Proposed Labor Rules and What They Could Mean for Businesses
Learn more about the proposed worker classification rule.
Find out what you need to know about overtime.
Find out the impact raising minimum wage could have on small businesses.
Speaker 1 (00:03):
Welcome to Paychex THRIVE, a Business Podcast, where you'll hear timely insights to help you navigate marketplace dynamics and propel your business forward. Here's your host, Gene Marks.
Gene Marks (00:20):
Hey, everybody. It's Gene Marks again, and thanks so much for making it back to another episode of the Paychex podcast, THRIVE. I'm so happy that you are here. Diego Munhoz, thank you so much for joining me. Diego covers labor for Bloomberg Industry Group. And this conversation is going to be all about labor and what's going on in Washington, and a little bit what's going on around the country that could impact your business.
Gene Marks (00:48):
Diego, he's not a policymaker, he's not a politician. He covers this for a living. I've been very, very curious. I follow him. I'm a fan of his work and I think it's very important to hear what some of his insights are and some of the things that are going on in Washington as they will be impacting our businesses. So first of all, Diego, thank you very much for joining me.
Diego Areas Munhoz (01:08):
Thanks for having me, Gene.
Gene Marks (01:10):
I am glad you're here. You're based in Washington. You write for Bloomberg. Tell me a little bit about yourself and how you came to be writing for Bloomberg.
Diego Areas Munhoz (01:17):
Sure. I was at Bloomberg News last summer covering Capitol Hill. Before that, I was in New York working for WNYC, the NPR affiliate there. I came to DC because I always wanted to cover Congress and was working at Bloomberg News covering general assignment on Capitol Hill. Back then, it was a lot on the Inflation Reduction Act and the whole drama surrounding Joe Manchin and Kyrsten Sinema. And then after that I moved to Bloomberg Law where I've been since November now covering labor on Capitol Hill.
Diego Areas Munhoz (02:04):
So, I cover everything related from unions to the workplace safety, workplace regulation, the relationship between Congress and the Department of Labor and the National Labor Relations Board. So, covering really everything related to the workplace and regulation on the workplace on Capitol Hill.
Gene Marks (02:33):
It is a hot area that you're covering, isn't it? I mean, you jumped into a topic that's super big, right?
Diego Areas Munhoz (02:41):
Yeah, it certainly is big right now. We have a lot of new rules coming out of the Department of Labor and the National Labor Relations Board, the NLRB to make it short. Now, we have a split Congress, so Republicans control the house and with a Democratic administration you have a lot of clashes between them on how far these rules should go. A lot of them would rescind past Republican rules from the Trump administration.
Diego Areas Munhoz (03:16):
So, non-competes, overtime pay, independent contractor, which is a huge topic for the app-based economy and the gig economy. I mean it's a pretty hot topic right now and the lawmakers have their eyes all over it.
Gene Marks (03:41):
So, we're having this conversation right now. We're in the first half of May. By the time that this podcast gets published, we might have a new Secretary of Labor. We might not. Currently, it's Marty Walsh who was ex-mayor of Boston, big union guy, president of union in the Boston area. He's been Secretary of Labor since the beginning of the Biden administration. Much smarter guy than I thought he was, mainly because he recently announced his resignation to go to work for the NHL, which to me I think is an awesome move.
Gene Marks (04:15):
So, because of that, they're now we're in the hunt for replacement. Julie Su has been nominated. She has passed the committee vote in the Senate. But there is still a question whether or not she will get Senate approval as nominated. I don't think even as we're talking right now and people are listening to this conversation, whoever is Secretary of Labor under the Biden administration, I don't think that's going to impact too much the momentum that's already been started with some of these rules. Is that a fair statement to make?
Diego Areas Munhoz (04:48):
That is fair, particularly because the secretaries, they lead the department and of course they have some sway over the rules, but the rulemaking process is really... It engages the whole department, not just the secretary. And it's a long process. So, some of these rules, they have to go through a proposal, then they have to hear comments from the public, then they have to make adjustments. The rules are fairly comprehensive, they're long documents.
Diego Areas Munhoz (05:25):
So, in that sense, I don't think that the new secretary is going to make much, much of an impact there. But the way they do impact is the department may be a little hesitant to publish a rule without a confirmed secretary. So, these rules are coming up in the regulatory agenda. I think the independent contractor one would be now in May and without a confirmed secretary, that pushes things off a little bit. There's also the overtime pay one. So that's I think the way that lack of a confirmed secretary most impacts these rules.
Gene Marks (06:11):
I think you're right. I also think that if you have... That secretary serves as a figurehead and if that person is a good enough salesperson. For example, these worker classification rules, which I'm going to ask you about in just a second, when they do come out, I mean I think you're going to need a secretary of labor to be out there saying this is why we're having this and to explain it to the public and be the face of it. If you don't have somebody in that role, it definitely makes it harder and could delay things which is of interest.
Gene Marks (06:42):
These rules that we're about to talk about, and I do want to hit on some of these, these are rules, right, Diego? I mean these are not laws. So, if the Department of Labor comes up with some of these rules and regulations, Congress did not pass them and they could always be changed or overturned in an next administration before we get started. Is that correct?
Diego Areas Munhoz (07:01):
That's correct. Actually, they can be overturned by Congress itself through a resolution under the Congressional Review Act, which allows congress to overturn a rule by majority vote in both houses. The interesting thing there is that it circumvents the filibuster in the Senate, so it only requires 50 votes, or 51 rather, but they do require president's signature. So, it is difficult to think that President Biden would sign a resolution that would overturn his administration's own rule.
Gene Marks (07:44):
That is very interesting. I did not know that. I did not know that. Say they passed the worker classification rule, which we're going to talk about in a minute, and then Congress votes by majority to rescind that rule, that would have to be signed by President Biden or else... And so again, the likelihood of that happening is pretty minimal. Okay. Let's talk about some of these rules and we did mention worker classification. I mean, Diego, it scares the hell out of so many of my clients.
Gene Marks (08:18):
I mean they see what's going on in California. I have clients that my company... I mean I have independent contractors in my company. We do technology services. I bill out my contractors to customers. I pay them 50 bucks an hour and I bill my clients a hundred bucks an hour. Sometimes it's 10 hours a week, sometimes it's 30 hours a week. It depends.
Gene Marks (08:42):
My business is going to be impacted, I think by this rule. Give us your thoughts on this worker classification rule if you could explain what it is, and I'm curious to hear. You mentioned May, so I'm curious to hear what you think the timeline is of this happening.
Diego Areas Munhoz (08:55):
Right. So, I think the timeline would be, it is very dependent on the confirmation of a new secretary, in this case the nominees Julie Su. This new rule would go back to more of an Obama era interpretation of classification of workers because the rule currently in place, which comes out of the Trump administration is a novel approach. It's a five factor test, which has really two core elements that they look at.
Diego Areas Munhoz (09:37):
The Biden administration would be a six factors. So, it looks at a few factors in the relationship between either the employer-employee or the company and the contractor to determine that if that is what would be the classification of that worker. So, it does get a lot of, particularly the app employers concerned about it because it would make it easier to classify workers as employees rather than independent contractors.
Diego Areas Munhoz (10:20):
So, that's where the rule would go. It would make it easier for employees, I'm sorry, for workers to be classified as employees rather than independent contractors. So, a lot of independent contractors currently in that rule could be classified as employees after this rule.
Gene Marks (10:45):
Yeah. And I think the key word they use in this new definition is whether that contractor is integral to your business, which a lot of people are reading whether or not they're generating revenue for their business is considered to be integral. And that's definitely a concern. It also questions there are so many independent contractors and freelancers. Many of them are opposed to this rule and I don't know if you cover them or get their input as to why they're opposed to this. Plus, we have so many new startup applications over the past few years and there are a lot of freelancers and people with side gigs and they might be affected by this rule.
Gene Marks (11:27):
I just wonder if you just have any thoughts. What do you think is driving this worker classification rule? We have such a gig economy. So many people that like their independence, but then you've got the government saying, "No, we're still going to push you into being employees of companies." What do you think is driving that?
Diego Areas Munhoz (11:44):
Right. So, I think the big debate here is one side is saying that independent contractor classification gives you more freedom. It gives you more flexibility. If you're, let's say an Uber driver, a Lyft driver or Instacart delivery driver, you can make your own schedule, you can work at your own hours. You have more freedom to choose when you work, when you don't work, which is something that people give a lot of value to and a lot of freelancers appreciate this freedom.
Diego Areas Munhoz (12:27):
The other side says that, "Well, a lot of employers take advantage of the standard that we have now to misclassify workers." So when they're really employees, the employers are treating them as independent contractors and not giving them overtime pay or not letting them collectively bargain if they want to make a union.
Diego Areas Munhoz (12:54):
What this side kind of argues is that employees also can have some flexibility. But then the other side says, "Well, not as much flexibility as you would have as a freelancer or as somebody that works with the apps." So it's an effort from Democrats and the administration to really come down on what they call misclassification when employers intentionally classify their workers as independent contractors when they really are employees.
Diego Areas Munhoz (13:29):
And the other side is saying, "Well, and Republicans and a lot of business groups and freelance associations are saying we want our flexibility and we don't want to be employees. We prefer to be freelancers." Senator Bill Cassidy, for example, who is the top Republican in the help committee in the Senate, which is the Labor Committee said that he gave an anecdote that he met delivery... Not a delivery, I'm sorry, a driver I think for one of these apps that said he was making, I think, $500 a day. Don't quote me on the amount, but it was kind of a high amount. And he said, "Wow, you're making that much money." And they said, "Well, that's great."
Diego Areas Munhoz (14:14):
That was in a hearing over some of these issues. And Sean O'Brien, who is the president of the Teamsters Union said, "Well, they may be making $500, but they don't have health insurance and they don't have vacation days." So you see there, that's to me a good example of the clash here between Republicans and Democrats over the issue.
Gene Marks (14:38):
Yeah. That's a very, very good example and a really good summary of what is going on. If you're talking to business owners. When I talk to my clients and they're like, "Well, what should we be doing?" Of course I give the standard speech of making sure you've got your documentation in order and reviewing your independent contractors with a labor attorney or with an account or your payroll service or whatever to see if they're classified the right way.
Gene Marks (15:02):
But at the same time though, I mean I'm expecting lots of lawsuits which could delay this implementation. Am I wrong to be thinking that or do you expect the same thing, Diego?
Diego Areas Munhoz (15:13):
No, I expect the same thing. I mean that usually happens with rulemaking, so that's why it's a pretty long process because even after they publish the rule and after they start enforcing the rule, business groups in this case will likely sue and this will go to the courts and the courts will probably have the final say on the rule unless there is a change of administration in 2024, which could also rescind the rule. But certainly this will go to the courts.
Gene Marks (15:49):
Yeah. So, that could delay things for sure. Okay. Let's move on to another big rule that I'm expecting to see sometime this year, and I wanted to see if you agree, which has to do with overtime. Now, the Obama administration revisited this when there was an Obama administration and they tried to increase the upper level of wages that could be paid so that the people could be entitled to overtime. So, just for you guys listening, I know these numbers because I recently wrote about this.
Gene Marks (16:20):
So, anybody that's generally, generally salaried employee not supervising anybody meets certain requirements of what their title is and what their role is. If they're being paid right now more than $35,568 hours a year, and I did that math, then they're not entitled to any overtime. They could work 41 hours a week or 60 hours a week. They don't get overtime.
Gene Marks (16:44):
So, the Obama administration tried to increase that and lawsuit started, and the lawsuit spilled over into the Trump administration. So therefore the lawsuits never got pursued. So we're still at that same level now. My understanding is that the Department of Labor is coming back to this, and I wanted you to see what your understanding is as well. I also heard that wage number could go up as high as $80,000 a year, which was like, "Holy moly." So tell us what as of now about this change in overtime almost because this is a costly thing for a lot of business owners.
Diego Areas Munhoz (17:19):
So, that's a very interesting rule and we are following it closely and we're very curious about how it will turn out. So that one, we're still earlier in the process. We haven't had a proposal yet. So first the agency will send out a proposal, then they hear the comments and then they finalize the rule. So while the independent contractor rule is kind of its final stages, this one is in its beginning stages. So we are hoping to see a proposal in the next months. So you're correct.
Gene Marks (17:58):
By the way, I'm not hoping to see a proposal, but I understand why you would be. I just wanted to get that out there.
Diego Areas Munhoz (18:04):
That is what a lot of people say. A lot of people say that they're not going to see it exactly because of the timing, right? We're approaching election season in 2024, and since these processes take so long, might not be enough time to make a rule. And this will be a rule that will have major economic consequences. So the 80,000 number that you mentioned, so that's a Democratic proposal that just came out maybe last month.
Diego Areas Munhoz ( (18:38):
It's spearheaded by Senator Sherrod Brown and Congressman Mark Takano in the house. They've introduced similar bills in the past that would mostly codify the Obama rule that you mentioned. But this new bill has a new approach. So instead of just raising the overtime threshold to a set amount, it would phase in. So, up until I believe it's 2026, it would increase... It'd go up steps from I believe 45,000 and go up from there reaching in 2026, I believe 75,000.
Diego Areas Munhoz (19:27):
In 2027 it would look at the average... Not the average, but a certain percentage percentile in salary at that time. And they projected that would be around in the early 80,000. So, that's where that number comes from. So that's a very bold proposal and I'm personally curious to see if the Department of Labor will try to adopt that phasing in method instead of just setting a particular threshold. I'm not sure if they do propose a rule, if it's going to be as high as that. It might be a little lower because I think it's pretty safe to say that the business community would not be happy with that high of a threshold for overtime pay.
Gene Marks (20:25):
I never understood with all these rules why they don't just index them and then that's it. So, they come out with whatever the number is and then they just say, okay, every year it's going to be reviewed again and indexed on inflation or other factors. And that way we'll have to keep going back to it again and again and again to up it. Speaking of indexing, we're jumping around here, but again, and for purposes of time, tell me your thoughts on minimum wage, Diego.
Gene Marks (20:55):
And just background there, so we're at 7.25 an hour. About half the states in the country are still at 7.20, but my state in Pennsylvania is $7.25 cents an hour. I don't have a single client out of my 600 clients that pay their workers $7.25 cents an hour. I mean everybody is a lot more than that, but even the Trump administration was... They were kicking around even increasing the minimum wage to 11 or $12 an hour. That is a big impact on overall wages around the country. But right now it's kind of stuck.
Gene Marks (21:28):
A lot of the states and the cities are just picking up the ball on their own and doing their own minimum wage. It's turned into a local issue. Do you think that a national minimum wage increase will come back on the agenda, particularly as we head into an election year and there is some bipartisan support board and it is an election year? What do you hear or what do you think?
Diego Areas Munhoz (21:52):
Well, so interestingly enough, last week, Senator Bernie Sanders, who is the chair of the Health Committee.
Gene Marks (21:59):
Diego Areas Munhoz (22:00):
Which I had mentioned, who has been a long time advocate for raising the minimum wage. Said in a press conference last week that the goal is no longer $15, it's now $17 minimum wage. And he said that the committee that he chairs will mark up a bill, which markup is a legislative language to vote, the committee to vote on the bill and make amendments to it, make changes on June 14th, I believe. So it will take up this new kind of idea of a $17 minimum wage.
Gene Marks (22:43):
And by the way, not to interrupt you, but we just interviewed Scott Galloway on this podcast. He's a well-known economist. And by his numbers, indexing and for economic growth and other factors, the actual minimum wage should be like 22 bucks.
Diego Areas Munhoz (22:58):
Yeah, I've heard him say that. Yeah, he really does believe in a higher minimum wage. So there is a lot of consensus in the Democratic Party to raise that minimum wage, but I'm not sure they have enough votes. So in 2021, Democrats in their party bill attempted to include a $15 minimum wage, and I believe it was eight senators voted against it, including some well-known like Joe Manchin and Kirsten Sinema, but others who are up for reelection next year like John Tester and Angus King. It's still a slightly controversial topic in Congress.
Diego Areas Munhoz (23:56):
So, we are seeing some movements. There are Republican local governments that have raised it to 15, which is partly why Bernie Sanders is confident that he could do something about it this time around. But it's still, I think, difficult to envision a 15 or a $17 minimum wage coming out of Washington. I'm not even sure any raise would come out because Democrats might be reluctant to settle for something less than that. So we might be touched with the 7.25 minimum wage for a little bit more.
Gene Marks (24:46):
It's funny. It's a tough issue because there's so many studies that say it's good. Some say it's not good. I interviewed Rand Paul on this podcast about a year ago. At the time, he's a ranking member of the Senate Small Business and Entrepreneurship Committee, and he is against the national minimum wage. His point of view is, "Why should my constituents in Kentucky be paying the same minimum wage as so many?" It's fair enough. It just seems like it's more of a local issue, and I think you're right. I think it's going to be a tough sell to see that actually turn into legislation.
Diego Areas Munhoz (25:21):
Yeah, a lot of Republicans do say that. They say that this should be a state issue, that what the minimum wages in New York necessarily wouldn't work out in Kansas or Missouri. So, it is an issue that Republicans tend to say should be at the local level, but there are some more populous Republicans in this Congress that might be willing to raise the minimum wage. But still, like I said before, I think the 60 vote threshold, which what would be necessary in the Senate for this is still a little ways away.
Gene Marks (26:02):
And raising the minimum wage is a law. That's legislation. That's not something that the Department of Labor is going to do. All right. We're running near the end of our time. I've covered less than half of the things I wanted to talk to you about, Diego. This is crazy. But your insights are great. So, I'm just picking this issue up because I'm seeing it grow so much in popularity. I put together a slide for a presentation I did recently on all of the states and cities that now mandate paid time off for sick pay.
Gene Marks (26:29):
And then there's three states. I mean, Illinois just passed a law that is now mandating vacation time for employers regardless of what the reason is. It's not a sick time, it's just vacation. Because you cover the Department of Labor, do you hear any movement or any discussion about making that a national thing? Could we see the next Secretary of Labor move forward with a national type of mandated vacation rules similar to minimum wage, similar number to the overtime rules, or do you think that it's too premature for that?
Diego Areas Munhoz (27:05):
Well, I think so. I believe a national standard for paid leave would have to be something out of Congress. So I don't think the department would be able to act on this. Now, it's interesting. This is something that has gone back and forth throughout the years and at times it seemed like it would be more possible than in other times. But this congress, there is a working group in the house on that has been working on paid leave legislation. They have been meeting monthly, and they are looking at all these states, like you said.
Diego Areas Munhoz (27:49):
There's been a few states who have passed laws, Washington State, DC, Virginia has a different model. And we could see something on paid leave. In the Senate, the senator who has been leading this has been Bill Cassidy along with Kirsten Gillibrand. Cassidy, though has been more focused on family leave, not sick leave. He says that that's kind of what the debate is mostly about. So it's what he's been mostly looking at. And there are different models.
Diego Areas Munhoz (28:31):
I mean, some say that it should be a government program that would pay for that time off. Others would like to see employers giving a private option through insurance. So there are few models that are looking at, but I know that this working group has been looking at all these local standards. But I don't think we're going to see any type of proposal this year, more likely next year, and they'll work through this. But there has been more appetite in Congress for paid time, for paid leave legislation. So we may see some action there. Still, I think a little premature to say exactly what that will look like though.
Gene Marks (29:28):
Diego Areas Munhoz is the writer for... Covers labor, Department of Labor and all things labor for the Bloomberg Industry Group. Bloomberg Law, correct?
Diego Areas Munhoz (29:37):
Gene Marks (29:38):
Okay, good. Just wanted to make sure of that. Diego, where can people find you?
Diego Areas Munhoz (29:40):
Well, they can find me on Bloomberg Law and they can find me on Twitter at Diego Areas Munhoz. It's at Diego Areas Munhoz, my complete, my full name, so they can find me there too.
Gene Marks (29:56):
That's great. Hey, you're awesome. Thank you so much. This update is super helpful to all of us. We're all trying to figure out what these rules that are coming and how we can navigate our businesses around them, how to prepare, and you did exactly that. And like I said, I've covered half of what we'll talk about. We'll have you back because there's other stuff that I wanted to discuss with you, but I just want to just say thank you very much for your time.
Diego Areas Munhoz (30:16):
Thanks, Gene. I appreciate you making the time.
Gene Marks (30:19):
Do you have a topic or a guest that you would like to hear on THRIVE? Please let us know. Visit payx.me/thrivetopics and send us your ideas or matters of interest. Also, if your business is looking to simplify your HR, payroll, benefits, or insurance services, see how Paychex can help. Visit the resource hub at paychex.com/worx. That's W-O-R-X. Paychex can help manage those complexities while you focus on all the ways you want your business to thrive. I'm your host, Gene Marks, and thanks for joining us. Till next time, take care.
Speaker 1 (30:56):
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