COVID-19 Premium Pay Legislation

I. Premium Pay and COVID-19

Although many Americans have suffered furloughs or job losses while those more fortunate are able to work, albeit remotely, workers deemed “essential” under state executive orders and federal guidelines continue to perform their job functions in public-facing circumstances outside of the home. State lawmakers across the country have introduced measures to provide premium or hazard pay to compensate essential workers for the heightened risk of exposure to COVID-19. In addition, the House of Representatives included a premium pay component in its latest COVID-19 response measure. These measures impose the benefits and obligations of additional pay upon different groups of workers and employers, respectively, despite the same overlapping legislative intent. Moreover, the measures raise several important legal questions regarding employment classification and state pre-emption laws. As many states begin to reopen their economies while both the public and private sectors face significant budget constraints, a question remains: will these premium pay measures be dismissed by lawmakers in light of the economic downturn or set the stage for further discussions on either the state or federal level in providing additional pay to those who continue to work during a declared public emergency.

II. State Legislation

Lawmakers in several states have introduced hazard pay legislation with the same purpose of compensating “front line” workers during a declared emergency, yet they contain significant differences with respect to eligible employees, covered employers, compensation and duration. Eligible employees under each measure have a similar public-facing or greater risk of exposure to COVID-19 feature. Also, all of the bills with the exception of the one pending in North Carolina cover private sector employers (a bill vetoed in Pennsylvania originally would have required car dealerships to provide hazard pay to their workers deemed essential) yet none of the exhaustive or non-exhaustive list of covered employers in the bills are identical. Moreover, certain measures provide additional thresholds that further reduce the list of qualifying covered employers. In Massachusetts, for example, a covered employer that provides essential services other than the state or a locality must also have a minimum of six employees or more, including the owner. The hazard pay requirements in pending New York State bills cover a retail or restaurant operation with certain features and eleven or more directly-owned or franchised locations (“formula retail store”), a “large employer” or business that has generated $50 million in annual gross revenue in any of the last three fiscal or calendar years (other than a manufacturing business or not-for-profit), a “transportation business,” as defined in the legislation, and any employer that operates under a franchise agreement with a formula retail store or large employer, or provides services to all three previously described covered employers. Equally noteworthy, the New York measures require covered employers to pay for childcare and health care costs of essential workers during the declared state of emergency. In Vermont’s legislation, the list of covered employers is by far the most wide ranging but unlike Massachusetts and New York, compensation would come from a grant program that is voluntarily accessible by an employer and financed by the State through the $1.25 billion aid the State received under the CARES Act, as opposed to out of pocket from a covered employer.

Compensation ranges from a fixed amount or a percentage of current remuneration. The Massachusetts bill calculates hazard pay based on one and a half times the employee’s existing earnings. Some of the measures put caps in place based on total hours worked, such as Vermont, or if the employee earns above a certain amount. In New York, for example, those earning $200,000 or more would only be able to receive up to $5,000 per year, whereas those earning less than $200,000 may earn up to $25,000.

If passed, all of the previously described bills would go into effect immediately and, in certain instances, would apply during not just the current COVID-19 declared emergency but any declared emergency. In Vermont, compensation would also be provided for two prior monthly periods. In Massachusetts, compensation would be applied retroactively since the declared state of emergency and continue until its end.

III. Federal Legislation

On May 15, 2020, the House of Representatives passed the “Health and Economic Recovery Omnibus Emergency Solutions Act” or HEROES Act. The latest COVID-19 measure from Capitol Hill includes the “COVID–19 Heroes Fund Act of 2020,” which provides $200 billion in hazard pay to essential workers. Essential work is considered any work performed among a wide ranging list of industries (including government) that is done outside one’s home and involves regular in-person interactions with, or physical handling of items that were handled by, patients, the public or coworkers of the individual performing the work. Similar to the construct in Vermont’s bill, a covered employer would access federal funding through a grant to provide hazard pay to an essential worker. The bill requires a covered employer to provide a $13/hour premium above current compensation to essential workers beginning from January 27, 2020 and through 60 days after the public health emergency has been declared over. The maximum amount an essential worker who earns less than $200,000 can receive is $10,000 and $5,000 for individuals who earn $200,000 or more, less payroll taxes. Any grant received by a covered employer would not be included in gross income calculations for income tax purposes.

IV. Worker Classification and Premium Pay

Whether an employer classifies a worker as an employee or an independent contractor has important implications for how that worker is paid and the worker’s entitlement to various employment benefits. Misclassification—most often, attributing independent contractor status to an employee—typically results in workers being underpaid due to lost overtime wages/etc. Misclassification claims are frequently brought as class or collective actions, which may allege multiple wage and hour violations. The plaintiffs’ bar has been especially active in pursuing misclassification claims for workers in the gig economy, such as delivery and ride share workers.

The COVID-19 pandemic is a potentially significant flashpoint for classification issues given disputes about workers’ eligibility for overtime wages, sick leave, disability pay, workers’ compensation and other benefits amid the pandemic. Premium and hazard pay entitlements are likely to draw similar misclassification claims. Many current premium and hazard pay proposals, as in Massachusetts, use the language of “essential workers” rather than “employees” or “independent contractors.” Other bills, such as a pending bill in Vermont, provide somewhat greater clarity in limiting premium pay to “eligible employees” (emphasis added). The Vermont bill goes further in specifying that independent contractors do not fall within the definition of an “eligible employee.” The current bill before Congress, by comparison, would expressly extend to independent contractors. Similarly, a recent Seattle bill would require premium pay solely for gig economy workers.

Penalties for misclassification vary by jurisdiction. In most states, misclassified employees can recover backpay dating back up to several years, including unpaid overtime and interest. Willful or intentional misclassification may carry additional statutory penalties, as well as double or treble damages. In the COVID-19 context, misclassification may lead to further unpaid wage claims for premium pay dating back to the beginning of the applicable shelter-in-place period. Claims for premium or hazard pay are likely to be combined with other wage and hour claims in ongoing gig worker misclassification class and collective actions. Companies should regularly consult with counsel to consider any necessary adjustments in how their workers are classified.

V. Pre-emption of Premium Pay Legislation

State law may provide more robust wage and hour protections than federal law, and the Fair Labor Standards Act does not prevent states from imposing greater minimum wage and overtime requirements than the federal minimums. Local lawmakers have also been active in pursuing hazard pay relief for essential workers, including in New York City and Baltimore, where the pending proposals provide hazard pay for essential employees on a per-shift basis and depend on the number of hours worked. Similar measures may well be introduced in other major cities across the U.S.

Preemption language in state wage and hour laws, however, may prevent localities—e.g. at the city and county level—from deviating from state wage and hour law. Along with a number of other states, Alabama, Florida, Iowa, Kentucky, Missouri and Wisconsin prohibit some or all local lawmaking with respect to the minimum wage and/or other dimensions of employee compensation. To the extent local premium or hazard pay bills implicate minimum wage and overtime issues, they may, on a jurisdiction-by-jurisdiction basis, be preempted under existing state laws.

Some bills are potentially more susceptible to preemption than others. For example, bills that provide premium pay via grants from the state, as in Vermont, may not directly impact an employer’s minimum wage and/or overtime obligations and are correspondingly less likely to be preempted. Bills that have temporarily increased the base pay for certain essential employees without broader minimum wage implications, like a Birmingham, Alabama resolution that reallocated existing funds to front-line workers, may also pose a reduced preemption risk. By comparison, local legislation that creates new minimum wage obligations—on either an hourly or shift basis—may fall within the scope of state preemption bills. We expect to see preemption challenges as local hazard pay bills proliferate and as they are signed into law.

VI. Additional Considerations

Many of the premium and hazard pay bills proposed to date have yet to be passed and enacted. Vermont’s measure passed the Senate although the House has not provided any signal that it will advance the measure, and the Governor is skeptical of directing federal funding from the CARES Act to the program. In some instances, state lawmakers may abandon these efforts as states reopen and non-essential workers return to the workplace. On the federal level, although the Senate Majority Leader indicated that the House’s Heroes Act is “dead on arrival,” the Senate has not closed the door entirely on an additional stimulus bill that could include some form of premium pay for essential workers. Employers should not, however, lose sight of premium and hazard pay obligations on the horizon. In states like New York, premium and hazard pay proposals are more general in nature and would apply in the context of any state-declared emergency. We also anticipate further discussions on premium and hazard pay legislation, among others, as states grapple with addressing the economic toll of the pandemic, as more guidance from the federal government is issued on the use of existing and future stimulus packages, and in the event of a highly anticipated second wave of COVID-19 infections. Employers should consult with counsel on an ongoing basis about compliance with any new premium and hazard pay obligations in the jurisdictions in which they operate.