Minnesota’s New Legislation on Employee Classification & Prevailing Wage Requirements

The Minnesota Legislature enacted several significant labor laws targeting employee misclassification and prevailing wage requirements.

A legislative change in the new law addresses employee misclassification. Employers now face stricter penalties, up to $10,000 per violation, for wrongly classifying employees as independent contractors to avoid paying minimum wages, overtime, unemployment insurance, and workers’ compensation. This legislation (HF5247) allows all workers, not just those in construction, to sue employers for misclassification.

Minnesota is also the first state to mandate prevailing wage requirements on affordable housing projects funded by Low-Income Housing Tax Credits. This ensures that developers pay wages at union rates, typically required for publicly funded construction projects. The law introduces new transparency requirements for developers, necessitating disclosing past labor violations and creating wage theft prevention plans for contractors with a history of non-compliance.

These legislative changes are expected to enhance worker protections through stricter penalties for misclassification and establishing prevailing wage requirements on affordable housing projects. Increased transparency and accountability for developers and legal recourse for workers facing misclassification strengthen worker rights.

However, these changes may increase costs for employers, particularly in the construction sector, potentially raising project expenses and slowing affordable housing development. The new laws might also face legal challenges and impose additional administrative burdens on businesses, especially smaller ones. Additionally, higher costs associated with prevailing wage requirements might reduce the number of affordable housing units built, potentially worsening the housing shortage in the state.

Navigating the New DOL Fiduciary Rule: A Roadmap for Retirement Advisors

The landscape of investment advice fiduciary status has undergone significant changes with the Department of Labor’s (DOL) recent amendments to regulations under the Employee Retirement Income Security Act of 1974 (ERISA).¹ These changes, finalized in April 2024, represent the latest effort to redefine who qualifies as an investment advice fiduciary and to update related prohibited transaction exemptions. ¹

Brokers and financial professionals operating in this space must understand these changes and adapt their practices to remain compliant and serve the best interests of their retirement clients. Even though The Contractors Retirement Plan’s bundled offer includes the services of a 3(38) investment fiduciary, brokers need to understand the highlights of the new Rule, review their practices, and approach to determine if any of their actions would apply to the updated rule.

Significant Changes from the 2023 Proposed Rule:

• The addition of the term “professional” clarifies that investment recommendations must be provided regularly as part of a business.
• Removal of a test involving discretionary authority or control over certain transactions avoids potential overreach in defining fiduciary status.²
• Clarification regarding sales conversations and investment education helps distinguish between educational information and actual investment advice.
• The exclusion of “investment advice fiduciaries” from the definition of “retirement investors” prevents unintended consequences for certain interactions. ²

New Test for Investment Advice Fiduciary Status:

• The previous five-part test from 1975 is replaced by a more streamlined two-part test.³
• The focus shifts towards making recommendations of securities transactions or investment strategies to retirement investors. ³
• The new test emphasizes the importance of making recommendations under circumstances that indicate trust and are in the retirement client’s best interest. ³

Prohibited Transaction Class Exemptions:

Amendments to prohibited transaction exemptions necessitate compliance with PTE 2020-02 to receive any benefits. ³

Expansion of exemptions broadens the scope to cover various types of investment products and services.

The introduction of streamlined requirements simplifies compliance for certain types of transactions, such as those related to discretionary investment management services.

Next Steps for Retirement Brokers:

1. Understand the New Fiduciary Status Test:

• Brokers need to grasp the nuances of the new two-part test to determine whether they qualify as fiduciaries.
• They must ensure that any recommendations made to retirement clients meet the criteria laid out in the test, emphasizing trust and the client’s best interest.

2. Review Compliance Procedures:

• Brokers should carefully review and update their compliance procedures to align with the amended regulations.
• This includes acknowledging fiduciary status in writing to retirement clients, disclosing services and conflicts of interest, and adhering to impartial conduct standards.

3. Stay Informed and Monitor Developments:

• Brokers need to stay informed about ongoing legal challenges and developments related to the new regulations.
• It’s essential to monitor updates or revisions to guidance from regulatory authorities to ensure ongoing compliance and mitigate potential risks.

The DOL’s amendments to investment advice fiduciary regulations signify a significant shift in how fiduciary status is defined and regulated. Brokers and financial professionals must adapt to these changes by understanding the new test for fiduciary status, reviewing compliance procedures, and staying informed about ongoing developments. By doing so, they can navigate the evolving regulatory landscape and continue to serve the best interests of retirement clients.

For more information on the new Fiduciary rule and how you can prepare, review the useful articles below.

Sources:

1. “DOL Finalizes New Retirement Security Rule.” Gallagher, May 13, 2024, www.ajg.com/us/news-and-insights/2024/may/dol-finalizes-new-retirement-security-rule/.
2. “Yet Another DOL Fiduciary Rule Released: Will the ‘Regular Basis’ of Prior Outcomes Follow ‘Suit’?” May 8, 2024, www.lexology.com/library/detail.aspx?g=8c25078e-52b7-406f-af72-1705aa928a63.
3. JD Supra. “A Matter of Trust: DOL Issues Final Investment Advice Fiduciary Rule.” JD Supra, [Publication Date], jdsupra.com/legalnews/a-matter-of-trust-dol-issues-final-1411657/.

For over 40 years, The Contractors Plan has been helping contractors submit leaner bids to win more jobs. We provide our clients with quarterly updates on issues and trends that may affect business. We monitor developments on the state level as well as the Federal. When you choose The Contractors Plan, you can rest easy knowing that we’ll keep you informed and alert you to any changes that may be on the horizon. We will continue to monitor and communicate Fiduciary Rule changes and updates.

New Federal Rule Mandates Sustainable Procurement for Contractors

The Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) have issued a final rule to amend the Federal Acquisition Regulation (FAR) to prioritize environmental and sustainability considerations. Effective May 22, 2024, this rule mandates federal agencies procure sustainable products and services to the greatest extent practicable.

Important aspects of the rule include emphasizing energy savings performance contracts, consolidating hazardous material requirements, and updating pollution prevention guidelines. Prime contractors must ensure subcontractors comply with sustainability requirements, and life-cycle costs should be considered in price assessments. Agencies are required to specify in contracts which sustainable products and services are applicable.

Additionally, the rule introduces a new omnibus contract clause requiring federal contractors to deliver specified sustainable products and services, with exceptions for contracts outside the U.S., weapons systems, and certain military equipment. It defines “sustainable products and services” in FAR 2.101, updates environmental purchasing requirements in FAR subpart 23.1, and aligns construction and architect-engineer contracts with the Council on Environmental Quality’s principles.

The rule broadly applies to commercial and small purchases, except if sustainable products are not competitively available, are too costly, or fail to meet performance standards. The goal is to leverage the federal government’s purchasing power to support American manufacturing and establish sustainable supply chains, which presents challenges and opportunities for contractors.

Challenges include potential cost increases, administrative burdens for small businesses, and possible supply chain disruptions. However, the rule also opens new business opportunities for sustainable products and services in the expanding market, with potential long-term cost savings from more energy-efficient products.

Navigating Prevailing Wage Compliance: A Prime Contractor’s Guide

In the world of federal contracting, sticking to prevailing wage laws isn’t just about following rules—it’s about doing business ethically. Understanding prime contractor liability and ensuring subcontractor compliance is key for our prevailing wage clients. Let’s break down what you need to know to protect your projects and reputation.

Prime Contractor Liability: Taking Responsibility

Under the Davis-Bacon Act and the Service Contract Act, prime contractors carry a big responsibility. Department of Labor rules are crystal clear – prime contractors are held fully accountable for any underpayments by subcontractors. It’s not just about obeying the law; it’s about ensuring all workers get fair pay on federal projects.

Flow Down Contract Clauses: Setting the Groundwork for Compliance

Compliance starts with smoothly passing contract clauses from prime to subcontractors. It’s more than just paperwork—it’s a shield against potential problems. Skipping these clauses doesn’t just put subcontractors at risk; it also damages the integrity of the prime contract. By including these clauses, you strengthen your compliance and avoid accidental violations.

Department of Labor Enforcement: Keeping Watch

The Department of Labor keeps a close eye on prevailing wage laws. Recent enforcement actions are clear reminders of the cost of breaking the rules. The message is simple: being unaware isn’t an excuse, and taking action ahead of time is crucial to staying legal.

Mitigating Liability: Strategies for Success

To lower your risk, you need to be proactive. Start by speaking openly with subcontractors about prevailing wage laws, ensuring everyone’s on the same page. Thorough checks provide an extra layer of security, letting you see if subcontractors understand the rules. Consider adding strong indemnity clauses to subcontracts—a smart move to hold subcontractors responsible for any mistakes.

Risk Management: Planning for Compliance

Managing risks isn’t just about spotting problems—it’s about planning for success. Primes should carefully assess the risk of subcontractor non-compliance before starting projects. Taking the lead with measures like thorough subcontractor checks and solid contractual protections helps primes confidently navigate the tricky world of prevailing wage compliance.

Striving for Excellence

In federal contracting, compliance isn’t just a checkbox—it’s about aiming for excellence and integrity. As government contractors, your commitment to following prevailing wage laws goes beyond what’s required by law; it shows your dedication to your values. By taking on prime contractor liability, using contract clauses, and adopting proactive risk management, you pave the way for lasting success and ethical leadership in federal contracting.

The Contractors Plan understands the unique challenges that Davis-Bacon and Service Contract Act contractors face when creating and managing a bona fide employee benefits plan. We specialize in prevailing wage contractor benefits and compliance, and we’ve assembled our knowledge into a flexible, easy-to-use solution that offers great benefit options for your employees.

For over 40 years, we have designed and administered healthcare, retirement, and specialty benefits programs for government contractors.  Our products and services help employers save money, reduce their workload, and stay compliant with local and federal government mandates and regulations. If you have any questions feel free to contact us here.

March 2024 Construction Spending

The U.S. Census Bureau announced construction spending for March 2024 was at a seasonally adjusted annual rate of $2,084 billion, almost flat compared to February. Compared to last year’s timeframe, construction spending in March was up nearly 10%. In the first quarter of this year, construction spending was up 11% to $461 billion compared to 2023.

While private construction spending in December was $1,601 billion, 0.5% below the February amount of $1,608 billion, public construction spending was $483 billion, 0.8% above February at $479 billion. A key contributor to public construction was highway construction at $149 billion, 0.9% above February.

Compared to the same period last year, public construction spending is up 18%. The leading growth contributor was highway construction, up 20 % to $149 from $124 billion in 2023.

More information may be found at: https://www.census.gov/construction/c30/pdf/release.pdf

WHD Issues Guidance Concerning AI and Automated Systems in the Workplace

The U.S. Department of Labor, Wage and Hour Division (WHD) just released Field Assistance Bulletin (FAB) No. 2024-1, addressing the impact of Artificial Intelligence (AI) and automated systems on workplace practices governed by federal labor laws like the Fair Labor Standards Act (FLSA). AI technologies increasingly assist in tasks like tracking work hours and processing leave requests.

While these technologies offer efficiency, they also present compliance challenges. The FLSA mandates fair compensation for all hours worked, including those AI systems monitor. Despite AI’s involvement, employers must ensure accurate tracking of work hours and breaks and proper calculation of wages owed. The bulletin emphasizes the importance of human oversight to prevent potential violations.

Additionally, it highlights AI’s implications under the Family and Medical Leave Act (FMLA) and warns against using automated systems to interfere with or retaliate against employees exercising their rights. Ultimately, it is the responsibility of employers to ensure adherence to labor laws, regardless of technological progress.

For more information, go to https://www.dol.gov/sites/dolgov/files/WHD/fab/fab2024_1.pdf.

FTC Bans Noncompete Agreements Nationwide

The Federal Trade Commission (FTC) has announced a final rule banning noncompete agreements nationwide, effective 120 days after publication in the Federal Register. The rule is expected to promote competition, protect worker mobility, foster innovation, and encourage new business formation.

Projections suggest that the rule will facilitate the formation of over 8,500 new businesses annually, enhance worker earnings by an average of $524 per year, lower healthcare expenditures by up to $194 billion over the next decade, and drive innovation with an estimated 17,000 to 29,000 additional patents per year in the coming decade.

Key provisions of the final rule include:

• Banning noncompete agreements for most workers, except for senior executives (representing less than 0.75% of workers), whose existing agreements can remain in force.
• Employers are prohibited from entering into or enforcing new noncompetes, even for senior executives.
• Employers must notify workers, except for senior executives, that existing noncompetes will not be enforced.
• The rule defines “noncompete clause” broadly to encompass any agreement or policy that limits a worker’s ability to seek new employment or start a business after leaving a job.

The FTC received over 26,000 public comments on the proposed rule, with overwhelming support (over 25,000 comments) for the ban on noncompetes. The final rule is based on extensive research. It aims to address concerns that noncompete agreements suppress wages, hinder innovation, and limit worker mobility, affecting approximately one in five American workers.

The FTC also emphasized effective strategies for employers to safeguard their investments without relying on noncompete agreements, such as implementing trade secret laws and improving wages and working conditions. These alternatives demonstrate proactive measures that can benefit employers and workers while fostering a fair and competitive labor market.

Critical Factors in the FLSA’s Employee vs. Independent Contractor Determination

The Department of Labor (DOL) issued a new final rule under the Fair Labor Standards Act (FLSA) to clarify the distinction between employees and independent contractors, enhancing compliance and worker protections. This rule replaces the 2021 Independent Contractor Rule, effective March 11, 2024.

The final rule outlines how the FLSA applies to workers, setting standards for minimum wage, overtime pay, recordkeeping, and child labor protections. It defines employees as economically dependent on employers for work, while independent contractors operate their own businesses.

Whether a worker is an employee or independent contractor depends on an “economic reality test” based on specific factors, not merely job titles or contracts. The Final Rule provides six critical factors for analysis:

1. Opportunity for Profit or Loss Depending on Managerial Skill: This measure focuses on whether the worker can negotiate pay, market their services, or make business decisions affecting profit or loss.
2. Investments by the Worker and Potential Employer: This section examines whether the worker’s investments (e.g., tools and equipment) are entrepreneurial and enhance business independence.
3. Degree of Permanence of the Work Relationship: Considers if the work is ongoing and exclusive, indicating employee status, or project-based and non-exclusive, suggesting independent contractor status.
4. Nature and Degree of Control: Assesses the employer’s level of control over work performance and business aspects, such as setting schedules and supervising work.
5. Extent to Which Work is Integral to the Employer’s Business: Considers if the work is central to the employer’s core business functions.
6. Skill and Initiative: Whether the worker uses specialized skills and business-like initiative.

Each factor is weighed based on the specific circumstances of the employment relationship. The rule clarifies that workers cannot waive their FLSA rights by signing independent contractor agreements. Additionally, the FLSA’s definition of “employ” (to “suffer or permit to work”) is broader than the IRS’ standard law control test for tax purposes, potentially resulting in different classifications for workers.

Employers who incorrectly classify employees as independent contractors could be subject to liability for unpaid wages, damages, and penalties under the FLSA. This highlights the critical need for accurate worker classification to ensure compliance with FLSA standards.

OFCCP Opens Online Portal for Federal Contractors to Certify Affirmative Action

The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) has initiated the acceptance of online submissions from covered contractors as of April 1.

For the third consecutive year, existing federal contractors and subcontractors must utilize the OFCCP’s Contractor Portal to complete this certification, with the deadline set for July 1, 2024.

Contractors must certify that they have diligently developed and upheld affirmative action programs for their establishments or functional units. These obligations apply to contractors meeting specific contract dollar and employee thresholds. The Contractor Portal facilitates this process, allowing multiple users to register, manage records, and certify compliance.

The affirmative action programs they implement ensure that all applicants and employees of federal contractors enjoy equal employment opportunities, regardless of race, color, religion, sex, sexual orientation, gender identity, national origin, disability, or status as a protected veteran.

USDOL Updates Prevailing Wage Resource Book

The U.S. Department of Labor, Wage and Hour Division (WHD) released an updated version of the Prevailing Wage Resource Book (PWRB) on April 1, 2024. This update followed the implementation of the final rule, Updating the Davis-Bacon and Related Acts Regulations, on October 23, 2023. The update’s purpose was to simplify language, restructure the format, and offer additional guidance and examples to address stakeholder requests for clarification.

The PWRB has been a crucial resource for contractors, contracting agencies, enforcement staff, unions, associations, and workers, providing insight into labor standards for federal and federally funded contracts. These contracts include those governed by the Davis-Bacon and Related Acts (DBRA), the Service Contract Act (SCA), the Walsh-Healey Public Contracts Act (PCA), the Contract Work Hours and Safety Standards Act (CWHSSA), the Copeland “Anti-Kickback” Act, and Executive Orders affecting federal contracts.

The updated PWRB aims to make WHD policies more accessible and understandable to stakeholders, enhancing their understanding of labor standards applicable to many federal contracts and federally funded projects. The updated PWRB can be found here: https://www.dol.gov/agencies/whd/government-contracts/prevailing-wage-resource-book