Legislature(2005 - 2006)SENATE FINANCE 532
04/15/2005 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB131 | |
| SB16 | |
| SB158 | |
| SB88 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 66 | TELECONFERENCED | |
| += | HB 67 | TELECONFERENCED | |
| += | SB 130 | TELECONFERENCED | |
| + | SB 131 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 16 | TELECONFERENCED | |
| += | SB 88 | TELECONFERENCED | |
| += | SB 112 | TELECONFERENCED | |
| += | SB 158 | TELECONFERENCED | |
| += | SB 147 | TELECONFERENCED | |
CS FOR SENATE BILL NO. 131(L&C)
"An Act amending the Alaska Wage and Hour Act as it relates to
the employment of a person acting in a supervisory capacity or
in an administrative, executive, or professional capacity;
relating to definitions under the Alaska Wage and Hour Act and
providing definitions for persons employed in administrative,
executive, and professional capacities, for persons working in
the capacity of an outside salesman, for persons working in
the capacity of a salesman employed on a straight commission
basis, and for persons that perform computer-related
occupations; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
JANE ALBERTS, Staff to Senator Con Bunde, the bill's sponsor, read
from the sponsor statement as follows.
Alaska's Wage and Hour Act (AS 23.10.050 - 23.10.150)
establishes the provisions for overtime compensation. AS
23.10.055 sets forth exemptions to the Wage and Hour Act. One
of these exemptions is "an individual employed in a bona fide
executive, administrative or professional capacity or in the
capacity of an outside salesman or a salesman who is employed
on a straight commission basis".
As currently defined in our administrative code, the
definitions of "executive capacity," "administrative
capacity," and "professional capacity" are confusing and
difficult to interpret. In order to determine if someone is an
executive, administrative or professional employee, you have
to use what is known as the "long test." In addition to
numerous other factors, the long test includes a calculation
of the employee's time spent on "non-exempt work" (i.e. work
that is not executive, administrative or professional). If an
employee spends more than 20 percent (40 percent in retail or
service establishments) of their time on non-exempt work, they
become subject to the Wage and Hour Act and can qualify for
overtime. The ambiguity within the definitions, including the
implementation of the 80/20 test, has lead to numerous wage
and hour lawsuits, causing great expense to employers and
employees.
HB 182 deletes the 80/20 test and sets forth definitions which
are much more understandable. The simplicity provided by the
new definitions will lead to greater compliance with the
statute. It is in the best interests of both the employer and
employee that the statutes are straightforward, practical and
easy to follow.
HB 182 also clarifies another area of confusion in the Wage
and Hour provisions. Currently, a person acting in a
"supervisory capacity" is exempt from payment of overtime, but
not exempt from the full Wage and Hour Act. The definition of
"supervisory capacity" in the regulations is also ambiguous
and difficult to interpret. HB 182 removes this exemption from
statute. There are two reasons for deletion of the provision.
The first reason is that due to the uncertainty in
interpretation of the definition, the statue is currently
unworkable. Secondly, the new definitions of "executive
capacity" and "administrative capacity" would subsume a person
working in a supervisory capacity. Therefore, there is no need
to have a separate provision.
Enacting this bill will eliminate ambiguities, align Alaska
more closely with other states and reduce the number of
frivolous lawsuits, while protecting workers' rights to
receive overtime.
[NOTE: References to HB 182 should be correctly interpreted as
references SB 131]
Ms. Alberts informed the Committee that a forthcoming amendment
would address the application of the proposed law.
Co-Chair Green noted that Senator Bunde, although absent, has
provided the forthcoming amendment.
Senator Hoffman asked for further information about which states
Alaska would be aligned were this legislation adopted.
Ms. Alberts deferred to Mr. John Sedor of the Anchorage Society for
Human Resource Management.
JOHN SEDOR, Anchorage Society for Human Resource Management (ACHRM)
testified via teleconference from an offnet site and noted that the
ACHRM, which represents 200 business members, as well as the
Society for Human Resource Management Alaska State Council, with
approximately 250 business members, support this legislation. In
response to Senator Hoffman's question, he stated that this bill
would, foremost, align Alaska with federal system guidelines.
Currently, Alaskan private employers and employees must comply with
two sets of overtime standards: federal standards and State
standards. This bill would move Alaska toward a single unified
system for overtime, consistent with the federal Fair Labor
Standards Act (FLSA). Thirty-two of the fifty-one jurisdictions in
the nation, including the District of Columbia, defer solely to the
federal standard. Eight others defer to a standard known as the
"short test" rather than "the 80/20 test" that is applied in
Alaska. In effect, were this legislation adopted, Alaska would
mirror or be consistent with 40 of the 51 jurisdictions. Alaskan
employers and employees would benefit by not having to apply two
different standards to exempt executive, administrative and
professional employees' hours each week.
Co-Chair Green understood that this information is included in
Members' packets.
Mr. Sedor affirmed that this information is included in a handout
titled "State by State Overtime Comparison, completed Spring, 2004
By: John M. Sedor" [copy on file].
Co-Chair Green stated that a breakout of states' standards is
included in the handout.
Senator Dyson surmised that the onus of adhering to the current
standard has "more impact" on small enterprises than larger ones.
Mr. Sedor replied that currently, any business "regardless of size"
that has exempt employees and desires to conduct business in the
State, must comply with two sets of standards. To that point, any
business operating in Alaska as well as in other jurisdictions is
required to establish a separate process for addressing Alaska's
set of exempt employees standards. Smaller businesses are
"especially impacted because the increased cost of administration
is more difficult to bear on a small business than a larger
business".
Senator Dyson acknowledged the administrative impacts mentioned by
Mr. Sedor, and further questioned this issue's impact on small
businesses' manpower allocations in that an employee of a small
business might be required to work in a "supervisory and leadership
role" in addition to conducting "routine and manual labor duties"
due to a limited employee base. Applying the exempt standard in
this scenario is difficult.
Mr. Sedor concurred that the existing statutory language is
especially impacting to small businesses. People who are employed
at an executive, administrative or professional exempt level "are
hired to accomplish duties … and complete tasks". The time it might
take to do something should be "irrelevant in the actual business
model". The current law forces both sides into either maintaining
"journals or requiring time entries that say" that the person spent
six minutes making a pot of coffee, twelve minutes driving to the
store; eight minutes reviewing people's work for the day; or two
minutes opening the door. This legislation would move the existing
mode of interpreting the exempt status "from a time-based
unmanageable system" toward a system of a "primary or duties-based
test where people are employed to do duties and that is what the
courts would consider in determining whether or not they are
exempt".
Senator Dyson acknowledged the response.
Senator Olson asked whether this legislation would align with FLSA.
Mr. Sedor replied that certain aspects of Alaska's overtime
standards differ from the federal standard. The federal standard is
40 hours a week whereas the Alaska standard is eight hours a day or
40 hours a week. This legislation would substantially move Alaska
closer to the FLSA exempt definitional standards in regards to
executive, administrative, and professional employees. Employers
would only be required "to apply one test rather than two and that
test is a duties based test". The State however would not be one of
the 32 states that defers entirely to the federal FLSA. This
legislation would provide an answer to the question "what is unique
about overtime in Alaska?" The answer, in his perspective, is that
Alaska pays higher wages than the rest of the nation. Therefore, to
qualify for an exemption, Alaskan businesses must compensate an
exempt administrative, executive or professional employee with a
rate that is "two times the minimum" wage. Therefore, an exempt
employee's salary in Alaska would be higher than the federal exempt
wage requirement.
Senator Olson asked whether the business community supports that
salary requirement.
Mr. Sedor responded that members of both the Anchorage Society for
Human Resource Management and the Society for Human Resource
Management Alaska State Council support this legislation.
In response to a question from Co-Chair Green, Mr. Sedor specified
that he had concluded his remarks and would be available to answer
any further questions.
Amendment #1: This amendment inserts new language in the bill
title, following the word "occupations;" on page one, beginning on
line seven, as follows.
directing retrospective application of the provisions of this
Act to work performed before the effective date of this Act
for purposes of claims filed on or after the effective date of
this Act, and disallowing retrospective application for
purposes of claims for that work that are filed before the
effective date of this Act;
In addition, a new bill section is inserted on page five, following
line 30 as follows.
Sec. 6. The uncodified law of the State of Alaska is amended
by adding a new section to read:
APPLICATION AS TO WORK PERFORMED BEFORE THE EFFECTIVE
DATE OF THIS ACT. (a) This Act applies retrospectively to work
performed before the effective date of this Act for purposes
of any claim or proceeding based on AS 23.10.050 - 23.10.150
(Alaska Wage and Hour Act) that is filed on or after the
effective date of this Act.
(b) This Act does not apply to work performed before the
effective date of this Act for purposes of any claim or
proceeding based on AS 23.10.050 - 23.10.150 that is filed
before the effective date of this Act.
Co-Chair Wilken moved on behalf of Senator Bunde, to adopt
Amendment #1.
Co-Chair Green objected for explanation
Ms. Alberts explained that this amendment would provide the
effective date for the application of the new primary duty-based
standards. The current 80/20 State standard would be applied to any
claim brought before that date and the new primary duties-based
standard would be applied to any claim submitted after the
effective date.
9:20:22 AM
Mr. Sedor affirmed Ms. Alberts' remarks. A two-year "rolling week-
by-week" statute of limitations applies to overtime lawsuits. This
amendment specifies that, after the effective date, the rules
specified in SB 131 would be applied to the entire claim for events
up to two-years. This would allow one rule to be applied to the
claim rather than having a debate about which weeks would be argued
under the current standards and which weeks would be argued under
the new standards. This is "an extremely practical approach to this
issue".
Co-Chair Green removed her objection and noted that this amendment
would incur a title change.
There being no other objection, Amendment #1 was ADOPTED.
9:22:43 AM
KAREN ROGINA, President & CEO, Alaska Hospitality Alliance,
testified via teleconference from an offnet site to voice the
Alliance industry's support of this legislation. She asked that the
Committee also support the bill. Not only is this an important bill
for the hospitality industry, it is important to all employers with
exempt employees, as it would apply a single set of standards,
which would be easier to understand and comply with. Because the
current Alaska exemption status is time-based, an employee's
eligibility is determined by how the employee spends their time.
This bill would change the definition of exempt status to one based
on primary duties. This would better reflect "real life workplace
roles". Business owners and operators should be able to rely on
exempt workers to deliver results without being required "to
micromanage" exactly those employees are spending their time.
Oftentimes, a business owner or operator is not on site and is,
therefore, "unable to ascertain just what their employees are
doing. Instead they must manage by results achieved." Labor
attorneys would support the fact that "this is one of the most
litigated areas of wage and hour law".
Ms. Rogina shared an example of a wage and hour dispute, which
involved a prominent Kenai Peninsula hotel and its food and
beverage director who "was considered exempt". The director oversaw
a $750,000 budget and was responsible for hiring, firing, staffing,
and the overall food, beverage, and catering responsibilities of
the hotel. Upon that person's termination, she produced a "log"
that detailed "by the minute how she spent her time each day". Due
to a combination of "the seasonality changes" inherent to the
hospitality industry and the employer's desire to provide year-
round employment, there are times during the year when that
employee could have bused a table or seated guests. However, her
primary duties, for the most part, were those of an exempt
employee. This lawsuit cost the employer thousands of dollars and
almost put the hotel out of business. The hotel was "at a total
loss of being able to prove otherwise" as it had not kept track of
how the person had spent her time "by the minute" since she was a
salaried employee. As a consequence of that lawsuit, the hotel now
hires only hourly employees. That is the impact of the current
standard on the industry. It is detrimental to employees as well,
as, absent "a clearer definition of who is exempt and who is not",
employers are denying their executive, professional, and management
staff access to such things as better health insurance benefits
that could otherwise be offered to them because "they are not a
segregated group that could be classified differently". In
conclusion, this legislation would benefit both employees and
employers.
9:25:42 AM
JACK AMON, Co-Owner, Marx Brothers Café and Marx Brothers Café
Catering, and Member, Alaska Hospitality Alliance, testified via
teleconference from an offnet site in support of the bill. The
proposed changes regarding the exempt employee definition would be
"a great step forward in modernizing Alaska's labor laws to more
accurately reflect the current workplace"; specifically in regards
to exempt employees in the hospitality and food service industries
and in small businesses where both the employer and the employees
"wear many hats". Alaska's 80/20 definition "is so onerous and
restrictive that it has forced most operators to keep all
employees, including those who head departments or supervise
others, hourly. This results in negative impacts to both the
employer and the employee" who might be the highest skilled and
highest paid worker. As benefit costs increase, employers have been
required to change their benefit plans to the effect that an
employee must be salaried in order to qualify.
Mr. Amon noted that two of his twelve restaurant employees would
qualify as salaried employees as opposed to hourly employees under
the new standards proposed in this bill. In his opinion, an
employee with the authority to hire and fire and who is responsible
for the work of others should be considered managers regardless of
whether they work from behind a stove or behind a desk. He warned
that this legislation might be interpreted by some as an
opportunity through which employers could "cheat hardworking
employees out of legitimate overtime; however, nothing could be
further from the truth. In order to run a successful business, "it
is essential" that quality employees are properly compensated for
their skills. Such employees know that their skills are in demand
and would not remain with an employer who attempted to take
advantage of them. "The flexibility" offered by this legislation
would allow "compensation arrangements" that would be beneficial to
both the employee and the employer.
9:28:37 AM
GREY MITCHELL, Director, Division of Labor Standards & Safety,
Department of Labor and Workforce Development spoke in support of
the bill, as it "would streamline the complex set of criteria for
establishing overtime exemptions". One example of the 80-percent
test is that under the current regulations, there is a fallback
test, which requires only a 60-percent test when applied to service
and retail establishments. However, there is a provisional
requirement that the employee earn at least two times the federal
minimal wage for the first 40 weekly work hours. Thus, while a
minimal salary provision currently exists, it only pertains to the
service and retail industries and only when applied to the 60-
percent rather than 80-percent test. The Division's staff has
occasionally experienced difficulty in explaining this to employers
and employees. The proposed legislation would assist the Division
in alleviating the often difficult "burden" of explaining the
existing 80/20 Exempt Status Test to both employees and employers.
Senator Stedman understood that this is a complex issue that even
larger employers have trouble deciphering. Currently, employers
could be subject to litigation involving "a revolving multi-year
timeframe".
Mr. Mitchell affirmed that this issue "has caused litigation".
Years could pass before an employer might "find themselves at odds
with the requirements". Sometimes, employees know the rules and
start spending more than 20-percent of their time making coffee and
other non-managerial duties and deliberately "put their employers
in a difficult position, based on the complexity of the current
definitions".
Co-Chair Green asked whether this legislation would also simplify
regulations.
Mr. Mitchell replied that the legislation would remove the burden
of issuing regulations because it would allow the Department "to
simply adopt the federal regulatory definitions".
Senator Olson, observing that no one has spoken against the bill,
asked the reason that "it took so long" for it to be presented.
Mr. Mitchell replied that he could not provide the answer to the
question.
Senator Olson noted that he had experience in the retail service
area, and to that point, asked the reason that the 60/40 percent
standard rather than the 80/20 standard is applied to that
industry. Furthermore, he inquired whether this is addressed in the
bill.
Mr. Mitchell responded that the 40-percent test was established as
a fall-back from the 80-percent standard as a result of concerns
raised by those affected industries. The concerns being voiced
today echo those earlier concerns. It is difficult to adhere to the
current standards in those businesses where you need the manager to
jump in and perform production related tasks in order to manage the
business.
In response to a question from Co-Chair Green, Senator Olson stated
that he is in support of the legislation.
Co-Chair Green voiced support for it as well.
Co-Chair Wilken moved to report SB 131, as amended, from Committee
with individual recommendations and accompanying fiscal notes.
There being no objection, CS SB 131 (FIN) was REPORTED from
Committee with previous zero Fiscal Note #1, dated March 14, 2005
from the Department of Labor and Workforce Development.
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