Puerto Rico is still trying to recover from the brutal passage of Hurricane Maria one (1) month ago. As a result of the devastation and lack of power and running water, private employers have temporarily ceased operations and others have by now resumed operations albeit on limited schedules and/or with a partial staff. In any event, nearly every employer on the Island saw their operations impacted by Hurricane Maria and a question often asked by employers during these times concerns the payment of wages to their employees.
Earlier this week (October 17, 2017) the Secretary of the Puerto Rico Department of Labor and Human Resources issued an Opinion Letter – No. 2017-001 – addressing the obligations of employers in the private sector regarding the payment of wages to exempt and non-exempt employees. The purpose of this Newsletter is to provide a summary of the Secretary’s Opinion Letter and a reminder of the general rules concerning the payment of wages to exempt and non-exempt employees.
Non-Exempt (hourly) Employees
The Opinion Letter first addresses an employer’s legal obligation with respect to non-exempt employees. Non-exempt employees are those who, among other things, are compensated for hours worked and are entitled to over-time. The Fair Labor Standards Act (FLSA), as well as local PR Wage and Hour statutes, generally applies to hours actually worked. Hence, pursuant to the FLSA, and as recognized by the Secretary, employers that are unable to provide work to non-exempt employees due to a natural disaster are not required to pay for the hours these non-exempt employees would have otherwise worked had it not been for the natural disaster. As such, the Opinion Letter concludes that, absent any specific provision in the Collective Bargaining Agreement or in the Employee Manual, employers are not obligated to pay the hours that their non-exempt employees did not work as a result of the passage of a hurricane.
However, the Opinion Letter outlines that time which an employer is obligated to pay their non-exempt employees:
- Those hours during which the employer requires the employee to conduct work;
- Those hours during which the employee is allowed or permitted to conduct work that benefits the employer, even when not required by the employer;
- Those hours worked remotely by the employee outside of the workplace; and
- The time during which an employee is waiting for work at the employer’s premises.
Waiting time is that time during which a non-exempt employee is required to remain at a certain location pursuant to his/her employer’s request, either waiting for work or waiting to resume work after a power outage, etc., and which cannot be used by the employee for personal matters or for his/her benefit. Thus, absent any specific provision in the Collective Bargaining Agreement or in the Employee Manual, the non-exempt employee should only be paid for the time he/she arrived at work until he/she was sent home.
Thus, while the general rule is that an employer does not have an obligation to compensate non-exempt employees for hours not worked even if the lack of work is the result of a hurricane, and the Secretary recognizes as much, the Secretary in his Opinion Letter calls on employers to compensate their non-exempt employees for the time and hours not worked, in light of the unprecedented emergency on the Island. Alternatives outlined in the Opinion Letter are awarding additional compensation on a discretionary basis to help employees during this emergency, compensating employees without regard to accrued licenses, charging that time to accrued vacation leave or even allowing employees (if they so request) to credit that time towards paid licenses to which they are entitled.
The general norm is that employees classified as executives, administrators and professionals –among other exemptions – under the FLSA and local applicable regulations, are paid on a salary basis a predetermined amount which is not subject to reductions due to variations in the quality or quantity of the work performed. These exempt employees are generally excluded by labor & employment legislation from benefits such as minimum wage, overtime, accrual of vacation and sick leave, and meal period and their benefits are generally governed by their employment contracts or agreements with their employers.
As recognized in the Secretary’s Opinion Letter, exempt employees must be paid their entire salaries for each workweek in which they conduct some work, without regard to the hours actually worked. In other words, if the employer closed operations because of the hurricane or inclement weather and the closing or shutdown lasted less than an entire week, no deductions can be made from the exempt employee’s salary to account for the days not worked during the closing, even when work was conducted on only one (1) partial day of the week; that is, exempt employees must be paid the full predetermined salary. The Opinion Letter recognizes that the employer can pay the entire salary for the partially-worked workweek and, in its discretion, charge those days during which the exempt employee did not conduct work, to an employee’s accrued vacation leave.
However, the Opinion Letter also recognizes that pursuant to the FLSA regulations, an employer does not have an obligation to pay exempt employees for any workweek in which they perform no work.3 As such, those employers that were forced to close operations for an entire week (or more) during which no work was performed, do not have to pay their employees for that workweek.
The Opinion Letter provides guidance as to how to treat days not worked by exempt employees during this period, for personal reasons (other than sickness or disability). Generally, if the employee was summoned to work and is absent during one or more entire days, the employer is allowed to deduct this time from their salary. The Opinion Letter mentions not showing up to work due to bad weather, blocked roads or problems with access to gasoline or transportation, as being absent for personal reasons. Notwithstanding, if the exempt employee’s absence for personal reasons is partial and does not cover the entire day, no deduction from his/her salary may be made, but the employer may charge the partial absence to accrued leave. If the employee does not have accrued vacation leave, for instance, he/she must be paid or compensated for the entire day. The Opinion Letter reminds employers that pursuant to the FLSA, deductions cannot be made to exempt employee’s salaries for partial absences, such as arriving late to work or leaving work early.
As with non-exempt employees, the Secretary also appealed to the employers’ goodwill inviting them to pay their exempt employees their entire salary for time or weeks not worked as a result of Hurricane Maria, without charging said time to accrued vacation leave. Other alternatives outlined in the Opinion Letter are awarding additional compensation on a discretionary basis to help employees during this emergency, compensating exempt employees without regard to accrued licenses, charging that time to accrued vacation leave or even allowing employees to credit that time towards paid licenses to which they are entitled.
PUERTO RICO DISASTER RELATED TAX RELIEF – QUALIFIED DISASTER RELIEF PAYMENTS ARE NOT TAXABLE INCOME
On October 4, 2017, the Puerto Rico Department of Treasury (“PRDT”) issued Administrative Determination No. 17-21, providing a similar temporary tax relief established under Section 139 of the Internal Revenue Code, 26 U.S.C. 139, for special “qualified disaster assistance payments” made by employers to aid their employees repair or compensate for the damages or loss caused by Hurricane Maria. Essentially, such “qualified disaster relief payments” will not be considered as part of the employee’s gross income, and the employer may deduct any such payments.
Essentially, a “qualified disaster relief payment” is defined as “any amount paid to or for the benefit of an individual” to:
(1) to supply or pay reasonable and necessary expenses to the employee or his/her family, such as food, medicine, medical expenses, gasoline, living expenses, caregiving expenses for the employee’s children and dependent relatives, purchase of power generators, funeral expenses incurred as a result of Hurricane Maria, and as long as such payments are made directly to the seller and/or service provider;
(2) to pay reasonable and necessary expenses incurred for the repair or rehabilitation of a principal residence or the repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to Hurricane Maria, and as long as such payments are made directly to the seller and/or service provider;
(3) payments made directly to an individual as monetary assistance to compensate for the damages or loss caused by Hurricane Maria;
(4) payments made by a Federal, State, or local government, or agency or instrumentality thereof, regarding Hurricane Maria in order to promote the general welfare, but only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise.
Additionally, all employers that grant loans to their employees not exceeding $20,000 at 0% interest rate, during September 21, 2017–June 30, 2018, do not need to report the employee’s payments as income. Such loans may be granted in addition to the “qualified disaster relief payment.”
In order for the “qualified disaster relief payment” to be exempt, additional requirements must be met, such as, for example: the payment must be provided to the employee during September 21 until December 31, 2017; the employer must file on or before January 31, 2018 a sworn statement; among other requisites. Please contact any of our attorneys from our Corporate and Tax Practice Group to discuss the additional requirements that must be met for the payments to qualify for the exemption:
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