at any time.
  • It’s cheaper over the long run if you plan to drive the car for a long time.
  • There’s no limit to how many miles or much wear you can put on the car (which is important for commuters who travel long distances).
  • You can tailor the loan term (length) and payment amount to your budget.
  • You can sell the car whenever you want for as much as you like.
  • Once the car is paid off, a big piece of your budget opens up.

Disadvantages of purchasing a car

  • Many dealers require you to pay a down payment before you can finance a vehicle. This is smart anyway, otherwise, you’ll be upside down on the loan.
  • Long loans can mean paying a lot of interest by the end of the loan.
  • The monthly payment is higher than a lease payment.
  • You are responsible for repair costs (unless there’s a warranty, but that doesn’t last forever).
  • At some point, you’ll have to sell it, trade it in, or junk it.
  • A car is a depreciating asset, so you’ll never sell it for what you paid.
  • Fluctuations in the car’s market value can affect your selling price (which you can’t predict).
  • If you need to sell your car but owe more than it’s worth, you would have to pay just to get rid of the loan.

Summary

When you’re trying to decide whether to buy or lease a car, look at it like this: A leased car is convenient, easy, and you get to drive something new all the time. A purchased car is far cheaper, and you have the freedom to use it however you please.

Before you make any decision, it’s important to understand the real financial implications. Use this calculator to understand your potential car buying options.

Jennifer Dwyer
Personal Lines Representative
jdwyer@srfm.com

Jenn Dwyer

Trucking Risk Insights: Top 10 Vehicle Violations – 2016

Top 10 Vehicle Violations—2016

A roadside inspection is an examination of individual commercial motor vehicles and drivers by a Motor Carrier Safety Assistance Program (MCSAP) inspector to determine compliance with the Federal Motor Carrier Safety Regulations (FMCSRs) and/or Hazardous Materials Regulations (HMRs). Serious violations result in the issuance of driver or vehicle out of service (OOS) orders. These violations must be corrected before the affected driver or vehicle can return to service.

Trucking ViolationsJonathan Belek
Risk Management Consultant
jbelek@srfm.com

Jon Belek

Construction P&C Pro-File Newsletter – February 2017

New OSHA Beryllium Standards

On Jan. 9, 2017, the Occupational Safety and Health Administration (OSHA) issued a final rule to amend its beryllium standards for the construction, shipyard and general industries.

The final rule will reduce the eight-hour, permissible beryllium exposure limit from 2.0 micrograms per cubic meter to 0.2 micrograms per cubic meter. It also establishes a short-term exposure limit of 2.0 micrograms per cubic meter over a 15-minute sampling period.

The rule will require additional protections that include personal protective equipment, medical exams, medical surveillance, and training.

The final rule becomes effective on March 21, 2017. Affected employers must provide newly required showers and changing rooms within two years after the effective date and implement new engineering controls within three years after the effective date.

OSHA estimates that the new rule will prevent 46 new cases of beryllium-related disease and save the lives of 94 workers annually.

Employers should become familiar with the new standards and evaluate their current workplace practices to ensure compliance with the final rule.

DOL Sues Contractor for Firing Safety Manager

According to a lawsuit filed on Dec. 28, 2016, a Tampa roofing contractor discriminated against its safety manager after he cooperated with an OSHA investigation. The Department of Labor (DOL) lawsuit was a result of an investigation by OSHA’s Whistleblower Protection Program.

Under the program, employers are prohibited from retaliating against employees who raise protected concerns or provide protected information to the employer or government. The lawsuit seeks back wages, interest, and injunctive relief as well as compensatory and punitive damages.

Construction Workers at Highest Risk for WMSDs

According to a recent Occupational and Environmental Medicine report, U.S. construction workers are at a higher risk of work-related musculoskeletal disorders (WMSDs) than all other industries combined. The back is the primary body part affected, with overexertion named as the major cause of WMSDs.

Employers should adopt ergonomic solutions at construction sites, such as training employees on safe lifting practices, in order to reduce the number of WMSDs and prevent lost wages.

Jonathan Belek
Risk Management Consultant
jbelek@srfm.com

Jon Belek

Your Business Resolution — Time For a Fresh Approach

business resolutionsFor many, January is the perfect time for a new start. Resolutions to go on a diet, exercise more, pay off debt, get a new job, and otherwise improve our lifestyles are as popular as ever. But, there’s another area where a fresh start can make a big difference — Your business.

The fact is, you’re probably so involved in the day-to-day running of your organization that you don’t take a step back and get a better perspective. When you’re able to step away for just a little while and look at things objectively, the chances are you can find some good stuff to improve in your business. Here’s how to go about it.

Step 1 — Set aside the time

Get some time in the diary in early January to remove yourself from everyday operations and allow yourself to review how you could improve how your business functions, policies, and procedures. Encourage your leadership team, key managers, and a selection of employees to be involved.  Not only is their input critical, it will also remove some of the burden off your shoulders.

Step 2 — Get out of the workplace

You can’t do this with distractions. Go offsite and have an away day where you can minimize the chance of interruptions and actually get some initiatives in place, bring key members of your team along with you.  Make it engaging, fun and ensure you have white boards to capture your ideas.  Take pictures so you can save the details of your discussion.

Step 3 — Identify the main areas you want to improve

Have an honest and open discussion with your team. Let everyone bring up the main pain points in the business. What’s unnecessarily complicated or difficult to do? What policies, procedures, or functions could be improved? You’ll want to keep the discussion constructive, but don’t leave anything off the table.

Step 4 — Categorize the problems

You’ll want to split the various issues into categories, for example:

  • People related — More training needed, new team setup, staff handbook updates etc.
  • Policy related — New and amended policies to make your workplace easier to do business in.
  • Procedure related — Changes to business processes, ways of doing things, and functionality.
  • Technology related — Issues with technology, hardware, software, etc.
  • Other — Any other issues that don’t fit neatly into the previous categories.

Step 5 — Brainstorm fixes

Once you’ve got your categories, see if any of the problems are related. After you’ve done that, go through and generate ideas on how to fix the various issues, especially your policies and procedures. Don’t consider any idea to be too outlandish.

Step 6 — Prioritize

Once you’ve got your ideas, prioritize the fixes. Deliver on ideas that are easy to implement and will have a good impact. Follow that up with the harder implementations that will still make a big difference. After that, carry out the changes that will still have an impact, even if it’s minor.

Step 7 — Give people accountability

Once you have a list of ideas, get people in your business to take ownership of them. Get project management in place to deliver on the ideas and fix the broken parts of your business. Then, get regular updates throughout the year on how things are going. Give your project managers the resources and people they need to make a positive change.

This can be a great way to incentivize and fire up your people to change their working environment. Whether it’s removing bottlenecks in a process, rewriting a policy, enhancing training for team members, improving hiring methods, or replacing old technology, small changes can have a big impact.

Carry this out every January, deliver on your changes, and you’ll have a beautifully functioning, sleek, and efficient operation in less time than you think.

Matt Bauer
President
mbauer@srfm.com

Business Resolution

The Modern Office & Managing the Risk

modern officeToday’s employers are placing a premium on employee wellness and engagement. And rightfully so, hard working employees deserve some love. But in addition to doing right by their people, businesses that provide comprehensive wellness plans and lifestyle perks for their employees are realizing huge benefits from it. But with more unconventional and physical activities going on in the office, there comes a whole new set of risks for employers.

Let’s talk about what employers are doing for their people, how it’s working, and how to manage the risks involved in the modern office.

A New Age of Employee Engagement

Now more than ever organizations in business are truly investing in their people. Employee perks and benefits are evolving to an all new level thanks to forward-thinking companies like Google with state of the art fitness facilities, fully stocked game rooms, free bicycles and more cool perks for employees. Who ever thought we’d see a rock climbing wall at the office?  Googles’ perks go so deep that past and current Google employees have gone online to list their favorite perks working for Google.

Here are Some Common Contemporary Employee Benefits, Perks and Activities

  • Fitness gyms
  • Yoga, Karate, Pilates studios
  • Basketball courts
  • Table games: Ping Pong, Foosball, Billiards, etc.
  • Video games
  • Reading rooms
  • Massage chairs
  • On Site Pet Care
  • And yes, even rock climbing

A New Age of Risk

Not to be a wet blanket, but you can get hurt playing Ping Pong, and the bottom line is: If you’re putting perks and activities in place that present the potential for an accident or injury, you have a responsibility to manage the risk and provide the safest environment possible for your employees. So, before you put up the basketball hoop, put some basic risk management measures in place.

Here are some simple things that you can do to manage the risks involved with lifestyle perks:

Liability Waivers: If you’re offering activities with any level of physicality or potential for injury, it’s a common best practice to get signed waivers from participants…even if it’s only Ping Pong.

Medical Clearance: Depending on the physical level of the activities you make available, you may consider requiring clearance from a doctor before employees may participate in any activities.

Restrict Access: To reduce employer risks, allow only employees of the company (and not friends and family) to take advantage of the amenities (Gym, Sports Court, etc).

Safety Programs: Institute a safety education program covering the equipment and activities, and post safety guidelines in game rooms, gyms, and on ball courts or playing fields.

Get Covered: If you’re thinking of providing any new perks or benefits for your employees, make sure that you have adequate liability and workers’ comp  insurance coverage in place (yes, even if it’s ping pong).

The modern office landscape is changing, and with this new era of employee engagement and all of the perks that go with it, a new set of risks arise. So, if you’re considering taking your benefits package to the next level, talk to us at Sinclair. We specialize in measuring your risk and covering your exposure. We’re also Liability and Workers’ Comp experts, so this is right up our alley.

Shannon Hudspeth
Human Resource Director
shudspeth@srfm.com

Why your business needs a wellness program

Building Healthy Habits — Beat Holiday Indulgences and Feel Fantastic

healthy habitsEating and drinking is one of the great pleasures in life, and the holiday season is the perfect time to indulge. Celebrating with family and friends makes it easy to just have one more serving, an extra slice of cake, or another glass of wine. Of course, that can mean putting on a few more pounds than you’d like, so what’s the best way to shift that holiday weight?

Rather than starting up a new diet or exercise regime, it’s all about making small, positive lifestyle changes and building good habits — Here’s how to do exactly that.

Understand what you want to change most to get healthier

You can only change your lifestyle if you’ve got a good reason. Think about what your goals are when it comes to getting healthier — Is it losing weight, lifting a certain amount, walking up a steep hill without being out of breath, or something else?

Your goals should be short-term and easy to reach — If you want to lose weight it’s much better to aim at losing a couple of pounds a month than 25 pounds this year. So, choose one goal, write it down, and commit to it.

Focus on making one small change to your health at a time

If you try to do too much too soon, you’ll lose focus, get distracted, and it won’t last. That’s why getting healthier is all about making small, incremental changes that together add up to you feeling fantastic. Look at your goal and think about the one small thing you could do today to get towards it. For example:

  • Reduce your mid-afternoon snacks.
  • Drink one less beer during an evening out with friends.
  • Walk for 15 minutes each day.
  • Have one “meat free” day a week.

Then, make the change and stick to it.

Take pleasure in what you’re doing to create a healthier lifestyle

It’s important to feel positively about the changes you’re making, rather than seeing them as denying yourself. Be “in the moment” and conscious of how and why you’re making your choices. If you’re taking a walk each day, spend the time really enjoying and noticing your surroundings. If you’re reducing how much you drink, replace the beer or wine with a delicious fruit smoothie. Think about ways to positively reinforce what you’re doing.

When it comes to getting healthier, don’t do too much, too quickly

As you make changes, wait for them to become a habit and “stick” before you move onto something else. Ideally, you want your positive lifestyle changes to become effortless and part of who you are. That way, it will never feel like a chore.

Really feel the benefits of a healthier lifestyle

Positive reinforcement is vitally important. That’s why you want to notice the changes you’re making and the benefits they’re having. Appreciate the fact you don’t run out of breath when you’re hiking up a hill, or that you look great in the new clothes you’ve been able to buy. Reward yourself for creating healthy changes in your life.

It’s amazing how much you can do for your health if you set realistic goals, turn small changes into habits, feel the benefits, and take pleasure in what you’re doing. Of course, you can still have “cheat days” and overindulge from time to time. Now you’ll have the confidence you’re completely in charge of your lifestyle and the healthy choices you’ve made.

Heather Sinclair
Risk Management Consultant
hsinclair@srfm.com

Healthly Habits

Are you ready to comply with the new DOL Overtime Payment Rules?

On May 18, 2016, the U.S. Department of Labor (DOL) announced a final rule regarding overtime wage payment qualifications for the “white collar exemptions” under the Fair Labor Standards Act (FLSA).

How does this rule affect your business? The final rule increases the salary an employee must be paid in order to qualify for a white collar exemption. The required salary level is increased to $47,476 per year and will be automatically updated every three years. The final rule does not modify the duties test employees must meet to qualify for a white collar exemption.

Employers will need to comply with this rule by Dec. 1, 2016.

Overtime Rule Change

How can you prepare yourself to comply with the new rule? Follow these steps:

  • Become familiar with the new rule and identify which employees will be affected. Employers should reclassify employees as exempt or non-exempt, as necessary, by Dec. 1, 2016.
  • Consider communicating any work schedule changes to affected employees before the date mentioned above.
  • Evaluate whether implementing new timekeeping practices and training for managers and supervisors on the new requirements is necessary.

The White Collar Exemption

The white collar exemptions are minimum wage and overtime pay exemptions available to certain administrative, professional, outside sales, computer and highly compensated employees.

To qualify for the white collar exemption, an employee must meet a salary basis test, a salary level test and a duties test – the employee must meet all three tests in order to be exempt from FLSA minimum wage or overtime pay requirements.

The three tests are outlined below:

  • The salary basis test is used to make sure the employee is paid a predetermined and fixed salary that is not subject to reduction due to variations in the quality or quantity of work.
  • The salary level test is used to ensure that the employee meets a minimum specified amount to qualify for the exemption. This salary threshold provides employers with an objective and efficient way to determine whether an employee qualifies for a white collar exemption.
  • The duties test requires that the employee’s job duties conform to executive, administrative or professional duties, as defined by law. This analysis requires a more thorough evaluation of whether an employee can be classified in one of these categories: administrative, professional, outside sales, computer and highly compensated employee.

Higher Salary Threshold Requirement

The final rule increases the minimum salary level of $455 per week ($23,660 per year) to $913 per week or $47,476 per year. The new salary level represents the 40th percentile of wages earned by workers in the lowest-wage census region in the United States (currently the South) for a full-year worker.

The final rule also increases the $100,000 salary level for highly compensated individuals to $134,004 per year—the 90th percentile of wages earned by full-time workers across the entire United States.

These higher salary levels will be updated every three years to maintain the salary level at their corresponding 40th or 90th percentiles. The first automatic rate update is expected by Jan. 1, 2020. The DOL will publish updated rates in the Federal Register and on the Wage and Hour Division’s website at least 150 days before their effective date.

Calculating Employee Wages

Administrative, Executive and Professional Employees

The final rule will allow, for the first time, non-discretionary bonuses and incentive payments (including commissions) to be used to satisfy up to 10 percent of an employee’s standard salary level. This may include the payment of non-discretionary incentive bonuses tied to productivity and profitability. Non-discretionary bonuses and incentive payments may be used if they are paid on a quarterly basis, but more frequent payments are acceptable. However, the DOL will allow employers to make some “catch-up payments.”

The DOL will also allow employers to use significantly large bonuses toward 10 percent of the required salary amount.

Highly Compensated Employees

Under the final rule, highly compensated employees qualify for an overtime exception if they meet the new salary level of $134,004 per year. However these individuals must receive at least the full standard salary amount each pay period (i.e., $913 per week, $1,826 bi-weekly or $3,956.33 per month) on a salary or fee basis (not counting non-discretionary bonuses and incentive payments).

The remainder of a highly compensated employee’s wages may be calculated by including the full amount of non-discretionary bonuses and incentive payments (including commissions).

Impact on Employers

Given the significant increase in the salary level requirement, employers will need to increase employee salaries, or re-classify certain employees as either exempt or non-exempt, solely based on their salary level. The DOL estimates that this final rule extends overtime protections to approximately 4.2 million workers who are currently exempt under the white collar rules and clarifies overtime compensation eligibility for another 5.7 million white collar workers and 3.2 million salaried blue collar workers whose entitlement to overtime pay will no longer rely on the application of the duties test.

In addition, because of the short implementation deadline, employers should not delay becoming familiar with the new requirements and implementing any necessary changes into their timekeeping and payroll systems. Employers should also determine whether additional training on modifications is necessary for their managers and supervisors.

Finally, employers should also consider communicating with employees to inform them of how their wages, hours of work and timekeeping practices will be affected.

Enforcement and Compliance

Employers that fail to comply with the final rule may be subject to a variety of overtime wage payment enforcement mechanisms, including the ones listed below.

  • Private employee lawsuits: These lawsuits can be initiated by employees either individually or through collective action to recover back pay, interest, attorneys’ fees and court costs.
  • Administrative injunctions: These injunctions may include a prohibition on the shipment of goods in interstate commerce if the goods were produced in violation of the FLSA (including overtime wage payment provisions).
  • Civil fines for willful and repeated violations (up to $1,100 per violation).
  • Criminal charges for willful violations (up to $10,000 in fines, imprisonment for up to six months or both).

These laws can seem confusing and complex. If you have questions or need more information, please contact Sinclair Risk & Financial Management – we’re here to help!

Shannon Hudspeth
Human Resource Director
Overtime Rule Changes