Year-end Alerts to Employers — Part 2: Paycheck Transparency Rules Effective January 1, 2017

This is the second installment of a series of year-end alerts to employers. This alert is of particular interest to federal government contractors.

Part 1: OSHA Reporting Rules Effective December 1, 2016

Part 3: Paid Sick Leave for Federal Contractors Effective January 1, 2017

Part 4: Confidentiality Rules Under Fire – Be Warned!

On October 24, 2016, a Texas federal judge issued a nationwide injunction prohibiting the enforcement of certain portions of Fair Pay and Safe Workplace Rules.[1] These Rules would have required employers to disclose alleged but not fully adjudicated labor violations when bidding for contracting work. The judge found that this part of the new Rules was unenforceable. The injunction also stopped another portion of the new Rule that would have imposed a ban on the use of certain arbitration agreements. The Court, however, did not enjoin all parts of this new Rule. This Alert addresses the portions that are still scheduled to become effective January 1, 2017.

Under this portion of the new Rule, government contractors must provide specific wage statements and other information to workers.[2] It remains to be seen whether the incoming Trump Administration will make it a priority to rescind these requirements or whether additional legal action will be filed to challenge these new Rules.

The “paycheck transparency” provisions require contractors and subcontractors to provide three basic notices to employees:

(i)         a notice to workers who are treated as independent contractors informing them of their independent contractor status;

(ii)        a notice to workers of their FSLA exempt status if the employer is claiming an exemption; and

(iii)       a detailed wage statement to all other workers providing information regarding hours worked and pay.

Notice to Independent Contractors

Contractors and subcontractors must now provide written notice to all individuals performing work under a covered contract who are treated as independent contractors that informs them of their status. FAR 52.222-60(e). For purposes of this notification, any worker who is classified as an independent contractor for tax purposes (provided a Form 1099-Misc) must receive one of these new notices. The notice must be in writing and be provided separately from any agreement that exists between the contractor and the individual. FAR 52.222-60(d)(1). This notice must be provided when the relationship is established or before the individual begins performing any work on the contract. Moreover, a new notice must be given each time a worker starts work on a different covered contract, regardless of whether the worker already performs the same type of work on another contract. Further, the notice may not suggest that any government agency or court has agreed with the company’s determination that the worker is an independent contractor. Id.

Notice of FSLA Exempt Status

Since exempt employees do not have to be paid overtime and may not receive a new wage statement of hours worked (see below), a contractor or subcontractor is required to notify employees of their “exempt” status either on their wage statement or in another document. FAR 52.222-60(b)(3). To meet this obligation, the contractor or subcontractor must provide written notice of the exemption; oral notice alone is not sufficient. The notice can be in a stand-alone document or it can be included in an offer letter, employment contract, position description or wage statement provided to the worker. Unlike independent contractor notice, it is sufficient to provide the notice to the employee one time, either before the worker performs work or in the first wage statement under the contract. It is up to the contractor to determine whether or not to claim an FLSA exemption. The notice cannot indicate that the Department of Labor or the courts have agreed with the company’s classification that the employee as exempt.

New Detailed Wage Statement

For each pay period, a contractor or subcontractor must provide a wage statement (paystub) to all workers performing services under the contract. This covers all employees where the company is required to maintain wage records under the FSLA, Davis-Bacon Act or the Service Contract Act. FAR 52.222-60(a). This includes workers subject to these laws, regardless of whether they are classified as an employee or an independent contractor.

The Rule requires that the wage statement contain the following information: (1) the total number of hours worked in that pay period; (2) the number of overtime hours worked in that pay period; (3) the rate of pay; (4) the gross pay; and (5) an itemization of any additions made to or deductions taken from the gross pay. If payday occurs only biweekly or semi-monthly, the employer must break down the hours worked and denote overtime hours in the wage statement that correspond to the period for which overtime was calculated and paid.

In terms of additions and deductions, contractors must consider whether to include bonuses and shift differentials. All deductions from pay certainly include deductions required by law as well as voluntary deductions approved by the worker. Each addition or deduction from gross pay must be listed separately along with the specific amount.

Two final points. First, all of these required notices must be provided to workers in English and in languages in which “a significant portion of the workforce is fluent.” FAR 52.222-60(e)(1). Contractors must determine when their workforce has enough workers fluent in a different language in order to trigger the translation requirement as DOL did not provide any bright-line test. Second, if the company regularly provides documents to its workers by electronic means, it can provide these required notices electronically so long as workers are able to access the documents through a computer, device system or network provided or made available by the contractor. FAR 52.222-60(e)(2).

Businesses that have questions regarding these new rules or other employment obligations of federal contractors or employers in general should contact members of Gentry Locke’s Employment Law Team.

[1] Executive Order 13673, certain Federal Acquisition Regulations (“FAR”) and corresponding guidance from the U.S. Department of Labor were at issue. See FAR, “Fair Pay and Safe Workplaces,” 81 Fed Reg. 58562 (Aug. 25, 2016); DOL Guidance, 81 Fed. Reg. 58654 (Aug. 25, 2016).

[2] These Rules are in addition to earlier OFCCP rules that became effective January 11, 2016 implementing Executive Order 13655, signed by President Obama on April 8, 2014, which protect employees from retaliation or discrimination because the employee discusses or discloses his or her own compensation, or the compensation of another employee.