Often, questions from clients provide the opportunity for a new blog post.  Recently, I was asked whether a client was required to pay employees who attended voluntary, after-hours training.  Most people would think that voluntary training is just that:  voluntary.  Surely, you don’t have to pay for something that is voluntary, right?  Unfortunately, the answer is not so simple.  In fact, the general rule for most employers is:  If the training directly relates to the employee’s job, the employer must pay for the time spent in training — even if attendance is voluntary.

The Fair Labor Standards Act requires that employees receive compensation for their work time.  And, in many circumstances, training time is work time.  The FLSA’s implementing regulations provide that time spent at lectures, meetings, training programs and similar activities is not work time if four criteria are met:

(a)  Attendance is outside of the employee’s regular working hours;

(b)  Attendance is in fact voluntary;

(c)  The course, lecture or meeting is not directly related to the employee’s job; and,

(d) The employee does not perform any productive work during such attendance.

29 C.F.R. § 785.27.  In most circumstances, an employer wants an employee to attend training to benefit the job.  As  result, most employee training must be compensated (even if “voluntary”) because it will be “directly related to the employee’s job.”

But, there are always exceptions.  And, in this case, the regulations recognize “special situations” where voluntary training is not compensable even if it directly relates to the employee’s job:

There are some special situations where the time spent in attending lectures, training sessions and courses of instruction is not regarded as hours worked. For example, an employer may establish for the benefit of his employees a program of instruction which corresponds to courses offered by independent bona fide institutions of learning. Voluntary attendance by an employee at such courses outside of working hours would not be hours worked even if they are directly related to his job, or paid for by the employer.

29 C.F.R. § 785.31.

That regulation is clear as mud.  Fortunately, the Wage and Hour Division of the United States Department of Labor provided some clarification last year.  In Opinion Letter FLSA2020-15, WHD addressed six hypothetical scenarios focused on voluntary training and “special situations.”  Here is a link to the letter:  FLSA2020-15.  Most significantly, WHD found that a nurse who enrolled in a webinar directly related to her job, but who viewed the webinar in her off-work time, would not be entitled to compensation under the FLSA.

In summary, employers generally must pay for time spent in training that is directly related to an employee’s job.  But, employers may be excused from payment if “special situations” occur.

Sometimes, my clients ask if they are required to pay overtime to their hourly employees.  Some of the more-savvy clients know that most federal employment laws only apply to businesses of a certain size.  For example, Title VII of the Civil Rights Act of 1964 only applies to employers with fifteen or more employees.  So, these legal-oriented clients will ask about the size-requirement for the Fair Labor Standards Act, which requires overtime.

The answer:  there is no size requirement.  Instead, the FLSA looks at the business of the employer and the employee.  Employers must provide overtime for any employee “who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce ….”  29 U.S.C. §207(a)(1).  That language provides “individual coverage” for employees who work in commerce and also “enterprise coverage” for employers whose business  is engaged in commerce.

Last week, the Eleventh Circuit Court of Appeals made clear that it doesn’t take much for an employee to get “individual coverage.”  See Elien v. All County Enviro. Svcs., Inc., No. 2021 WL 1034800 (11th Cir. Mar. 18, 2021).  The Court concluded that an employee who “makes three to five phone calls per week to out-of-state customers and vendors” can receive “individual coverage” under the FLSA.

Wendy St. Elien was an administrative assistant for a pest control company in Florida.  She called out-of-state customers and vendors on the phone between three and five times a week.  She called “snowbird” property owners to ask for permission to charge their credit cards for services rendered at their Florida properties or to get permission to enter their premises.  She also called the out-of-state corporate headquarters of vendors to discuss billings and payments.  St. Elien sued her employer under the FLSA claiming that she was not paid overtime.  Her employer claimed that she was not covered by the FLSA.

The Eleventh Circuit’s opinion boiled-down to whether St. Elien was “engaged in commerce.”  The FLSA defines “[c]ommerce” to mean “trade, commerce, transportation, transmission, or communication among the several States or between any State and any place outside thereof.” 29 U.S.C. § 203(b) (emphasis added).  Because St. Elien was engaged in “communication” between States, the Court found that she was entitled to individual coverage under the FLSA. Despite that clear language, the trial court in St. Elien’s case relied upon an earlier Eleventh Circuit decision to require that an employee seeking individual coverage must be “directly participating in the actual movement of persons or things in interstate commerce ….”  But, the St. Elien court reversed the trial court because its reliance upon the earlier decision was overbroad.

St. Elien is a reminder to employers that they have broad obligations to pay overtime to their employees.  There are a few, rare employers who are truly intra-state — with no business conducted with other states.  But, in most cases, employers are required to pay overtime to their hourly employees.

On August 8, 2020, President Trump issued a Presidential Memorandum authorizing employers to defer withholding, deposit and payment of payroll tax obligations.  The idea behind that memorandum was to “put money directly in the pockets of American workers and generate additional incentives for work and employment, right when the money is needed most.”  Here is a link to the memorandum: Payroll Tax Memorandum

The Internal Revenue Service is responsible for implementing the details of the memorandum.  On August 28, 2020, the IRS issued Notice 2020-65 to provide some additional guidance.  Here is a link to that notice: Notice 2020-65. Full disclosure:  I am not a tax attorney.  Nevertheless, the Presidential Memorandum is important to employers.  My accountant-friends at Anglin, Reichmann & Armstrong have published a client bulletin discussing Notice 2020-65 and it can be found here: Anglin Reichmann Update.

In summary, the memorandum allows employers to defer withholding payroll taxes from employee paychecks from September 1, 2020 to December 31, 2020.  In concept, this would result in more money in each employee’s pocket.  Other important aspects of the guidance include:

1. Employees are entitled to defer on the 6.2% employee portion of payroll tax (i.e., Social Security tax).
2. Only employees with pre-tax wages less than $4,000 per bi-weekly pay period are eligible for deferral.
3. THIS IS ONLY A DEFERRAL. Employees must re-pay the deferred tax through payroll tax deductions between January 1, 2020 and April 30, 2021.

At this point, there are more questions than answers.

1. The White House is hoping that the deferred payroll taxes will ultimately be forgiven.  But, only Congress has the power to authorize forgiveness. Nobody knows if that legislation will actually be passed.  If not, employees will face a double-tax at the start of 2021.
2. What happens if an employer defers the payroll tax and then the employee leaves/quits/is terminated by the employer?  Potentially, the employer will be left holding the bag.
3. If an employer adopts payroll tax deferral, will individual employees be able to opt out?

In my opinion, the current risks associated with payroll tax deferral outweigh the benefits.  Without a guarantee of forgiveness legislation from Congress, employees will receive no real benefit and face substantial monetary difficulties next year.  Employers get no real benefit and run the risk of paying deferred taxes for people who are no longer employees.

Like all COVID-related issues, payroll tax deferral is an evolving process.  Please follow this blog and my friends at Anglin, Reichmann for future updates.