Articles

The Connecticut Law Tribune

May, 2014

As the economy continues to struggle, and the job market remains lukewarm, local, state and federal governments and government agencies continue to press for stricter wage and hour laws and increased enforcement.  Connecticut, in particular, has recently been a trendsetter in this area.  The following are the major trends of which employers should be aware.

Minimum Wage

President Obama has pushed for an increased minimum wage and recently took steps to implement such a change.  He issued an Executive Order requiring federal contractors to pay a minimum wage of $10.10 to their workers.  With Congress slow to increase the private sector federal minimum wage, the President took this step to stimulate public discourse and encourage Congress and the states to move toward increasing the minimum wage for all workers.

Connecticut became the first state to follow President Obama’s lead.  Connecticut’s minimum wage had just increased from $8.25 to $8.70 per hour on January 1, 2014, and was set to increase again to $9.00 on January 1, 2015.  Instead, Connecticut adopted a new minimum wage law which will increase Connecticut’s minimum wage in three yearly steps to $10.10 on January 1, 2017.

Interestingly, the amount certain employers must pay tipped employees will also increase.  When the legislature increased the minimum wage in 2013, it increased the “tip credit.”  The tip credit is the amount of tips these employers can use to offset the minimum wage rate owed to these tipped employees.  When the minimum wage increased from $8.25 to $8.70 on January 1, the tip credit percentage increased from 31% to 34.6%.  Thus, employers continued to pay tipped employees the same subminimum wage as before (as long tips made up the entire difference between that amount and the minimum wage).  However, the new minimum wage increase did not change the tip credit percentage.  As a result, the base wage for these tipped employees will increase.  Fortunately, the tip credit will increase to 36.8% on January 1, 2015, as mandated by the previous minimum wage increase, but it will then remain constant while the minimum wage increases incrementally to $10.10.  Therefore, employers will have to pay their tipped employees higher and higher wages.

After Connecticut’s increase, Maryland and Hawaii’s legislatures followed suit and passed laws that will increase their respective minimum wages through incremental increases to $10.10 in 2018.  The Vermont legislature outdid everyone and passed a bill to increase its minimum wage incrementally to $10.50 by 2018.  Some states have not only increased their minimum wage, but tied future increases to inflation or the cost of living.  For example, in New Jersey, voters passed a referendum that increased the state minimum wage to $8.25 per hour and tied future increases to the cost of living.  Both Arizona’s and Missouri’s minimum wage automatically increased by $0.10 this year based on cost of living formulas that have been on the books since 2006.

Some local governments have gone even further.  San Francisco increased its minimum wage to $10.74 at the start of this year.  This made it the highest minimum wage in the country at the time, but that distinction did not last long.  Sea-Tac, Washington approved a measure to increase its minimum wage to $15.00, by far the highest in the country.  Since then, Washington, D.C.’s city council approved a measure to raise its minimum wage to $11.50 in July 2016, and the City of Philadelphia raised its minimum wage for city contractors to $12 per hour, effective January 1, 2015.  Additionally, voters in Chicago overwhelmingly passed a non-binding referendum that supports a minimum wage increase to $15 per hour.

Increased Enforcement

Government agencies have prioritized increased enforcement of certain laws in recent years.  The United States Department of Labor (“DOL”) has pursued an initiative to investigate worker misclassification.  Worker misclassification occurs when a worker who should be considered an employee is instead treated by an employer as an independent contractor.  This practice can result in violations such as failure to pay overtime, minimum wage, and various wage related taxes (e.g., worker’s comp, unemployment, disability and other insurances  The DOL has prioritized investigation of such claims.  The DOL’s proposed budget for Fiscal Years 2014 and 2015 has included $14 million to investigate worker misclassification.  In addition, the DOL has partnered with state agencies to cooperatively tackle the worker misclassification issue.  The DOL has so far partnered with 15 states, including Connecticut, New York, and Massachusetts.

Connecticut businesses in particular have been targeted.  The DOL has pursued a multi-year initiative of indefinite duration to tackle entrenched wage and hour problems in Connecticut and Rhode Island’s construction industries.

The DOL has also increased the frequency of on-site visits during Family and Medical Leave Act (“FMLA”) audits.  The DOL has identified particular situations that trigger an increased likelihood of an on-site visit.  For example, if an employer has several findings of FMLA violations over a relatively short period of time, or if an employee has been recently terminated or is facing imminent termination for leave-related issues that could be resolved with immediate intervention, a DOL investigator may be more likely to make an on-site visit.

Enactment of New, Tougher Wage and Benefit Laws

State and local governments have increasingly enacted new, more stringent and expansive wage and benefit laws.  For example, while the federal Family and Medical Leave Act (“FMLA”) only requires unpaid sick leave for eligible employees, a few state and local governments have recently passed laws which require most employers to provide paid sick leave.

Connecticut was again the leader, becoming the first state in the nation to pass a paid sick leave law.  Under Connecticut’s law, employers who had fifty or more Connecticut employees in at least one quarter of the previous year are required to provide paid sick leave to their service workers at a rate of one hour per forty hours worked up to a maximum of forty paid sick leave hours per year.  A “service worker” is an employee whose job is classified under one of a specific set of occupation codes defined by the Federal Bureau of Labor Statistics Standard Occupational Classification system.  Among the many eligible occupations are librarians, pharmacists, home health aides, food preparation workers, waiters/waitresses, retail salespeople, receptionists, and secretaries.  To be eligible, employees must also be paid on an hourly basis and not be exempt from the federal Fair Labor Standards Act’s (“FLSA’s”) minimum wage and overtime requirements.

Eligible employees can use the paid sick leave for themselves or to help a spouse or child.  The law covers physical and mental illnesses as well as preventative care.  An eligible employee can take time off to take his/her child to the doctor’s office for a checkup, for example.

Some local governments have also passed sick leave laws in recent years.  These include New York City, Jersey City, Newark, Portland, Seattle and Washington, D.C.

Another example of stringent new legislation is the passage by local governments of ordinances prohibiting wage theft.  These laws typically mandate various notices of the terms of the relevant laws and penalties for employers who have violated wage laws.  Wage theft can take various forms – failing to pay minimum wage or overtime, not providing meal or rest breaks as mandated by law, and improper deductions all fall under the umbrella of wage theft.  Some of the new wage theft ordinances enable local governments to suspend existing business licenses or deny new applications of employers who have committed wage violations.  Others increase existing monetary penalties for violations.

Conclusion

There are numerous, complicated and strict wage and hour laws on the books at the federal, state and local level.  Employers should be sure to have a clear policy that employees will be paid for all the time they have worked.  Employers should adopt an open door policy and make clear to their employees that they should raise any questions or concerns about their pay to ensure a full resolution.  To ensure full compliance with all applicable wage and hour laws, employers should consult with competent counsel before making decisions that could have a bearing on wage and hour policies.