Update on Effects of Flores v. City of San Gabriel BY: PAYROLL DEPARTMENT

Transcription

1 1 Update on Effects of Flores v. City of San Gabriel BY: PAYROLL DEPARTMENT

2 Agenda 2 Background: The Flores decision The Issues Impacts on the City Moving Forward Next Steps

3 3 Background HOW DID WE GET HERE?

4 Flores v. City of San Gabriel: 4 Background In 2012, a group of police officers filed suit against their employer, the City of San Gabriel, for violations of the Fair Labor Standards Act (FLSA). The officers alleged the City failed to correctly calculate their overtime rate and thus they were owed overtime. Specifically, the officers argued the City was not treating cash paid to employees in lieu of health benefits in accordance with the FLSA. The case was brought as a collective action. Both parties appealed the district court s rulings. The Ninth Circuit Court of Appeals decision was issued June 2, The City petitioned the Ninth Circuit to re-examine the June 2016 ruling, but was denied the petition in May Statewide, agencies were awaiting the ruling of this petition before implementing changes Thus, the June 2016 decision provides a new interpretation of how employers should calculate OT under FLSA.

5 5 The Issues TWO MAIN CASE HOLDINGS + A THIRD HOLDING

6 Flores v. City of San Gabriel: 6 Two Main Issues/Holdings ONE: Cash in lieu of health benefits made to nonexempt employee cannot be excluded from FLSA regular rate of pay used to pay FLSA overtime. TWO: Bona Fide Plan? If the total amount of cash paid in lieu of health benefits is more than 40% of the benefits plan payments as a whole, the plan is not bona fide. If a plan is not bona fide, all cash contributions paid by the employer to the plan, in addition to cash in lieu, must be included in the regular rate. (Flores v. City of San Gabriel (9th Cir. 2016) 824 F. 3d 890.)

7 Flores v. City of San Gabriel: 7 Third Issue/Holding THREE: FLSA violations have a two year statute of limitations unless the employer s violation was willful. If willful, a three year statute of limitations applies. City of San Gabriel employees argued the City failed to do their due diligence in confirming whether cash-in-lieu payments should be included in the Regular Rate of Pay Court decided City s actions were willful

8 Impacts on the City of Azusa 8

9 Flores v. City of San Gabriel: Impacts on City of Azusa 9 Examining which employees are impacted Implementing payroll changes moving forward for compliance Determining back pay liability Back pay timeframe Bona-fide plan or not?

10 Flores v. City of San Gabriel: Steps City of Azusa has taken for Compliance 10 Step 1: Identify the cafeteria plan participants. Step 2: Identify total cafeteria plan payments. Total plan payments = cash in lieu payments + payments employer made to the plan to cover premiums. Step 3: Calculate cash in lieu payments as a percentage of the total plan payments. Step 4: What is the percentage? Is it over 40%? If less than 40%, how close to 40%? The analysis is plan wide, i.e. in the aggregate, not employee by employee. Step 5: Re-configure payroll system to implement FLSA changes Step 6: Calculate back payment liability and determine terms

11 Flores v. City of San Gabriel: 11 Azusa s Cafeteria Plan The City has implemented a Section 125 qualifying Cafeteria Plan. The City contributes a set monthly cafeteria amount to the Plan per employee in accordance with MOUs. Employees may use their Cafeteria Plan contributions towards the City s medical, dental, vision, and supplemental products programs. Employees may opt out of the medical plan by providing evidence of alternative medical insurance coverage. Any unused Cafeteria Plan allowance shall be payable to the employee as taxable cash back. Employees considered new hires who opt out of City provided medical coverage are eligible to receive a maximum allowance of $0 - $300 per month depending on MOU.

12 Flores v. City of San Gabriel: 12 Cash-in-lieu and Impacted Employees The first holding in Flores says Cash-in-lieu of health benefits must be included in the Regular Rate of Pay (incorporated into the overtime rate paid for FLSA overtime hours) for: Non-exempt employees; Who receive cash-n-lieu payments; and Works FLSA overtime; which includes employees Who have compensatory time leave banks.

13 Flores v. City of San Gabriel: 13 Bona Fide vs. Non-Bona Fide Plan The second holding in Flores looked at cash in lieu payments relative to an employer s total contributions to the plan. Under the FLSA, total cash back / cash in lieu payments must be incidental to the total plan payments made. Per Flores: If total cash in lieu payments are greater than 40% of the total plan payments, the payments are more than incidental and the plan is not bona fide. This means all payments to the plan must be included in the regular rate. Per Flores: If total cash in lieu payments are 20% or less of the total plan payments, the payments are considered incidental and the plan is bona fide. This means only cash in lieu payments must be included in the regular rate.

14 Flores v. City of San Gabriel: Analyzing Azusa s Plan 14 Calendar Year Health Premiums and Deferred Comp % of Cash-in-lieu to total Plan Total Flex Cash 2014 $ 3,728,619 $ 2,332,026 $ 1,396,593 37% 2015 $ 3,877,170 $ 2,485,766 $ 1,391,404 36% 2016 $ 3,800,212 $ 2,679,516 $ 1,120,696 29% 2017 thru 8/31/17 $ 2,597,668 $ 2,059,397 $ 538,271 21%

15 15 Moving Forward IMPLEMENTING PAYROLL CHANGES AND BACK PAY LIABILITY

16 Flores v. City of San Gabriel: 16 Azusa moving forward Since June, Payroll staff has been working on reconfiguring the payroll system to come in compliance with FLSA changes as a result of the Flores decision Update dozens of calculation codes Create new calculation codes Update multiple employee cards for each impacted employee Extensive testing has been done to ensure new configuration works Collectively, City Management, Finance, and Human Resources had to determine the best timeframe for implementing the payroll changes Open Enrollment changes Budget authority Must implement changes prior to negotiating back pay

17 Paycheck Changes Coming Soon 17 Due to decision of Flores v. City of San Gabriel, paychecks will be different starting January 4, 2018 Converting 1st paycheck of the month contributions and deductions to biweekly basis for: Cafeteria/Flex Plan contributions Deductions Health Dental Supplemental benefits (i.e. cancer, life, disability, etc.) Deferred comp City paid deferred comp and association dues will still be on a monthly basis as those contributions are not tied to flex benefits Hourly rates impacted by changes All overtime hours codes All compensatory time used hour codes Compensatory time leave cash outs

18 Converting Base Salary into Hourly Rate 18 Monthly amount * 12 months / 2,080 hours = hourly rate of pay 2,080 = # of full time hours worked in a year (40 hours per week * 52 weeks) Example: A Police Sergeant at Step 4 $9, * 12 = $119, / 2,080 = $ per hour (this is your base pay rate)

19 Current/Pre Flores: Sample Paycheck 19

20 Converting incentives into hourly rate 20 Incentives include: Education/Certificate Pay Longevity Shift Differentials Motor Pay Rubber Gloving Incentives are paid over a 26 pay period basis. Example: If an employee receives $250 per month for a Bachelor s degree, the amount on a biweekly basis would be $ = $250 * 12 months / 26 pay periods

21 Calculating OT and leave cash out rates 21 CURRENT: Incentives are built into overtime and leave cash out rates Incentive total $ / 80 hours = $ hourly rate Base hourly rate + Incentive hourly rate = $ $ = $ OT Straight and leave cash out rate = $ hourly rate OT Full Time = $ * 1.5 = $ hourly rate

22 Post Flores: Converting cash-in-lieu to hourly rate 22 In addition to current payroll calculations, post Flores calculations will include cash-in-lieu amounts. Cash-in-lieu = Flex Pay Contribution Health Plan Deductions This employee currently has a $1,649 monthly Flex contribution and has no health deductions. Therefore he/she receives full cafeteria contribution as cash-in-lieu ($1,649 on the first check of each month) Beginning 1/4/18, Flex benefits and health deductions will be paid over a 26 pay period basis. Example: If an employee receives $1,649 per month in Flex pay, the amount on a bi-weekly basis would be $ = $1,649 * 12 months / 26 pay periods

23 Post Flores: Sample Paycheck 23 Current: OT = Base Rate w/incentives $ $ $ = $570.06/80 hours = $7.13 incentives hourly rate $57.31 base rate + $7.13 incentives rate = $64.44 *1.5 = $96.66 Old FLSA OT(1.5) hourly rate *Note: vacation and sick leave payouts do not include cash-inlieu hourly rates because these are not FLSA driven payouts. However, if employee were to have comp payouts, cash-in-lieu rate would be included. NEW: OT = Base Rate w/incentives + Cashin-lieu $ $ $ $ = $1,331.14/80 hours = $16.64 incentives and CIL rate $57.31 base rate + $16.64 incentives and CIL rate = $73.95 * 1.5 OT hours = $ New FLSA OT(1.5) hourly rate

24 Flores v. City of San Gabriel: 24 Azusa Back pay Liability and Plan City has a pending lawsuit requesting: Damages Legal fees willfulness provisions (back to June 2014) Non-Bona fide plan City Plan for employees outside of lawsuit: Willing to settle back payment with all employees to June 2014 Non-bona fide plan June 2014 December 2016, bona fide thereafter Willing to calculate OT based on 160 hours per 28-day period vs. 171 hours for sworn personnel Including back payment for all OT, compensatory time used, and compensatory leave cash outs

25 Flores v. City of San Gabriel: 25 Azusa Fiscal Impact Estimated annual increase in salaries $155K City-wide General Fund impact $100K Estimated back payment liability $1.5M City-wide General Fund impact $900K

26 Next Steps 26

27 Flores v. City of San Gabriel: 27 Next Steps Meet with employees Date Time Location 11/7 9 am-10 am Council Chamber 11/9 9am-10 am & Council Chamber 10::30 am-11:30 am 11/16 1pm-2pm & Council Chamber 2:30-3:30 pm & 3:30 pm-4:30 pm 11/28 9:00 am-10:00 am Council Chamber Seek budget authorization from City Council in December Implement payroll changes effective 1/4/18 paycheck Begin back payment settlements with individual employees late January through February 2018

28 Payroll Contacts 28 CENTRALIZED PAYROLL HELEN NSAIDZEKA PAYROLL SPECIALIST EXT MERCI RODRIGUEZ PAYROLL SPECIALIST EXT MICHELLE HONIS ASSISTANT FINANCE DIRECTOR TALIKA JOHNSON FINANCE DIRECTOR