Are you an employer who does business in Massachusetts? Do you know what laws and key concerns you should pay attention to? Navigating Massachusetts laws can be uniquely challenging for employers, especially for businesses operating across multiple New England states with differing regulations.
Don’t risk a costly audit due to legal blind spots!
Join us for an enlightening conversation with labor and employment attorney Jack Gearan from Greenberg Traurig, LLP. In this session, he will break down the latest compliance and enforcement trends and provide you with practical steps to help you keep your business on the right side of Massachusetts law*.
We’ll discuss topics such as:
- Unique aspects of Massachusetts employment laws
- Recent Massachusetts legal changes
- Differences between exempt vs. nonexempt employee status
- Remote employee considerations
- Wage & hour audits
Gain the knowledge you need to safeguard your business. Being well-informed now can save you from costly surprises later!
Co-Sponsor and Guest Speaker: Jack Gearan | Shareholder, Greenberg Traurig, LLP
Jack Gearan is a shareholder in the Boston office of Greenberg Traurig, LLP and the firm’s Labor & Employment practice. Jack regularly provides counsel to senior management and human resource personnel on various aspects of employment law compliance matters.
This webinar was recorded live on September 10, 2024
* Disclaimer: The content of this webinar is intended for informational purposes only and does not constitute legal advice. Although the webinar will be co-hosted by an attorney, participation in this event does not create an attorney-client relationship. For specific legal advice related to your situation, please consult with a qualified attorney.
Session Transcript:
Jeff Plakans (00:00:03):
Hey, good afternoon everybody. This is Jeff Plakans, I’m the President of Commonwealth Payroll and HR. Thank you for joining us today for our webinar on Wage and Hour Law in Massachusetts, Pitfalls to Avoid. Thank you for spending an hour of your afternoon with us. Hopefully we’ll be in a position to share some great information with you.
(00:00:26):
A little housekeeping before I go and introduce our speaker, and that is that we are recording this and obviously we will be distributing a recording to all the registrants, whether you’re in attendance or not. And at the end of the session, we will be looking for you to ask questions. So if you could use the questions section of your console to submit those questions to us, we’ll save those to the end and Jack and I will be happy to do that.
(00:01:00):
So without further ado, let me introduce again, Jack Gearan. Next slide, please. So Jack is a shareholder at Greenberg Traurig. He is an employment attorney extraordinaire, and Jack’s going to share us all of his ongoing knowledge today. Jack, thanks for joining us.
Jack Gearan (00:01:20):
Well, it’s great to be with you, Jeff, and to speak with so many folks affiliated with Commonwealth payroll are tuning in. I’m happy to share some helpful information focusing on Massachusetts wage and hour issues today.
Jeff Plakans (00:01:37):
So I think before we hop into the discussion, I do want to make one important point. Jack is an attorney, but what we’re sharing here today is for informational purposes only. Should you have items that are specific to a particular case or particular scenario, we can’t possibly know all of the details that would apply to you and your company. So we would encourage you to get in touch with an employment attorney, potentially Jack if need be, if you have more specific questions. But today is going to be all about sharing information, and we always like to say here at Commonwealth, we’d like to share facts and we’re always happy to do so. That’s what we hope to do today.
(00:02:23):
So Jack, the first thing I think we need to do is define really, what is an employee, and more specifically, what is not an employee? And I think we get into independent contractors when we have that discussion, do we not?
Jack Gearan (00:02:37):
Yes, certainly Jeff. I have worked with many clients over the years who may not be aware that they have employees in Massachusetts, in the sense that they believe they have independent contractors. In Massachusetts, it’s quite difficult to classify workers as independent contractors, and that relationship is going to be defined under the law as we’ll discuss. It’s not defined necessarily by whether you provide a W-2 or a 1099 to the individual. It’s not defined by an agreement that says, “We are independent. We’re treating you as an independent contractor.” And it’s not defined even by the worker saying, “I would like to be an independent contractor,” which many of them often do.
(00:03:30):
The fact is that it’s the employer’s burden to show that the worker is a independent contractor. It can be done, although it’s challenging under Massachusetts law and some other states like California and New Jersey. And it’s easier in some other jurisdictions, but it’s particularly challenging in Massachusetts. And of course, when you are an employee in Massachusetts, you are then protected by Massachusetts wage and hour Law and the Massachusetts Wage Act, which is going to provide you protection to be paid proper overtime, proper minimum wage. You’ll be entitled to sick time under Massachusetts law. If there’s a vacation plan, you’ll be entitled to approved vacation. So once you’re an employee and you’re not otherwise, meeting the definition of independent contractor or some other perhaps business-to-business relationship, this is something that employers have to pay attention to.
(00:04:29):
And unlike a lot of other laws where, for example, in Massachusetts, you’re not subject to 151B, the state’s discrimination law, until you have six employees. Now, that doesn’t mean you can go and discriminate because there’s other remedies, but you’re not subject to 151B, which is the state’s primary enforcement mechanism for discrimination. But if you have even one employee performing work in Massachusetts, or in some cases perhaps even outside of Massachusetts if the employer is in Massachusetts and there’s enough of a connection, then you’re going to be dealing with the Massachusetts Wage Act.
Jeff Plakans (00:05:09):
So, how do we determine if someone’s an independent contractor in Massachusetts?
Jack Gearan (00:05:15):
Well, we have, if we could take a look at the next slide here. I’ve laid out the definition here, which is under chapter 149, section 148B. Section 148 is the Massachusetts Wage Act, and 148B defines what is an independent contractor. And it’s important to remember this is different than other states. It’s different than the IRS test, it’s different than what’s often called the 20-factor or multifactor test. In order to be an independent contractor in Massachusetts or for an employer to demonstrate that they have an independent contractor, they need to show three things, and it’s often called the ABC or 123 test. They need to show that that worker is performing work without the direction and control of the employer, that they’re performing work outside the usual course of the employer’s business, and that it’s being done by someone who has their own independent business or trade. And unfortunately for employers, the failure to satisfy any one of these prongs means that the individual is going to be an employee.
(00:06:25):
So I in my practice, do a lot of advice and counseling on this topic and also have defended companies in wage and hour disputes, class and collective actions, when there is miss classification. And I would just point out that it’s prong B there or prong two, that really gets a lot of work employers in trouble. You might hire someone that really does have their own independent business. You might hire someone that you’re really not controlling that much, but if they’re doing what your business does, you’re going to fail that test or they’re doing what the primary focus of your business is. In other words, I always say to folks, “If my law firm hires someone to do legal work, if we hire a student to come in, even who’s going to come in or a attorney who’s not necessarily affiliated with our firm or a paralegal. And they’re going to perform legal work or assist in legal work, then they’re going to have to be an employee, or at least a part-time employee under Massachusetts Law.”
(00:07:29):
Now if we hire someone, or I shouldn’t use the word hire, but if we contract with someone to perform maintenance in the office, perhaps to help with marketing, to do other sort of business tasks, to come in and paint the walls in the office, then those can lawfully be independent contractors. But that’s a key distinction.
Jeff Plakans (00:07:52):
So you’ve mentioned wage and hour law a couple of times here, and I think, I’m betting that we might have some employers. I certainly know that we have them as clients, who might not really fully understand what that actually means and what that specifically means to them, in terms of things that they need to be considering.
Jack Gearan (00:08:12):
Sure. We can take a look at the next slide here, which… Or maybe I’m getting a little ahead of myself, but there’s something called the Massachusetts Wage Act in Massachusetts, and what it does is it protects employees so that they are paid properly. And this really breaks down into being paid proper salary, being paid proper overtime, being paid the proper minimum wage, and being paid on time. In Massachusetts, you need to pay employees within six days of the payment period. So those are really the kind of things that are being protected under the Massachusetts Wage Act.
(00:08:55):
And there’s a decision here, and I know we’ll talk about this further, but there’s a decision in Massachusetts called Reuter versus City of Methuen, which came down just in 2022, which made the Wage Act even more stringent and really more kind of fraught with peril for employers, in terms of the damages that are available, Jeff, under the Massachusetts Wage Act.
Jeff Plakans (00:09:24):
Okay, okay. So when we talk about wage and hour, let’s go to the next slide if we can, and talk a little bit about what it means federally, what it means in Massachusetts, and elsewhere here in New England, if we can.
Jack Gearan (00:09:40):
Sure. So there’s something called the FLSA, which is the Fair Labor Standards Act, which applies with a few exceptions, to most private employers in the United States. So that means you have to pay a federal minimum wage. That means that you cannot misclassify employees who… misclassify employees as independent contractors. It also means you can’t misclassify workers that are entitled to overtime unless they meet some type of exemption under the law, and that they need to be paid properly under the FLSA.
(00:10:19):
We also have the Massachusetts Wage Act, which we’ve been discussing in the last couple slides, Jeff, which is in many ways more stringent than the FLSA. This is why in Massachusetts we don’t see a great number of FLSA cases. We don’t see a lot of class and collective FLSA actions in federal court, even in Massachusetts, where you do see that in many other jurisdictions. And the reason you don’t see it is most plaintiff’s lawyers or lawyers representing employees, would likely choose to sue under the Massachusetts Wage Act for some reasons with respect to what can be liability, but also because and primarily because they can recover more under the Massachusetts Wage Act. They can recover unpaid wages and benefits, and if they’re successful, they’re entitled to automatic treble damages under the statute, as well as attorney’s fees and costs.
(00:11:27):
So two points to make on that. Number one, there really is no defense to a failure to make proper payments. It doesn’t matter if you thought you were doing the right thing. It doesn’t matter if the employee said, “Hey, don’t worry about paying me overtime.” It doesn’t matter if the employee said, “I really would prefer to be classified as an independent contractor,” or, “Hey, you paid me late, but I’m not going to do… It’s no big deal.” Now, they may or may not choose to exercise their rights under the statute. Even in that case, of course, the Massachusetts Fair Labor Division, which sits within the Massachusetts Attorney General’s office could be involved. But typically, these cases can come up where even if an employee has been very happy and they haven’t made any issues about payment, at some point something might go wrong in the employment relationship. Either they’re being let go, they’re being disciplined, they may have a separate type of claim that may or may not have validity, and they may choose to exercise their rights under the Wage Act.
(00:12:39):
And I was mentioning the Reuter decision a few slides ago, which came down in 2022.
Jeff Plakans (00:12:46):
Let’s go back to that slide for one second, if we can.
Jack Gearan (00:12:48):
Sure.
Jeff Plakans (00:12:50):
There we go.
Jack Gearan (00:12:52):
For a long time in Massachusetts, we’ve had treble damages since, I want to think about 2006 or so, maybe around that time during the Patrick Administration in Massachusetts. But what we had in Massachusetts was a situation where, for example, if you made a late payment, you were entitled to treble damages under the statute but the question was, well, what are the treble damages? I paid this person their wage, I just paid it two days late. And this comes up a lot because in Massachusetts, if you involuntarily terminate an employee, in other words, if you fire them, let them go, they’re entitled to their accrued wages on their last day of employment. And that’s exactly what happened in the Reuter case, where an individual deserved to be fired, frankly. They had engaged in larceny, they had engaged in stealing from the company or at least were credibly accused of that. And so they were terminated, but they were not paid their final wages on the last day.
(00:14:00):
So as I was saying, it used to be the case that if you paid somebody late, you’d say, “Well, I paid them two days late. They’re entitled to the interest, the statutory Massachusetts 12% interest on the late payment. And sure, they’re entitled to treble damages, they’re entitled to three times the interest,” and these would really be sort of minimis type cases that could easily be worked out. Well in Reuter, the Massachusetts Supreme Judicial Court said, “No, it’s three times the whole amount.” So if I’m making a final payment, or I should be making a final payment to an employee of $10,000 because I owe them 6,000 in salary and I owe them 4,000 in accrued vacation time, and I pay them one day late or one hour late past the date, I owe them three times that. If you paid them once, then it would be paying them twice more.
(00:14:55):
So it’s a really difficult situation for employers to find themselves in. We’ve seen it with commissions. Commissions is something I should have mentioned, in terms of what’s a wage under the law, Jeff, if it’s [inaudible 00:15:10]-
Jeff Plakans (00:15:10):
Well, let’s… we have a slide for that, if we could hop [inaudible 00:15:14].
Jack Gearan (00:15:13):
Okay, getting ahead of myself.
Jeff Plakans (00:15:15):
… ahead here. No, you’re good.
Jack Gearan (00:15:18):
But the point I wanted to make is that even an honest payroll error, I think back to a year and a half ago when Silicon Valley Bank was having trouble and clients were calling me saying, “How are we going to make payroll?” Or of course, a lot of clients are dealing with cyber attacks or technology issues. And the fact is, if you don’t make a payment in a timely fashion under the law, an employee does have a claim for automatic treble damages. So really, something for employers to watch carefully.
Jeff Plakans (00:15:52):
Okay, let’s go to the next two slides from here, Kathy. Thank you.
Jack Gearan (00:16:00):
Yeah, and this is what I wanted to cover kind of briefly is, well, what’s a wage? So their regular weekly wages, commissions, as I was alluding to. A lot of times employers will get themselves in trouble with not paying an earned commission. You can have a legitimate bonus policy that says, “This bonus is discretionary and you will not be entitled to your bonus unless you’re working here,” but it needs to be set forth clearly in the plan. It needs to be very clear that it is a discretionary bonus, and it needs to be frankly different than a commission. If for example, you’re in the sales business and you’re making a sale and you’re entitled typically to a percentage on each sale you make and you’ve done that work, and that money’s been paid to the company, you’re likely going to have to pay out that commission even if that employee is no longer working with you because they have essentially done what they need to do to earn the commission. The company’s collected the money, it’s definitely determined, due and payable.
(00:17:06):
Now, companies can build in some caveats for that. For example, you could build in a caveat that says, “We’ll pay you the commission, but we’re not going to pay it for six months because we want to see if the product gets returned.” And if the product’s returned or 50% of the product is returned that you sold, you’re not going to receive as high of a commission. So there’s ways to do it in a lawful manner, but it needs to be very clear. And courts really construe these commission plans typically in a favorable way for employees, if they’re not clear otherwise. Any sort of ambiguity is going to probably go tip towards the employee because of the remedial nature of the Massachusetts Wage Act.
(00:17:54):
Vacation time is also something that needs to be paid out. So again, this goes to my last example of what we saw in Reuter. If an employee needs to be terminated that day and things happen where employees need to be terminated that day, right? An employee could engage in violent behavior or threatening behavior and be engaging in creating a hostile work environment or do something really egregious where they should be terminated that day. The problem is, you need to be ready with the employee’s full paycheck, everything that’s accrued that day, including any accrued vacation.
(00:18:33):
So what I often recommend is if you’re not ready to do that, you should still remove the employee from the workforce, but I typically recommend putting them on a suspension, where they’re not technically terminated until maybe three days from then. So you have an opportunity to collect what’s owed and pay it. And then there are options there to even have that suspension be unpaid if done properly. But I typically recommend staying away from terminating that employee, even if it’s totally deserved, that day. I recommend taking a breath, doing a suspension, and making sure you’re ready to make payment.
(00:19:13):
Just with a note on vacation policy in Massachusetts. There’s no law in Massachusetts that says you have to give employees vacation. Of course it’s a good idea, I think, from a harmonious employee relation perspective. You want your employees to take vacation, you want them to have that for their own personal, physical, and mental health. But when vacation accrues and someone doesn’t use it and then they leave, they’re entitled to be paid that vacation time. So a lot of times employers will say, “Well, this person just never took vacation. They didn’t do it for years. Now we owe them a massive amount of money.” Well, one thing you can do under Massachusetts law is have a use it or lose it policy that says you have to use your 2024 vacation in 2024, and it doesn’t carry over to 2025, or only one week will carry over or only three days.
(00:20:13):
But the only way you can have a use it or lose it policy is if you meet the two requirements I have on the slide here, which is one, you have to provide adequate notice. They can’t say, “I didn’t understand that I had to use it,” and you have to legitimately give them enough time to use the vacation. If you work the employees so hard that they’re just not able to take that vacation time when it is a policy, then they could be entitled to it then. So you just want to be really careful about what rolls over, in terms of vacation.
(00:20:44):
Holiday pay tips, those all fall under wages under the Massachusetts state law and are part of what needs to be paid out promptly under the pay frequency statute that says it needs to be paid typically within six days, and of course needs to be paid out when someone’s involuntarily terminated. Now if someone resigns, if someone voluntarily terminates themselves, Jeff, you don’t need to pay them that day in Massachusetts. You have to pay them by the next payroll period, so, which makes sense. Obviously if someone comes in and says, “I quit now,” the employer’s not obligated to make payment. They do have somewhat of a grace period there.
Jeff Plakans (00:21:24):
So there’s a lot to unpack here, Jack, in terms of not only some of these definitions, but some of these things that can trip some folks up. If we go to the next slide, I know that we want to talk a little bit about this definition of working time, because that’s something that we’ve seen folks get tripped up with all of the time. So, can you dive into that a little bit?
Jack Gearan (00:21:46):
Sure. So it’s important I think, to think about this as first of all, do I have employees? Are they independent contractors or are they employees? We talked about what makes someone an employee.
(00:22:00):
Then if you have employees, the next sort of logical question, [inaudible 00:22:05] or are they nonexempt? And if you start with a presumption that they’re nonexempt, meaning any hours they work over 40 hours, they’re going to be entitled to time and a half and they’re going to be paid on an hourly basis. Now, there’s a lot of exceptions under both federal and Massachusetts law for that. You can have what we call the white collar exemptions for certain professionals. You can have administrative exemptions, supervisory exemptions. There’s a slew of exemptions for employees that don’t need to be paid overtime, but either way, whether they’re being paid overtime or not, they need to be paid consistent with your salary and what’s been promised to them, consistent with what you’ve set the hourly rate at. And you need to pay them for work they’re doing, whether it’s at your work site or another location. Time worked before or after a normal shift to complete the work. Travel time, as long as it’s not ordinary commuting.
(00:23:11):
And here’s another one, Jeff, where the burden really falls on the employer to one, there’s a record-keeping requirement. So everyone should be keeping records of the hours. And two, if the employee’s working “off the clock,” particularly if they’re a nonexempt employee and they’re really putting in more hours, but maybe they’re not recording it properly or they’re not telling you about it. If you know or should know that they’re working those additional hours, if you’re permitting or suffering the work as the phrase is often used, you could potentially be on the hook for overtime. So you need to be aware of when they’re working, you need to make sure you’re putting in adequate breaks. There’s break time law under Massachusetts. They’re entitled to a lunch break, which can be waived, but it needs to be done in compliance with the law. So you need to keep track of your employees and when they’re working.
(00:24:07):
You don’t want a situation where employee says, “I’ve actually worked double the hours I ever put down, and you were well aware of it because you were on emails with me, you were on phone calls. You knew I was working around the clock, and I’m entitled to that time going back three years, which is the statute of limitations.” So having good, either a punch clock or now it’s often done on a computer of course, but really being aware. And this has been a increasing problem with more remote work obviously, when you’re not able to monitor the work as closely.
Jeff Plakans (00:24:39):
And it’s worth saying that there’s been a significant uptick in DOL audits in the various states for this very thing. So something that we’ve seen and heard about quite a bit.
Jack Gearan (00:24:52):
Yes.
Jeff Plakans (00:24:52):
We move on to the next slide. We talk a little bit about something that’s obviously near and dear to what we do. Deductions from pay, which is a little more complicated than I think most people consider when we talk about this.
Jack Gearan (00:25:07):
Yeah, so an employer is entitled to take certain deductions out of an employee’s pay, right? But it has to be compliant with the law. So you can take withholdings for taxes, of course. You can do certain things for the worker’s benefit, putting that money into some type of savings account. You can’t take out ordinary business costs, you can’t take supplies, materials or tools. This comes up all the time where someone’s misclassified where someone says, “Well, I thought they were an independent contractor and we were providing them this material or tool and we were charging them for that, or we were taking a fee for that because we made it very clear in our contract and everyone agreed to that.” Well, if they’re an employee, the tools they need for their ordinary business costs typically cannot be deducted.
(00:26:07):
There’s limits on how much you can take for housing or meals. You always have to watch your minimum wage. And then just in general, if you’re having a worker buy or rent a uniform, the employer typically needs to pay for that or refund the actual cost. So there’s a variety of minefields there, in terms of proper deductions and like I said, it comes up a lot when employers are pretty good about it if they know they have employees, but if you don’t think you have employees, you think you have independent contractors, these deductions can really add up and create real liability. I’ve seen it a lot in the trucking and transportation industry where there are some federal preemption laws that can be helpful in trying to get past the Massachusetts ABC test. Not to get too sort of inside baseball with this, but it can be challenging if you’re taking improper deductions.
Jeff Plakans (00:27:07):
So on the next slide, we talk a little bit about something that we see employers get caught up on frequently. And we put this one under the, most employers don’t even know that this rule exists. It’s one of my favorite-
Jack Gearan (00:27:23):
Yeah, this is not a general rule, right, Jeff? So this is something where those doing business in Massachusetts might make a mistake if they’re not intimately familiar with Massachusetts Law.
(00:27:34):
If you call an employee into work and they show up and then you send them home because the person who called in sick actually ended up making it into work, or you just don’t have the work, this comes up a lot in hospitality or the restaurant industry. You call someone in for a shift and turns out the restaurant’s really slow and you say, “Actually, I’m going to go ahead and send you home.” You still need to pay them for a minimum of three hours, essentially for their trouble coming in. And if it’s done on a one-off basis, it’s not going to be a significant mistake but if you’re regularly calling in employees and sending them home without paying them the three hours of reporting pay or on-call pay as we call it sometimes, obviously being on-call is a separate requirement. But if you’re coming in, you need to be paid for three hours and we’re talking about talking of course here about nonexempt employees coming in for a shift.
Jeff Plakans (00:28:35):
So with the pandemic came not the beginning of remote work, but a significant uptick in companies having remote workers, and certainly that means potentially being able to work from anywhere. So when we talk about the next slide, we talk about out-of-state employers and remote employees, which has been a big mess for a lot of employers in the last couple of years for obvious reasons. What are you seeing out there, Jack, with things that folks need to consider?
Jack Gearan (00:29:11):
Yeah, no, it’s a great point, Jeff. And the first point I would make is you need to know where your employees are. You need to know where they’re working and where they live, and make sure you’re complying with the state’s law, typically of where they’re working. And where they live, you need to know to make sure you’re handling taxes as well, properly. And it sounds really simple, but sometimes employers don’t know that. Someone might apply while they’re living in one particular state and then move. They might decide, I’m going to work from my summer home or my vacation home. And if they’re doing it on a regular basis, that can essentially become their residence. The rule typically has been it’s where the employee is living and working, and working for the most part, that’s going to define where they’re an employee. So if you’re a New Hampshire employer and you have remote workers in Massachusetts, you need to be familiar with Massachusetts state law.
(00:30:11):
This Wilson v. Recorded decision is an interesting decision that came out of the federal court in Massachusetts, interpreting Massachusetts Law. So it’s not actually binding Massachusetts legal precedent as we say, in that it’s a federal court making a determination. But it was a decision that threw some of us in the employment law community for a bit of a loop because here you had an individual who was in Virginia. They were not in Massachusetts, they weren’t working in Massachusetts, but you had a headquarters in Massachusetts. And because they were interacting so much with the employer in Massachusetts with issues relating to compensation plans, commission payments, hiring, the court at least did not dismiss a claim under the Massachusetts Wage Act, saying they should be subject to Massachusetts laws and denied the motion to dismiss.
(00:31:11):
So what we can learn from this case is the fact that the employee did not live or work in Massachusetts, didn’t necessarily mean, at least for purposes of the motion to dismiss, that this employer didn’t have to be aware of and comply with Massachusetts law. Now, I think as a management side attorney, we could make some counter arguments here. We could argue that this isn’t the law yet in Massachusetts and that the law where you live should control, but certainly something to be aware of, that you might have an employee that you don’t think is subject to Massachusetts Law, but because you’re doing so much business here, they might be able to establish that appropriate nexus. So, bit of a one-off kind of interesting decision.
(00:31:56):
The bigger issue I think is for employers who are in Maine, New York, New Hampshire, who do not really consider themselves Massachusetts employers, but have employees here or who are working here, even if remotely. They’re going to need to comply with Massachusetts Law, and I just bring it up because Massachusetts Law is generally much more employee favorable, it’s more stringent in terms of the damages available. We have a unique non-compete act that we could do a whole session on, but severely limits the ability to have non-competes. We have sick leave in Massachusetts, we have automatic paid out vacation, and as I mentioned, the treble damages. So just something to be mindful of.
Jeff Plakans (00:32:42):
Okay, well, on the next slide we talk a little bit about record-keeping requirements. I think you mentioned this, but there’s some high points we want to make sure we cover, are just how long to keep records and why to keep records.
Jack Gearan (00:32:57):
Yeah, no, the second, you should keep them for three years, but if you can keep them longer, great. Typically, you’re dealing with a three-year statute of limitations, but you hit on the point, Jeff. Why keep them? Because ultimately it’s going to be your burden. If an employee comes forward and says, “I worked many more hours than are recorded here and nobody kept any records,” a court is likely to, I don’t want to say bend over backwards, but certainly go in favor or lean towards giving some leniency to the employee. Ultimately, it’s going to be the employer’s burden to have these records and to show when somebody was working, how much they were working. And it should be kept for exempt and nonexempt employees, particularly nonexempt, but the law technically applies to all, so very important for any employer in Massachusetts and in any state, but particularly in Massachusetts where you could be looking at significant damages, to have these records.
(00:34:00):
We also have a personnel record statute that I think we have a slide on.
Jeff Plakans (00:34:04):
Yeah, next slide.
Jack Gearan (00:34:04):
That’s important to pay attention to as well.
Jeff Plakans (00:34:08):
There we go.
Jack Gearan (00:34:10):
Just as a little bit, as an aside from wage and hour but certainly relevant to management in Massachusetts. You are required to keep a personnel records file and it should have certain information that will affect an employee’s employment, promotion, transfer. Now, the tricky part of this is if somebody makes a complaint about an employee, if there’s a performance evaluation, something that could affect a worker’s employment, promotion, etc, that should really go into the personnel file, and employees are entitled to receive their personnel records. And there’s also a requirement that you notify workers when you’re adding something to the personnel record that could negatively affect their employment, because the employee has a right to essentially contest that information and explain why they either don’t think it should be part of the file or kind of present their side of the story.
(00:35:08):
So now, I don’t think this means that every single email you ever send about an employee needs to go into the personnel file, but if you’re talking about a significant performance evaluation, a complaint of some kind, a note about why someone is doing a job that if they’re receiving a warning, and you really do want to document all that information. It’s always good to document, document, document, as you know Jeff, if you’re dealing with personnel issues. But employees have a right to these employee files and their lawyers will have a right to them if there’s any issue, and you do have to have that available.
Jeff Plakans (00:35:50):
And one of the things, it’s worth mentioning that most of our clients benefit from anyway obviously, is lots of tools to be able to make it real easy to document what needs to be documented. Sometimes that’s the challenge. Records are always subject to both whether or not the employer thinks they’re going to need them, and then obviously whether they have an easy way to store them. And sometimes it’s overlooked how important that is and that’s something that our clients obviously get the benefit of.
(00:36:26):
If we move on, Massachusetts has always been at the vanguard of new legislation for employees and for employee benefits. Going to the next slide, let’s talk a little bit if we can and review on Mass earned sick time.
Jack Gearan (00:36:46):
Yeah, so in Massachusetts, employees are in entitled to sick time and they’re entitled to it for their own routine medical issues or due to illnesses. And they can also use sick time for child, spouse, parent, spouse’s parent. You need to put your employees on notice of this. You need to provide them with exactly what it can be used for. The big question is always, do I have to pay it? Well, if you’re an employee with 11 or more employees, you do have to pay it. If you have fewer than 11 employees, you don’t have to make it paid time, and so that’s really the distinction there. It does not have to be paid out on termination.
(00:37:33):
So a lot of employers, Jeff, will do one kind of PTO bank. So they’ll say, “This is your…” and that’s okay. You can say, “Look, you get 40 hours and you can use that for sick time or vacation time or whatever you want to do.” You can do it that way. But if you’re going to do it that way, it’s important to spell out what’s going to be paid out upon their termination. So you can say, “Look, it’s all one bank, it’s all PTO, but we’re going to consider 60% of it vacation or 70% of it vacation.” And that way you’re not stuck with paying up a whole thing. Otherwise, if you just put it all into one lump sum, vacation and sick time, and you don’t clearly define what’s what or what’s going to be paid out at least, then you’re going to essentially be having to pay the whole piece out.
(00:38:26):
So you’re entitled to one hour for every 30 hours worked in Massachusetts, or you can just do a bulk 40 hours. You don’t have to do rollover if you do it in that fashion. Otherwise, there are some more stringent rollover requirements, but really putting your employees on notice of sick time and what’s available to them is incredibly important.
Jeff Plakans (00:38:49):
Okay, if we move on to the next slide, overtime, we’ve mentioned it quite a bit already today. But here in Massachusetts there’s some things that we really need to pay attention to. So if we can talk a bit about that and we’ll talk about some why’s behind it in just a second, that would be great.
Jack Gearan (00:39:09):
Sure. So I think most folks on the call are probably generally familiar with the exemptions for employees that don’t need to be paid overtime. I went over a few of them earlier, in terms of a supervisory employee who’s supervising two or more employees, they’re exercising discretion. There’s an administrative exemption if you’re handling the administrative needs of a company and you’re doing something slightly outside their regular course of business. Think about maybe like a bookkeeper type person who might qualify. There’s a lot of places where people think folks don’t have to be paid overtime and they are. Paralegals are entitled to overtime. So in any law firm, they’re entitled to that. But generally, Massachusetts and the federal law pretty much mirror each other. And you can go on the Department of Labor website and read about exemptions. There’s changing employee, there’s different salary thresholds that need to be met, and that’s something that’s constantly changing and being increased and there’s challenges to it.
(00:40:19):
But I just wanted to point out that in Massachusetts there, we don’t have what’s called the inside sales exemption. So if you’re… federal law does have this exemption that if you’re in a retail or service establishment and you’re being paid equal to or at least 1.5 times the minimum wage and more than half of the employee’s compensation is commissions, you can meet this exemption and not have to be paid overtime. So you’d be compliant with federal law if you had someone who was engaged in that position and met those requirements for inside sales. Outside sales is a different type of exemption where you’re talking really about sales folks that are on the road, really kind of anachronistic in a way, not as used as much this day and age. We don’t have so many door-to-door salesmen, so to speak, but we don’t have this inside sales exemption in Massachusetts.
(00:41:14):
And if we could take a look at the next slide, it might be helpful to just make this point that there was a pretty significant decision in 2019 verses Sleepy’s Mattress where again, this is a case kind of like what we were talking about before, in terms of the Reuter decision. Where the law had been pretty clear that even though we didn’t have this exemption in Massachusetts, if the employee was still earning enough time through their commissions to cover minimum wage and one and a half times that minimum wage, that you wouldn’t have any risk of any lack of payment. But the Sleepy’s decision, despite prior case law on that, despite the fact that there was guidance on this approach from the Massachusetts Fair Labor Division, which basically told employers it was okay to do it this way, the Sleepy’s decision from the Mass SJC came along and said, “No, even if they’re making enough, if the employee’s making enough in commissions and draws, they still need to be paid a time and a half of overtime.” And how do you calculate that overtime? You calculate it based upon the minimum wage.
(00:42:31):
So it’s not enough to say, “Well, they made $3,000 in commissions,” and this was a case involving mattress sales, but this has been, there’s been a tremendous amount of litigation against car dealerships, auto dealerships in Massachusetts, because auto dealerships operate this way where folks just are paid on commission. And so in addition to that commission, even if they did very well and were performing in a very lucrative fashion, they still need to be paid the underlying minimum wage and then time and a half times that minimum wage. So that’s critically important.
Jeff Plakans (00:43:11):
If we go to the next slide, there’s a little bit that we might want to talk about here, with regards to this case.
Jack Gearan (00:43:20):
Yeah, I think I covered some of it, but the point is that… The large point here is you can’t use the commissions as kind of a set-off. And this is kind of a bigger point I’d want to make about wage and hour law generally, is that you need to pay employees their hourly rate and it needs to be minimum wage. I’m talking of course about nonexempt employees for now, assuming they don’t meet an exemption. And then you need to pay them time and a half that regular rate. And there’s really, you can’t use other credits or other payments to try to set off against that. That’s the through line through all these cases.
(00:44:05):
And we see it sometimes with employers who say, “Well, I didn’t maybe classify this employee correctly. I didn’t pay them overtime, but let me tell you what I did. I gave them giant bonuses at the end of the year because I’m a very generous employer. And those giant bonuses more than make up for any overtime they would’ve been owed. And the employee’s very happy with it. But why is the Massachusetts Fair Labor Division looking into this? Don’t I at least get a set off for my very generous bonuses?” Well, the answer is you don’t. In fact, the state’s position would probably be, well, those extra bonuses now get factored into your regular rate. So you thought you were paying them $25 an hour. You factor in these extra bonuses, you were actually paying them $40 an hour. Now they get time and a half for everything they worked over 40. So you can’t use extra payments, gratuitous payments, or not gratuitous, but payments that you thought you were using to reward employees as a set-off. You have to follow the letter of the law.
Jeff Plakans (00:45:13):
So very recently, of course, we’ve had a change where in addition to Mass law, Governor Healey signed in the Mass Pay Transparency Act, which is really changing some things about how employers need to approach not only how they communicate with employees, but how they communicate with applicants. So on the next slide, can you talk a little bit about this, Jack?
Jack Gearan (00:45:40):
Sure. This has been a long time coming in Massachusetts. As you know, Jeff, Massachusetts is often at the forefront of certain employee protective laws, Massachusetts and California, and to an extent New York, New York City in particular. This is one where Massachusetts was probably a little bit late to the game because other states have already passed significant wage transparency requirements. We thought this would go into effect last January, and the Massachusetts legislature didn’t quite make it happen, but we knew it was coming and now it’s here. And it was signed into law by Governor Healey, it’s called An Act Relative to Salary Range Transparency, and there’s a year to sort of get up to speed on this. So the disclosure requirement won’t take effect till October 29th 2025, which will be one year after the effective date of the act.
(00:46:36):
But if we could go to the next slide, there’s essentially two important components of the Massachusetts Transparency Law, and the first one applies to public or private employers. That was a part of the debate in the legislature, was whether it would apply to public entities, the government itself with one particular bill not doing it that way, and another one having it apply to the government. And the one that passed is the one that applies to both. So if you are a public or private employer with 25 or more employees in the Commonwealth, you need to disclose pay ranges in any job posting. And I’m sure a lot of our HR folks on the call are very familiar with this because they’ve seen it in other states.
(00:47:22):
Colorado’s law, for example, that’s been on the books for a while said no matter where you’re posting, if your post can be seen in Colorado, particularly for a remote employee, you could be in violation of the law. So a lot of employers have already gotten hip to this, but now it’s real, or at least it’s going to be real a year from this fall, where you need to disclose pay ranges for any job posting.
(00:47:46):
The pay range needs to be set in good faith. Maybe we’ll learn more about exactly what that means, but this has been an issue in New York. I know we talked about this, Jeff, where you’re advertising for a position on Wall Street that might pay $1 million a year. So how do you come up with a range for that? And there were some employers that were trying to sort of get around this by saying, “Well, the range is $100,000 to $1 million. Well, we know that doesn’t work. You need to make a good faith assessment of what the range will be.
(00:48:21):
In addition to putting in any job posting, you need to provide it to any employee whom you’re offering a promotion or a transfer to. And then upon a request to any current employee or any applicant for any, who’s already with your company who’s looking to make a change. [inaudible 00:48:42].
Jeff Plakans (00:48:42):
So on the next slide, we talk a little bit about reporting, which gets a little bit more complicated for some employers.
Jack Gearan (00:48:51):
Yeah, this is a little more complex. The good news about this is that it only applies to employers in Massachusetts with 100 or more employees in Massachusetts, and they’re typically going to already be subject to federal wage data filing requirements. So you’re going to be familiar with what’s called the EEO-1 report. This new law expands it beyond just employers to, for example, schools and colleges, unions, through other reporting. But the EEO-1, for all intents and purposes, is probably what most attendees are focused on. If you’re already doing it, you’re probably familiar with it, but now you need to make these reports to the state as well, and that information’s going to be aggregated.
(00:49:41):
Both of these laws or both pieces of this law are sort of focused on a sense of equity. The idea of the pay disclosure was to try to remedy, for example, the gender gap. That fact that studies have shown that women are paid less, that minorities are often paid less. And the idea is that employers shouldn’t be focusing on what the individual’s expectation is or what they made in their last job, but what the position is worth. And of course, with respect to the reporting, it’s similar. There are a variety of requirements in terms of age, ethnicity, background that need to be reported to the federal government and now the state government that are at least monitored by the government with some level of focus on equity and diversity of hiring. So those are two significant changes in Massachusetts for employees, employers that meet those thresholds. But they are a bit higher of a threshold, so not as much of a concern as, for example, just the Massachusetts Wage Act, which applies even if you have just one employee in Massachusetts.
Jeff Plakans (00:50:58):
So let’s go to the next two slides from here because I want to make sure we have some time for questions. A couple things we want to think about wrapping up Mass Pay Transparency.
Jack Gearan (00:51:14):
Yeah. Well, we want to focus, there is no private right of action, but it’s going to be monitored by the Fair Labor Division. You can’t retaliate against an employee who raises their rights under the statute. And Massachusetts has joined jurisdictions that are known as requiring just job posting, they’re job posting jurisdictions. California, Colorado, Vermont is another New England entity. In Connecticut and Rhode Island, for example, these disclosures only need to be made in the hiring process. In other words, once somebody’s already submitted an application and they’re within the process. In Massachusetts, you’re going to have to put it out there up front as part of any job posting.
(00:51:58):
And of course, the law applies to recruiters as well. So if you have a recruiter doing your job posting and they’re not complying, then not only they might be liable, but you’re going to be liable because they’re essentially acting as your agent. So, important to monitor any posting going out with respect to your company.
Jeff Plakans (00:52:18):
Okay. Upcoming in November, we have a big decision to make, and it’s not about our president. Here in Massachusetts, it’s about tipped wage earners.
Jack Gearan (00:52:31):
That’s right. I’m sure that most people thinking about November 5th and the election probably have other issues that might be top of mind, but there will be a ballot question in Massachusetts, which has been challenged, unsuccessfully. In other words, it’s going to be on the ballot and what the ballot question would do is raise the minimum wage for tipped employees. So anyone in the service industry, restaurant owners, in the hospitality space, would really want to pay close attention to this.
(00:53:03):
Right now in Massachusetts, if an employee is receiving tips, regularly receiving tips, you don’t have to pay them the $15 an hour minimum wage. You only have to pay them 6.75 an hour or at least in their base wage, which is fairly low compared to some other sort of more employee friendly states. Now, the catch in Massachusetts is if they don’t make up the difference between 6.75 per hour and $15 an hour, you need to pay them that difference. But typically, employers, restaurant owners can supplement that pay with tips. This law would attempt to essentially eradicate the ability for employers to do that. It would happen gradually, but as you can see here, once we get to 2029, if this initiative passes and it’s going to be on the ballot up or down, by 2029 service employees would be getting paid 100% of the minimum wage. So $15 is what it is now, it will be higher in 2029, and they would be paid that regular rate.
(00:54:07):
Now obviously people have different views on this, between management and employees. Customers may have different views as to whether or not you still give a tip to a waiter or waitress if they’re actually already earning the full amount. But these are things to think about and to sort of be aware of. And this is coming fast, if it passes it’s going to be into effect January 1, 2025. So a little different than the pay transparency where we have a year and January 1st, 2025, I believe falls in the middle of the week. So these adjustments will have to be made quickly. Like you can see on the slide there is a bit of a grace period, but it’s going to be moved up pretty significantly from 6.75 to 9.60 per hour.
Jeff Plakans (00:54:54):
So on the next slide, and this is our last slide before we go to questions, just a little bit as well on the tip pooling.
Jack Gearan (00:55:03):
Yeah, just one sort of, I guess, benefit for employers, two benefits. Number one, that the new if it passes, the current law is that you have to make up the difference between the service rate and the $15 an hour on a per shift basis, which gets very difficult. The new law would eventually eliminate that so it doesn’t have to be corrected on a per shift basis, it just needs to be corrected on a payroll basis. Just a little bit less onerous.
(00:55:36):
It would also sort of loosen up the use of a tip pool, which right now is pretty challenging in Massachusetts. Currently only wait staff employees, service employees, what we often call front-of-the-house employees and I’ve done a lot of work with restaurants in these sort of wage now or audits from the Mass Fair Labor Division, they are the only ones that can participate in a tip pool. So if you have sort of back-of-the-house employees who don’t typically get tips, they’re usually not allowed to participate in a tip pool. This would loosen that requirement. So that back-of-the-house, “back-of-the-house” employees would be able to participate in a lawful tip pool. But perhaps most importantly, managers and supervisors still remain prohibited from participating in a tip pool. And also important, you need to pay attention to federal law here as well. There’s been some changes in that in terms of who can be paid and who can receive tips, and that’s constantly evolving as well. So another area, unfortunately, Jeff, where you not only need to look at Massachusetts law, you need to look at federal law as well and make sure you’re complying with both.
Jeff Plakans (00:56:44):
All right. Well, we want to make sure that we get time to get to some questions. So we will leave you guys with both my contact information on the next slide and Jack’s contact information. Please do be sure to get in touch if you have any questions or any further questions. We do have a number of them in the question and answer section, so I’m going to dive right into those now, Jack.
Jack Gearan (00:57:12):
Sounds good.
Jeff Plakans (00:57:14):
I’ll go in order. Question one, regarding the independent contractor test. What constitutes outside of the usual course of business?
Jack Gearan (00:57:24):
Yeah, so again, it needs to be outside of what your company typically does. So I gave that example of a law firm having someone essentially do legal work or work that’s assistive in legal work. That’s not going to work, but if we hire someone to paint the bathrooms or take out the trash or even do marketing, that’s not really the core of what we do as a business.
(00:57:51):
So Jeff, if you were to hire someone who were to come in and really help you with payroll, help you set up payroll, help you collect information, do data entry for payroll, that really doesn’t work as an independent contractor. If you hire someone to market your services, that’s probably going to work. If you hire someone in another capacity to really do something that’s different from your core business, but you have to think about what your core business is and how you define it. And so this is a big area.
(00:58:24):
For example, you’ve probably seen a lot of the litigation around the country for Uber drivers. Are they independent contractors? And it’s been determined differently in different jurisdictions and it’s come out different ways but the fight you’ll see in those cases, well, what’s Uber’s business? Is Uber’s business picking people up and driving them around? Or is Uber… Or we had this litigation with taxi companies before Uber, or is their business really just running an app or dispatching people, making appointments, setting up the rides, and are they not really the company that does the rides? So it’s a hot area of litigation, but you have to think about what’s our core business? What do we do? How would you… It’s kind of a common sense test. If someone said, “Hey, what does your company do?” And you said, “Well, we provide consulting services for mid-sized businesses.” Well, if you hire an intern to really help you with that capacity, that’s really not an independent contractor. If you say, “Well, I hired an intern just to help me organize the files,” that might be more of a gray area.
(00:59:35):
Well, we hired an intern to set up the furniture in the office, or you contracted with someone as an independent contractor, that’s fine. That’s not the core of what you do, you’re not a company that sets up furniture in offices, unless you are. If you are, then that would not work, but you really have to think about what your business is. It’s very fact intensive and if they’re helping you do what your business does, you should really be paying them as a part-time employee and making proper deductions under the law.
Jeff Plakans (01:00:06):
So in the note of that, there’s a follow-up question that says, “Does it matter if they’re doing what our business does, if they’re using their own equipment? If I’m hearing you correctly, I’m hearing you say that it doesn’t matter. They are then still employees, even if they use their own equipment.”
Jack Gearan (01:00:22):
Correct. You might be able to satisfy one of the other prongs. You might be able to show that you’re not controlling them, and you might be able to show that they have their own usual course of business so they do this separately, but it’s probably not going to work.
Jeff Plakans (01:00:39):
All right, so another question. So you have to pay within six days of the end of the pay period. So if you normally pay on the fourth day after, but you pay on the fifth day, you’re fine, correct?
Jack Gearan (01:00:57):
Well, generally correct. But if you have a customary pay period that you establish, you should stick to that pay period because there does become an argument that there’s an expectation that, this is my pay date. And so while you may not necessarily be in violation of a late payment under the statute, there could potentially be an argument that the payment was still late based upon the due date. I think there are defenses to that that I would argue as a management side employee, but if you establish a usual and customary pay date, then you should stick to that pay date because it could potentially be challenged.
Jeff Plakans (01:01:40):
All right, thank you. What if an employee constantly arrives late at the job site and has been told if he comes in late he’ll be sent home, but continues to come in late. There is a law against sending him home for the day. Is there a law against sending him home for the day?
Jack Gearan (01:02:09):
No. There’s no law against sending someone home for the day. I think what they might be referring to is, do you still owe them the three hours of reporting time?
Jeff Plakans (01:02:17):
Exactly.
Jack Gearan (01:02:18):
And the answer would be, yes. You would still owe them for coming in even though they came in late. Now that doesn’t mean you can’t discipline that employee or even fire that employee, but you could give them a warning. You could tell them if they’re late again they’d be terminated, or if they’re an at-will employee and you’re treating all employees the same, as long as you’re not engaging in some level of disparate treatment that could give rise to some type of discrimination claim, you can fire someone. But that doesn’t mean you don’t have to pay that reporting time.
(01:02:51):
Same with if somebody works too long, you can discipline them for that too, but you still need to pay them. If they say, “Well, I know you only told me to work eight hours, but today I worked 11,” so now… or I know a better example because we don’t have day overtime in Massachusetts. I know you told me very specifically to work 40 hours last week and no more. Well, I actually worked 50. Do you owe them overtime? Typically, yes, but that doesn’t mean you can’t discipline them and say, “Don’t ever do this again, or you’ll be terminated, or I’m going to terminate you right now. I told you not to work more 40, you worked more than 40.” Now you have to be careful, if it was really necessary for them to work more because of the amount of work you gave them, I wouldn’t recommend terminating someone in that situation.
(01:03:36):
But the key is you can always discipline. It’s two separate pieces of the law just like we saw in that Reuter case. This is someone who engaged in larceny, stole from the company. You can absolutely terminate them. You can try to get back what they stole. You can call the police. You can do all sorts of things, but unfortunately, or I shouldn’t say unfortunately, but unfortunately from the employer’s perspective, you still need to pay them time that’s owed under the Wage Act.
Jeff Plakans (01:04:07):
Okay. So one last question on that. How does the three-hour rule, so reporting payroll, work in terms if an employee has worked a full 40-plus hours, then on a day they didn’t work, they spent about an hour doing a training? Would they need to be paid the full three hours?
Jack Gearan (01:04:33):
You’d certainly need to pay them for that hour. They’re just doing a training remotely and the expectation is, it would be one hour. I don’t know, I don’t know the answer to that. Whether you’d still, if you had them come into work, I think you’d certainly owe them three hours. If it’s remote, I’d have to check as to whether or not there would be an argument there. Sorry.
Jeff Plakans (01:04:58):
Okay. And then the last one is, for pay transparency are you required to tell employees any position at that company’s pay range or just for the positions that would apply to them?
Jack Gearan (01:05:12):
You’re not required to do anything… Yeah, just for the positions that would apply to them if they’re interested in being an applicant to that position.
Jeff Plakans (01:05:25):
Okay. That’s it for questions. We got a good number of questions, they were good questions. Jack, thank you so much for your time. Everyone in attendance, thank you so much for giving us your time today. Hopefully you derived some good quality information from what Jack had to share with us. And again, thank you so much for joining us on today’s session.
(01:05:49):
Just a reminder, you are going to get a recording of this coming soon, and if you have any further questions, feel free to reach out to myself. My contact information is below. Jack, of course, his information is below as well. And we appreciate having those of you who are clients on today, those of you who are not clients or perhaps Jack’s clients, we appreciate having you on. Hopefully we’ll do it all again. Have a wonderful afternoon. Thank you.
Jack Gearan (01:06:18):
Thanks so much, Jeff, and thank you everyone for listening.
Jeff Plakans (01:06:23):
Bye-bye.
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