HR Compliance Trends to Watch in 2017
This year has seen a “changing of the guard” in Washington, with Republicans now in control of both Congress and the White House. HR professionals know full well how the workplace can be impacted by these power swings. Radical shifts on topics like overtime pay and paid leave can wreak havoc on HR and legal teams, tasked with the not-so-simple challenge of keeping their organizations compliant.
Conventional wisdom would suggest that we’re set for a compliance slowdown. In between President Trump’s “two for one” rule requiring two regulations be repealed for every new one, and his appointment of pro-employer leadership at the Equal Employment Opportunity Commission (EEOC) and Department of Labor (DOL), who would honestly predict a more challenging environment for HR?
But here’s the thing: that slowdown isn’t happening. In fact, things are starting to speed up.
Last year, we described a surge in “pro-employee” laws and regulations. Under President Obama, we saw substantial changes across all areas of HR compliance. With the new Trump administration, the epicenter of those changes has shifted from Washington to states and cities. Lawmakers and labor groups, believing that the prospects for federal action around paid leave, equal pay, overtime, and the minimum wage have reached rock bottom, have only intensified their local efforts.
Take note, HR: regardless of which political party has the upperhand in Washington, change is coming. Through local and state activity, our national patchwork of employment and labor laws is about to get a lot more complicated. Here’s what you need to know.
Equal Pay: Salary History Questioned
Out of all the compliance issues employers face this year, none will loom larger than gender pay equity. Following up on a decade of momentum, 2017 will see unprecedented state and local efforts to counter the pay gap.
But first, some background. In 1963, President Kennedy signed the Equal Pay Act, making it illegal to pay women a lower rate for performing the same job as a man. Fast forward to 2017, the gender pay gap has essentially remained the same: on average, U.S. women earn 80 cents for every dollar men earn. The gap is even greater when singling out Hispanic and African American women.
U.S. MEN/WOMEN EARNINGS (1960-2015)
With no federal follow-up to the Equal Pay Act in sight, states and cities have gone their own way. As of this writing, there were only four states—Alabama, Mississippi, South Carolina, and Utah—without an equal pay measure applying to public or private employers. Specifics vary in each jurisdiction, with states like California, Maryland, and New York offering the most robust protections. Even the meaning of “equal pay for equal work” is up for debate. California finds “equal work” too limiting, so instead uses “substantially similar work” when comparing compensation.
On the part of state and local lawmakers, the proliferation of different models and approaches to equal pay suggests a willingness to experiment. Out of all those trends, one seems to be leading the pack: banning the use of salary history in recruiting.
Last summer, Massachusetts passed a new, unprecedented equal pay law. While its emphasis on “comparable” work was reminiscent of California’s approach, its provisions regarding salary history were entirely unique. Under the law, employers are wholly barred from asking candidates about past compensation during the interview process—and even if the employee voluntarily provides that information, it can’t be used in any way.
Those behind the Massachusetts law argued that basing an employee’s compensation on past numbers perpetuates pay disparities, as women often earn less than men in their first job. Equal pay advocates praised the law, and some called it the most promising development in equal pay legislation to date.
The Massachusetts law has garnered its fair share of imitators. Earlier this year, Philadelphia became the first city to institute a ban on salary history. In March, Puerto Rico followed suit. New York City passed a version in April. Beyond that, statewide measures are being considered in Pennsylvania, New Jersey, and California.
Salary history bans are the fastest growing trend in HR compliance. Up to a dozen more bans could pass by year’s end. Follow local developments closely, and consider how you might adapt your recruiting practices.
Overtime: States Go Their Own Way
Last year, overtime was the hottest topic in HR—and for good reason. The Department of Labor, under then-Secretary of Labor Thomas Perez, unveiled new rules that would double the minimum salary for overtime exemption from $23,660 to $47,476 per year. That change to the so-called “wages test” would have led to the reclassification of 12.5 million workers. Labor groups hailed the move, while others, including the U.S. Chamber of Commerce and Society of Human Resources Management (SHRM), derided it as excessive and out-of-touch.
With a surprise federal court injunction last November, the new rule’s opponents had the last word. Changes to federal overtime rules are on hold indefinitely, and the nationwide salary threshold remains squarely at $23,660. Well, depending on where you live.
As of this writing, 19 states have drafted their own overtime rules. Most of these existing variations just apply to how overtime is calculated—on a per day or per week basis—but that appears to be changing. California and New York have taken a fresh look at the wages test, and others could soon follow.
Late last year, the New York State Department of Labor (NYSDOL) dramatically overhauled its overtime rules. The agency raised salary thresholds across the state, instituting different minimums based on employer size and geographic location. In New York county, for example, the change meant a salary threshold increase to $42,900 for employers with 11 or more employees. With annual increases already scheduled, that number will rise to $58,500—nearly 20 percent higher than the DOL’s proposal last year. For a county-by-county list of the changes, click here.
California, not to be outdone by its east coast rival, has its own scheduled increases. Keep in mind that the state’s overtime threshold is tied to an equation (State Minimum Wage x 2 x 40), so last year’s historic $15 minimum wage law will lead to substantial changes to overtime as well. As of this writing, the state’s overtime threshold sits at approximately $43,680 per year. When the $15 minimum wage increase is fully implemented in 2022, however, the threshold will rise to $62,400. That number far exceeds what the DOL had proposed to implement last year.
DOL THRESHOLD FOR OVERTIME EXEMPTION (1938-2017)
So why have states taken up the overtime cause? Since 1938, the threshold for exemption has gone through numerous updates. After adjusting historical rates for inflation, however, it becomes apparent that the threshold has actually been in a state of steep decline since 1966—when it peaked at $37,674 (2017 dollars). The Obama administration sought to increase the threshold, last updated in 2004, to help it “catch up” with inflation. In light of the rule change’s quashing, states like New York and California have decided to take matters into their own hands.
Secretary of Labor Alexander Acosta’s stance on last year’s overtime rule changes remains unclear—in the meantime, it’s a safe bet states and cities will pursue their own reforms. Pay particularly close attention to “blue” states, where the prospects for an overtime overhaul are greatest.
Minimum Wage: $15, the New Normal?
Last year, the “Fight for 15” movement went from just advocating for new minimum wage laws to actually celebrating their successful passage. States and cities across the country are looking to continue that trend, with or without federal participation.
When New York fast-food workers first called for a $15 per hour minimum wage in 2012, they were derided by some as extreme. Since then, what began as a modest labor movement evolved into a legislation-backed cause with serious clout nationwide. Last spring, California became the first state to pass a $15 minimum wage. Just a day later, New York approved its own increase. Not to be outdone, the District of Columbia, signed off on a $15 minimum wage as well.
Economists are largely split on whether these historic increases will hurt or help employees in the long run. Even among Democrats, a party that has traditionally skewed pro-employee, there are skeptics. How these increases will actually affect workers remains to be seen, but there is undeniable momentum behind the cause.
FEDERAL MINIMUM WAGE VS.
HIGHEST STATE MINIMUM WAGE
Since 2009, the federal minimum wage has remained steady at $7.25. States have always been permitted to pass their own, higher minimum wages (19 states started 2017 with an increase). That being said, prior to 2015 none strayed further than $3.00 from the federal minimum.
That trend is history. Within the last three years, state minimum wages have started to pull away from $7.25. Last year, the highest minimum wage in the country was $11.50, or $4.25 higher than the federal minimum. By midyear 2017, with legislation that has already been enacted, that difference will be $5.25. All of this leads to 2020, when California’s $15 minimum wage will be fully implemented. The occasion could mark the first time in history that a state has a minimum wage double the federal minimum.
Note that a state’s political leanings don’t necessarily correlate to the likelihood an increase, especially when those updates are determined by voters, not legislators. Voters in traditionally Republican-majority states like Arizona and Colorado have surprisingly approved ballot measures to increase the minimum wage. Jon Segal, an employment and labor attorney, may have put it best: “When the average voter votes, they’re an employee first—not an employer.”
Will lawmakers on Capitol Hill be spurred by this flurry of local activity? While bills to increase the federal minimum have been introduced in Congress, none have gained any traction. Even calls for a more modest increase to $10 per hour have been struck down. For now, states and cities have the lead.
The “Fight for $15” movement hasn’t lost steam, and it will likely continue to score major wins across the country. If you’re a multistate employer, watch developments closely.
Paid Leave: A Breakthrough Year?
Paid leave laws are not new to scene, but it was only in the last few years that they became a topic of discussion nationwide. Employment law observers expect more of the same in 2017.
PAID LEAVE LAWS ENACTED SINCE 2006
Back in 2004, California became the first state to mandate paid family leave. It was a bold experiment that many predicted would spur a tidal wave of paid leave legislation. It didn’t. In the ten years that followed, only Rhode Island, Washington, and New Jersey joined the Golden State.
Suddenly, things turned around in 2015 and 2016. In April, New York State passed its first-ever paid family leave law. Under the new law, which was hailed as a historic gamechanger, New Yorkers will be eligible for up to 12 weeks of paid leave for caring for an infant or family member at 67 percent of their wages. Significantly, the measure was able to pass through the state’s Republican-controlled Senate. In packaging it with other, unrelated laws, and funding the program entirely through employee payroll deductions, lawmakers were able to make the measure palatable to even the staunchest paid leave opponents.
Then Vermont signed off on a paid sick leave bill. Then California doubled-down on their existing law, boosting paid leave benefits from 55 percent of regular pay to as much as 77 percent. Then the cities of Minneapolis, Los Angeles, and Chicago approved mandates. Then San Francisco passed the country’s first-ever fully paid family leave oridnance, mandating that new mothers and fathers be paid 100 percent of their regular wages while on leave. In the last year and a half, a total of 18 states and several dozen major U.S. cities have actively looked to adopt or revise paid leave laws.
States and cities may not be the only ones getting in on the action. Despite the failure of past attempts at a federal paid leave mandate, it would be unwise to discount Washington entirely. While campaigning, President Trump surprised many by making paid leave, traditionally a nonstarter with Republicans, part of his platform. His stance reflects changing attitudes among conservatives. Last year, a study found that over 70 percent of Americans (and 62 percent of Republicans) would support a paid leave mandate. If Democrats and Republicans can come together on the issue, we could see progress as early as this year.
Local paid leave laws will likely continue to pass, further complicating the existing patchwork of laws multistate employers face. Follow developments closely and don’t count out the prospects for a federal mandate being passed in the coming months.
Ban the Box: A National Movement
Reforms to employee background checks have been in the works for decades—but since 2014, the floodgates have opened. “Ban the box” laws, with bipartisan support, are being enacted nationwide at increasing rates.
While applying for jobs, you’ve likely come across the very “box” so many lawmakers are trying to eliminate. The movement’s advocates are seeking to make it unlawful for employers to ask about a job candidate’s criminal history, until a job offer has already been extended. Studies suggest that interview callback rates for ex-offenders are about 50 percent lower overall.
While employment issues are typically divisive, support for the ban the box movement has been largely bipartisan. Measures have passed in both Democratic and Republican-leaning jurisdictions, and as recently as this month a federal ban was introduced in Congress, cosponsored by Cory Booker, Rand Paul, and other Republican and Democratic senators.
At the time of this writing, there were 26 states and over 150 cities nationwide with ban the box laws in place, some applying to private employers and others just to state contractors. With these measures, over 211 million people—almost two thirds of the entire U.S. population—now live in a jurisdiction where criminal background checks are restricted.
Hawaii passed the country’s first ban the box measure in 1998, but no states followed until 2009. Between 2009 and 2016, the number of state ban the box laws being passed has averaged just over three per year. With over a dozen state and local laws currently being deliberated, that trend looks to continue in 2017.
Some economists and employer groups are not yet convinced that the laws actually help boost ex-offenders’ employment prospects. One frequently cited complaint was that the existing patchwork of laws makes it hard for multi-city or state employers to stay compliant. But for the 77 million in the U.S. with criminal records—roughly a third of all American adults—the steady progress of the laws at the state and city level could signal something more than just another compliance burden for businesses: a second chance.
Bipartisan support for ban the box laws has never been stronger. With a federal ban possible and a continued wave of local ordinances being passed, consider updating your job application process if you haven’t already.
Last year’s wave of pro-employee reforms has continued into 2017. While the transition of power in Washington may have impacted the rate of change at the federal level, it has only slowed it on the state and local levels.
Whether it’s a minimum wage increase or radical changes to overtime rules, your company’s HR department will be tasked with making sense of it all. The best teams don’t turn a blind eye to politics, as the fruits of the political process—regulations, laws, and reform—ultimately shape HR’s day-to-day responsibilities. As put by Laurie Ruettimann, the influential HR writer and speaker, “HR sits at the intersection of work, power, politics, and money.”
HR would benefit from embracing that connection. SHRM, the profession’s leading association, already has. Follow developments closely on blogs like HR News and periodically check-in with your local SHRM and American Payroll Association (APA) chapters for updates. Use this guide as a roadmap, keeping in mind that the most substantial changes often come at the local, not federal level. Because of this, note that national news sources may not be the most helpful in following HR compliance developments.
Tip O’Neill, had he ever chose to pursue a career in HR instead of politics, would surely remind us that “all politics is local.”