FLSA Issues That All Agencies Should Be Aware Of

It has been over a week since a federal District Court Judge issued an injunction staying the implementation of the new overtime rule (click here for more information on the injunction), and it does not appear that the U.S. Department of Labor is going to try to have the injunction overturned on appeal, at least anytime soon.  So employers will not have to comply with the new overtime rule that was set to go into effect tomorrow, December 1.  However, that only relieves employers from having to pay their employees who they want to treat as exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”) under the administrative, executive, or professional exemptions a minimum salary of $913 a week, or $47,476 a year.  Employers will still have to pay their employees overtime for any hours they work in excess of 40 in any one work week, unless they qualify for one of the exemptions referred to above or another exemption. (Click here for a post that discusses those exemptions and others as they may apply to employees of insurance agencies.)

In determining whether the 40 hour threshold has been exceeded in any one work week, agency owners need to be aware of what is work time that must be included in making that determination.  The FLSA does not require an employer to give an employee any time off during the workday for any reason, even to eat.  It only requires that an employee be paid at least the minimum wage for all the time they are working and overtime pay if they work more than 40 hours in any one work week.  If an employer decides to give its employees a break from work, that break must be at least 30 minutes long and the employee must not be required to do any work during the break period before that time can be excluded from work time for which the employee must be paid.  With respect to breaks given so an employee may eat a meal, what this means is that an employee must not be on call or perform any other work related duties during the break.  If they do, they must be paid for that time, too.

For agency employees who are licensed or have another certification that they must have to perform their duties, any time taken by such an employee for the purpose of attending a class, a webinar, or any other event to obtain or keep their license or other certification is considered work time for which they must be paid.  The same thing is true for any class or other event an employee attends at the request of the agency.  If the agency owner does not want to have to pay overtime to a nonexempt employee in this situation, any such class or other event should be attended during the employee’s normal working hours.

If an employee attends such a class or other event outside of their normal working hours, the agency owner must also be aware of the FLSA’s rules regarding payment for time spent traveling by employees.  These rules are complex, but a good explanation of the basics, as well as other situations that may require payment, can be found here.

While the pressure is off for now on compliance with the new overtime rule, the existing rules still apply and can create problems for an agency that is not aware of what those rules require.

Court Stays Implementation of New Overtime Rule

Yesterday, a judge on the U.S. District Court for the Eastern District of Texas entered a preliminary injunction staying the enforcement of the new overtime rule that was to take effect on December 1, 2016. (Click here for an explanation of the rule.)  The judge found that rule to be unlawful because it imposed a minimum salary requirement for employees who would otherwise qualify as exempt under the administrative, executive, and professional duties exemptions from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).  Apparently, in the judge’s opinion only Congress can impose such a salary requirement.  However, a minimum salary requirement has been a part of the requirements for employees to qualify for those exemptions for many years, so it’s anybody’s guess what the final outcome will be.  

For now, employers do not have to worry about satisfying the new minimum salary requirement for an employee to be exempt from the overtime pay requirements of the FLSA under the above three exemptions.  However, that could change upon an appeal to the U.S. 5th Circuit Court of Appeals, which could be made before December 1.  So stay tuned for further developments.

In the meantime, remember that an agency’s producers and other employees will have to be paid overtime for any hours they work in excess of 40 in any one workweek, unless they qualify for one of the exemptions referred to above or another exemption. That fact is not affected by this court ruling, (Click here for a post that discusses those exemptions and others as they may apply to employees of insurance agencies.)

BEST WISHES FOR A SAFE AND ENJOYABLE THANKSGIVING HOLIDAY.

Can An Extra Fee Be Charged for Premium Payment by Credit Card?

I was recently asked the above question by a caller to the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia.  It is one that I had addressed before in other such calls, so I thought it would be a good topic for a blog post. 

Unlike the issue of charging a fee to an insured for obtaining an insurance policy (click here for a post on that issue), this question deals with recovering the charge imposed on any business that accepts payment by credit card for the services it renders or the products it sells.  As most of my readers probably know, there is a cost paid by such businesses for processing a credit card payment.  Depending on the credit card company involved that cost can be as high as 2 or 2.5 percent of the total amount charged.  Over time that cost can add up to a significant number.

If permitted by the agreement an agency has with its credit card processing company, I think a good argument can be made it is permissible to charge a fee for a premium that is paid using a credit card, if the insured has a choice in how the premium can be paid and there is a payment option available to the insured that would not result in any extra fee being assessed against the insured. If the insured has such a choice, I don’t think the prohibition in O.C.G.A. Section 33-6-5(6)(B) on collecting “as premium or charge for insurance” any sum in excess of the premium or charge for that insurance which was specified in the policy in question would be violated. Where such a choice exists, the agent would be providing a service in excess of the service associated with obtaining the insurance policy by allowing payment of the premium by credit card.

As long as the insured can pay the premium or other charge for insurance in a way that does not result in the payment of an extra fee, providing another more convenient method of payment would be an extra service for which the agency could charge a fee. To be safe, I suggest that the fee charged be no more than the amount the agency would have to pay its credit card processing company. I don’t think an agency would be able to get away with charging more than that amount for very long for competitive reasons, and it would not look good to the Insurance Commissioner’s Office for an agency to be making a profit by charging such a fee. I would also recommend that the insured be informed in writing of the fact that an extra fee would be imposed if a particular method of payment for a premium was used, the amount of that fee, and the other available payment method(s) that would not result in the imposition of such a fee.  This written notice should be given sufficiently in advance of the premium due date to give the insured a realistic opportunity to use a payment method that would not result in the charging of an extra fee.

However, if the insured has no premium payment method available to him or her that would not result in the imposition of a transaction fee on an agency, I don’t think it could validly pass along that fee to its insured, as it would then be in technical violation of O.C.G.A. Section 33-6-5(6)(B).   Of course, just because it’s probably legal to charge a fee for payment by credit card does not mean it’s a good idea to do so, especially if an agency’s competitors were not charging such a fee.

IIAG Fall Conference – What You Missed

IIAG had its annual Fall Conference a couple of weeks ago.  This year it was held at a conference center in Augusta that was adjacent to Riverwalk Augusta, which is a beautiful park that runs next to, and in some places along the top of, the levee that separates downtown Augusta from the Savannah River.  If you have not already done it, I highly recommend a walk through the park and along the river.

While at the conference, I was able to attend three informative presentations on E&O loss control, processes and technologies that can help an agency or agent grow their business, and how to transform an agency into an exceptional customer service provider.  The part of the E&O presentation I attended focused on how to properly document interactions with customers.  The three C’s of all documentation are that it be clear, concise, and consistent.  It is also important that it contain only the facts of what happened and when and who was involved.  It should not contain any opinions, especially on the validity of a customer’s claim or whether the proper coverage was in place.  If there is a possibility that an E&O claim may be made, set up a separate file for all information related to the defense of such a claim.  The speaker favored electronic documentation over paper, but recommended against communicating with the customer using social media or texts due to the difficulty in capturing and storing such communications in the agency’s management system.  Such documentation should include reminders upon the first issuance and every renewal that the customer read their policy to make sure it provides the coverage they want and include disclaimers about possible coverage limitations, e.g., policy does not cover flood damage.  Should use proposals to highlight all such limitations.

The part of the agency growth presentation I attended focused on how to select a target market and common mistakes in doing so.  The first thing an agency or agent should do is review the products available from the companies by which they are appointed.  This will give them a good idea of what their target market should be, as it would be a waste of time to go after a particular type of customer if they could not satisfy all the coverage needs of such a customer.  Once a target market is chosen, be careful not to waste time on potential customers who do not fit the profile in all important respects or the time to cultivate whom will not be worth the amount of commission that can realistically expect to receive.  Be persistent with the target market; one touch with a potential customer is not enough, but need to be creative in how they are touched.  Social media can be monitored for life or other important events involving customers or potential customers, which are then followed up with an appropriate card containing a handwritten note.  Can also use social media to highlight customers by reporting on any newsworthy events involving them or for commercial customers describe and recommend the services they offer.  The mantra for an agency or agent should be “And Then Some.”  Always strive to do what’s expected “And Then Some.”

The most interesting piece of information I learned at the exceptional customer service   presentation was that underwriters grade the agencies and agents with whom they work.  This is usually done on a quarterly basis and will govern the level of service and cooperation with handling unusual risks provided to an agency or agent in the future.  The speaker recommended asking the underwriters about the grade given and how it can be improved.  One sure way to do so is to treat underwriters and other company representatives as if they were customers.

 

Fee Payment Arrangements – A Trap for the Unwary

While attending the IIAG’s Fall Conference a couple of weeks ago (I will cover what you missed in later posts), I had an interesting conversation with some agents about the duties owed their customers by insurance agents.  I pointed out that under Georgia law, an insurance agent is considered a mere “order taker” as far as their duties to the customer are concerned, unless and until the agent does or says something that creates a duty on their part to the customer beyond just providing the customer with the insurance coverage they request.  I have written a few blog posts on how this can happen.

The question was then asked if accepting the payment of a fee from the customer would change the relationship between agent and customer.  My response was that it would change the relationship.  In fact, it would change the relationship significantly, as by doing so, the agent would then owe a duty to the customer to perform the services for which the payment was made in accordance with the current industry standards for the performance of those services.  In addition, if the agent had touted their experience or expertise in performing those services to convince the customer to pay a fee for them, the agent would be held to an even higher standard in his or her performance of them.

If the agent’s only compensation for the performance of the services in question came from the customer, the traditional relationship between the agent and customer would be reversed.  Instead of an “order taker”, the agent would become the customer’s adviser and may in some instances owe a fiduciary duty to the customer to protect their interests above all others.  Such a duty is the highest possible under the law.

Although the above seems obvious when you think about it, it was something that I had never considered before.  That may be true of some agents.  The Georgia Insurance Code requires an agent to have a counselor’s license before they can receive any compensation from their customer and that the agent/counselor get the customer’s advance approval for their performance of services that are specified in writing.  This requirement presents a great opportunity for the agent/counselor to carefully define what they will do and how they will do it, thereby limiting their exposure to claims by the customer to just those services and their performance as described.   Any limitations on what will be done or how it will be done should be set forth in a written agreement with the customer, and that agreement should include a description of what the customer must do to enable the agent/counselor to properly perform their specified services.  At a minimum, this should include the provision of complete and accurate information about the subject of those services.

Every agent/counselor should take advantage of this opportunity to mange the expectations of their customer about the final outcome of the services to be performed.  As noted in earlier posts, there should be no promises of “complete coverage for all risks” or satisfaction guaranteed.

Payment of Referral Fees – Is It Legal?

The above question continues to come up every so often in the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia. There is no definitive answer to the question in either the Insurance Code of Georgia or the regulations or other pronouncements issued by the Georgia Insurance Commissioner’s Office.  However,  I have advised my clients for a long time that a very strong argument can be made that the payment of referral fees is permissible, as long as their payment is not conditioned on the purchase of an insurance product by the person or business who is the subject of the referral.

The basis for my argument is that the law most often cited in support of the position that the payment of referral fees is illegal is the prohibition on the sharing of commissions by an insurance agent with a person or entity that is not licensed by the Insurance Commissioner’s Office.  I agree that this prohibition would most likely make illegal the payment of a referral fee only for referrals that resulted in the sale of an insurance policy or other product.  In that situation, it is easy to see how the agent or agency could be said to be sharing the commissions earned for such a sale with the referral source.

However, if the referral fee is paid regardless of whether the person or business who is referred buys an insurance policy or other product from the agent or agency, to say that such an arrangement would be the sharing of commissions with an unlicensed person would mean that an agency could not pay its employees who are not licensed by the Insurance Commissioner’s Office for the services rendered to the agency.  This because the source of the compensation paid to those employees was the commissions received by the agency for the insurance policies and other products it sold to its customers.

Obviously, such an interpretation of the law would make it cost prohibitive, if not impossible, for many agencies to conduct their business activities.  The passage of an amendment to the anti-rebate law by this year’s General Assembly lends further support to my argument.  In a change that took effect on July 1, 2016, that law was amended to allow an insurance company or producer to give a customer or potential customer certain kinds of gifts as part of an “advertising” or “promotional” program, as long as the giving of such gifts was not conditioned on the purchase or renewal of an insurance policy by the recipient of the gift. (Click here for more details on this new law).

If an agent and presumably an agency can give a customer or potential customer a gift as long as it is not conditioned on the purchase or renewal of an insurance policy, there is no difference in giving a fee or other gift to a third party for referring a potential customer regardless of whether that potential customer buys an insurance policy.

 

 

 

Can An Agency Create a Duty to Its Customers Based on Its Website?

The short answer to the above questions is Yes.  I have written a few blog posts in the past on how an agency or agent can unknowingly create a duty to their customers or potential customers that would not otherwise exist by what they say or do.  The same principles discussed in those blog posts also apply to the contents of an agency’s website or social media communications.  The dilemma faced by agencies and agents who are trying to do what the marketing consultants say (to attract customers you need to differentiate yourself from your competition) while limiting their exposure to E&O claims is perfectly illustrated by two articles in the most recent edition of IIAG’s Dec Page magazine.

As fate would have it, those two articles “Errors & Omissions:  Is Your Agency Making Empty Promises on Its Website?” and “Creating a Lead Friendly Website” appear back to back in that magazine.  The first article cautions agencies and agents against making statements on their website that indicate they will do things they are not prepared to do or can’t do, e.g., “our agents will help you choose the amount of coverage that best fits your needs”, “we work hard to ensure that you are fully covered for all those risks that apply to you”, “we are your business partner”, or “we will obtain coverage to fully protect the financial stability and assets of our customers.”  According to the article’s author, the last two statements were important reasons that Swiss Re Corporate Solutions, which handles the E&O insurance program that is available to IIAG members, decided to settle claims of inadequate or inappropriate coverage made by customers of the agencies on whose websites those statements appeared.

In the next article, IIAG’s communications coordinator advises agencies and agents to use their websites to give potential customers “a real reason to choose you as their insurance provider.”  This will not happen unless your website stands out the most from your competitors’ websites.  To do so, it needs to reflect the agent’s or agency’s personality and relate to the customers they are trying to attract.  This is done by offering to do what those customers need done.  Thus, the website should be ” a reflection of your area of expertise and should speak directly to the needs of your target customers.”

However, in doing so, the agent and agency need to be mindful of making statements that can then be used against them by a dissatisfied customer.  If a claim of expertise with respect to a certain type of risk is made, that may well create a duty to use that expertise in recommending insurance coverages and their amounts for such a risk.  Stating that an agency will satisfy the specific needs of its customers may well impose a duty to do so, which duty could be very difficult to fulfill.

In deciding what to say in social media posts and on a website, agencies and agents should only make statements about what they can or will do that they can live up to and recognize that once such a statement is made, they will be expected to live up to it with every customer.  It would be a good idea for every agency and agent to review what’s on their social media posts and websites to make sure that they can do for every customer what those posts and their websites say they will do.

Steve Anderson – Where Does He Find the Time?

Recently, it seems that every time I open my e-mail program there is something from Steve Anderson about things he is doing to make life easier for insurance agencies and agents.  I wrote some posts earlier this year about a social media marketing presentation that he made and a cyber security webinar that he conducted, which focused on the insurance industry.    He will be doing another free webinar on that subject on October 5, 2016 at 2:00 p.m. Eastern Time.  If you have not heard Mr. Anderson speak on this topic before, it will be well worth your time to attend this webinar (click here to register).

His latest ventures involve advice and training on how to choose the technology for use in an insurance agency that will give it the best return on the investment of time and money needed to adopt the technology, and he is working with the Agents Council for Technology’s newly created work group, Changing Nature of Risk, to give insurance agents basic information on the technological and other changes that are occurring in our society, how they impact the various segments of the insurance industry, and what agents need to do to keep up with these changes.  The first output of this work group is a series of advisories that focus on current technological and business changes that agents need to learn about and be aware of in conducting their business activities.  Each advisory contains an explanation of the technology or business process, why its important, its broad implications or uses, its economic impact, and how it affects the insurance industry. They end with suggested actions that agents should take and resources that an agent can use to learn more.  The subjects covered by these advisories include telematics, peer-to-peer insurance arrangements, drones, and the sharing economy (click here to read them).

Not content with helping to produce the above advisories, Mr. Anderson has created a series of three 25-30 minute videos devoted to explaining how insurance agencies and agents can decide which of the available technology products will help them the most in their business activities for the least amount of time and cost.  These videos are free.  In the first one, Mr Anderson explains how to use a matrix he has developed to determine what technology products will give a particular insurance agency the biggest bang for the buck, so to speak.  In the second one, Mr. Anderson discusses in detail what he considers to be the two most important metrics in his matrix, number of hours saved and number of new clients projected to be gained.  The third one is not yet available, but should be soon.

I don’t know where Mr. Anderson finds the time to be involved in all the above activities and still run his consulting practice.  But insurance agents should be glad he does, as those activities, all of which are provided without cost, can be very helpful to any one who takes advantage of them.

Payment of Producers Under New Overtime Rule

My last post concerned the exemptions from the overtime payment requirements of the Fair Labor Standards Act (“FLSA”) that will most likely apply to the employees of an insurance agency.  While the job duties of a customer service representative can probably be defined in such a way as to qualify him or her under the administrative exemption, because a producer’s primary job duty is the sale of insurance products that exemption would not be available for a producer.  The only exemption for which a producer who is not a door to door salesperson may qualify is the one for highly compensated employees, but as of December 1, 2016, that will require a producer to earn at least $134,004 a year, of which $47,476 was paid as a salary.

If a producer will not qualify for an exemption from the overtime payment requirements of the FLSA, an agency must decide whether to prohibit the producer from working more than 40 hours in any one work week, so no overtime pay will be required, or pay the producer one and a half times their calculated hourly compensation for each hour worked in excess of 40 in any one work week.  The latter option can get expensive in a hurry, so the question becomes is there a way a producer can be paid for working more than 40 hours in a week that is not as expensive as the traditional way.

The answer to that question is Yes by using what is known as the fluctuating workweek method of payment.  To be able to use that method of payment for any employee, the following requirements must be satisfied:

1. The employer and employee have an understanding that the employee will receive a fixed salary for the hours the employee works in a workweek, regardless of how few or many hours are worked, and payment of that salary is made.
2.  The hours the employee works fluctuate from week to week.
3.  The salary paid is such that in any given week, the employee never receives less than minimum wage pay when the salary is divided by the total hours they work during that week.
4.  The employee receives pay at a rate not less than half the regular pay rate for that week for any hours they work in excess of 40 hours in a workweek.

The financial benefit from using the fluctuating workweek method of payment is that the amount of overtime pay is calculated by dividing the total number of hours worked in any one week by the agreed on fixed salary and then using that hourly rate to calculate the amount of overtime pay due for any hours worked in excess of 40 during that week.  For example, if the fixed salary is $800 per week and an employee works 50 hours during that week, their hourly rate of pay is $16, not $20 which it would be if the employee were being paid a salary of $800 a week for an expected 40 hours of work  The overtime pay rate under the fluctuating workweek method would be $24 ($16 + $8), instead of $30 ($20 + $10), resulting in a savings of $60 ($30 – $24 x 10 hours).  This savings will increase with every extra hour worked because the hourly rate of pay on which the overtime pay rate is calculated will decrease.

The main problem with using the fluctuating workweek method of payment for producers is the requirement that a fixed salary must be agreed on, which will be paid no matter how many hours are worked in any given week, 50 or 30.  The fixed salary requirement will prevent a commission only compensation arrangement, but it could be used for new producers if the agency’s practice is to pay its new producers a guaranteed minimum amount and account for any commissions earned above that with a year-end bonus.  For veteran producers, an agency could agree to pay a fixed salary based on the commissions earned the prior year with a similar year-end bonus for any commissions earned above the salary amount.  In both situations, the salary should be adjusted to account for the expected number of overtime hours, so that the salary and overtime pay are equal to what the salary would have been without taking overtime pay into consideration.

Use of the fluctuating workweek method of payment will not work for all agencies or all producers, but it is an option that should be considered when an agency is determining how it will pay its producers and other employees to comply with the new overtime rule’s requirements.

New Overtime Rule – Who Is Exempt?

Judging by the reaction of the audience at a presentation on the new overtime rule I made a couple of weeks ago, that rule is going to create significant problems for independent insurance agencies.  I barely had time to introduce myself before the first question came and they just kept coming.  The focus of many of the questions was whether customer service representatives and producers could be exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).

I addressed this issue in a post in early 2015.  At that time, the required minimum salary for an employee to be considered exempt was only $455 per week, or $23,660 per year.  I say only because as those of you who have followed my blog posts on the new overtime rule know, the required minimum salary will more than double to $913 a week, or $47,476 a year, on December 1, 2016.  That will significantly increase the financial cost of treating an employee as exempt, which cost should only be incurred if a particular employee can satisfy the duties tests for exempt employees.  If not, the employer is wasting their money and will need to look at other options.  (Click here for a more recent post on what those options are.)  

In my 2015 post, I discussed the most likely exemptions that could apply to customer service representatives and producers.  What was said in that post still applies, with one exception.  The commissioned sales person exemption will not apply to producers or any other employee of an independent insurance agency because that exemption only applies to employees of a “retail sales” business, and the U.S. Department of Labor (“USDOL”) has issued regulations that state businesses that sell insurance are not engaged in “retail sales” for purposes of that exemption.

As I told my audience, that leaves the administrative exemption as the most likely one for customer service representatives and the highly compensated employee exemption as the only one available for producers, unless they operate as door to door sales persons who have no office and meet with their customers only at the customers’ home or place of business. That is not how most producers perform their duties.  Producers will not qualify for the administrative exemption because the USDOL has ruled that an employee whose primary duty is the selling of a product or service cannot qualify for that exemption.  It will be very difficult to argue that a producer’s primary duty is not the sale of insurance products, especially if their main source of compensation is commissions from the sale of such products.  

Exceptions to the above general statements are possible because whether a particular employee is exempt from the overtime pay requirements of the FLSA is a case by case determination that is dependent on the duties actually performed by that employee. However, I told my audience that unless their producers were earning at least $134,004 a year, of which $47,476 was paid as a salary (highly compensated employee exemption), as of December 1, 2016, they would probably be required to pay their producers overtime for any hours worked in excess of 40 in any one work week.  That is true today for any producer who is not making the current threshold amount of $100,000 a year, of which at least $23,660 is paid as a salary.

As with any law, the fact I have never heard of a producer suing an agency for overtime pay does not mean that producers who don’t qualify for the highly compensated employee or outside sales exemptions cannot do so.  It just means no one has tried to do so for any number of reasons.  As explained in my 2015 post, the consequences of not paying required overtime to an employee can be severe and employees have an incentive to file such lawsuits.

For more detailed information on this subject, see the updated question and answer white paper prepared by IIABA and attend its seminar on this subject that is scheduled to begin at 2 p.m. on August 30, 2016.