The recent U.S. Department of Labor Wage and Hour (WHD) investigation outcome of leading thoroughbred trainer Chad Brown has rocked the racing industry with the assessment of over $1.6 million in back wages and Civil Money Penalties (CMPs). This should serve as a wake-up call to all seasonal businesses that historically have struggled to find reliable seasonal labor.

Like many other trainers and seasonal employers, Chad was undoubtedly caught up in a perfect storm: (1) our current culture of unprecedented enforcement; and (2) the impossibility of perfect compliance with immigration and WHD regulations.

Now more than ever, employers must prioritize and review their current compliance practices to make sure that they meet all regulatory requirements under the Fair Labor Standards Act (FLSA) and corresponding H-2B regulations.

In reality, perfect compliance is virtually impossible – especially for those employers that participate in the H-2B program. WHD violations can range from miscalculating overtime rates for employees, which is clearly a more serious offense, to seemingly insignificant violations for not having a screen door on worker housing.

For the racing industry, the problem is compounded by the fact that many trainers operate out of horse stables and do not have sophisticated time-keeping systems, payroll, or even I-9 compliance systems in place. For many years, compliance with Wage and Hour, I-9, and immigration regulations were somewhat of an afterthought. Backstretch workers such as horse grooms and hotwalkers have notoriously erratic schedules and often work long hours. This is difficult to manage. However, we have learned that anything other than perfect compliance is costly. As we hear of other audits unfold at racetracks across the country, many trainers and seasonal business owners could quite easily find themselves in a very similar circumstance.

So what exactly are the rules and what can an employer do to ensure full compliance?

DOL Wage and Hour has jurisdiction over many areas of workplace compliance, including the Fair Labor Standards Act, OSHA, and immigration related provisions. The FLSA rule regarding overtime pay is fairly clear; however, the Immigration provisions of the H-2B program are arguably the most challenging for trainers to comply with. WHD found the following violations under the FLSA and H-2B program in the investigation of Chad Brown, which many employers unintentionally violate:

• Failing to pay the H-2B employees the wages that were offered in the application and advertising: Employers are required to advertise and pay the higher of the State or Federal minimum wage, or the DOL prevailing wage rate to H-2B workers and U.S. workers in the same occupation for the particular area of employment.

• Collecting payment from employees for H-2B visa related costs: All costs associated with the H-2B visa program must be paid by the employer and not passed onto the workers. This, however, often occurs without the knowledge of the trainer or business owner who delegates management of the program to lower-level managers, who often engage in a scheme of charging workers for participating in the program. The employer is however ultimately responsible.

• Failing to reimburse employees' transportation and subsistence costs for travel from their home countries: Employers are required to reimburse employees for subsistence and travel expenses from their home to the place of employment. This includes meals, lodging and transportation. The daily subsistence rate is currently set at $12.46/day or up to $55/day with receipts.

• Misrepresenting to employees the place of employment and job terms and conditions, such as the availability of free housing: Trainers struggle with the location of employment as they often have workers in Belmont and Saratoga during the same period of need. These locations require separate applications, which most trainers do not file as they are improperly advised in many cases by non-attorney visa preparation providers.

• Failing to disclose required information in a language understood by the employees: By law, employers are required to provide a copy of the job order contract outlining the terms and conditions of employment in the workers’ native language prior to arrival to the U.S. This is frequently overlooked by trainers who rely on agents and recruiters to facilitate this stage of the process; and

• Failing to post a notice of employees' H-2B rights at the work location: This is another often over-looked provision, which is seemingly minor, but can carry significant penalties. Employers must display DOL worker rights posters at the worksite in both English and Spanish.

I. Wage Requirements under H-2B and FLSA

The H-2B regulations require that workers be employed on a full-time basis, which the Department of Labor defines as at least 35 hours per week. You are required to pay all workers the prevailing wage rate listed on the application for all hours up to 40 hours per week. Under the Fair Labor Standards Act, for any hours over and above 40 per week, you must pay workers the overtime rate of time and a half.

Employers are required to offer to each worker employment for a total number of work hours equal to at least ¾ of the workdays of each 12-week period (6 week period of job order is less than 120 days), that was listed in the application unless prevented by unforeseeable circumstances outside employer’s control.

“Corresponding Workers”: DOL will expect employers to pay ALL workers in the same or similar position (“corresponding workers”) the same hourly rate of pay as your H-2B workers unless a legally valid reason for a difference in pay rate for workers performing the same duties exists. This issue has come up in recent DOL H-2B Audits. The burden is on the employer to justify any differences in wage rates among similarly situated employees.

Which deductions from pay are permitted?

The employer must make all deductions from the worker’s paycheck required by law. The job order/H-2 application must specify all deductions not required by law which the employer will make from the worker’s pay. Deductions not disclosed are prohibited.

Authorized deductions are limited to:

• Deductions which the employer is required to withhold by law or court order;
• Deductions for the reasonable cost of board, lodging, and facilities furnished to the employee; and
• Deductions where the employee previously and voluntarily authorized payment to a third party, which may include union dues paid in accordance with a collective bargaining agreement. Such deductions may not be made if the employer, agent, or recruiter (or any affiliated person) derives any payment, rebate, commission, profit, or benefit, either directly or indirectly.

The principles applied in determining whether deductions are reasonable and the permissibility of deductions for payments to third persons are explained in more detail in DOL regulations at 29 CFR Part 531.

Which deductions are prohibited?

The job order/H-2 application must specify all deductions NOT required by law which the employer will make from the worker’s pay. Deductions not disclosed are prohibited. An employer will not meet the wage payment requirements when unauthorized deductions, rebates, or refunds reduce the wage payment made to the worker below the required amount or where the worker fails to receive such amount free and clear because the worker “kicks back” directly or indirectly to the employer (or to another person for the employer's benefit) all or part of the wages. The principles applied in determining whether payments are received free and clear are explained in more detail in 29 CFR Part 531.

Deviation in Hours from Application

It is expected that employers offer H-2B workers the number of hours stated on the application forms and advertising. DOL has, however, indicated that a 5-hour deviation from the stated number of hours is permissible. It is advisable to have your workers sign a statement that any hours over the amount stated on the application is voluntary.

II. Tax Withholding Issues

According to IRS regulations, employers are required to pay all regular local, state and federal payroll taxes, including Social Security and unemployment (FICA, FUTA and SUTA). Employers must also assist workers in obtaining Social Security cards upon their arrival.

III. Payroll Records and Time Cards

Employers are required to provide ALL workers, even if not on the H-2B visa program, with weekly pay statements/earnings records identifying all deductions and reimbursements clearly itemized, and hours worked AND hours offered. These pay statements should include the following information:

• Employer name, address, and phone number
• Employee name and foreign address
• Dates covered by payment
• Basis of payment (hourly, salary, etc.)
• Rates paid (regular and overtime)
• Hours worked (regular and overtime)
• Allowances or credits (meals, uniforms, etc.)
• Gross wages
• Any deductions from wages
• Net wages

According to IRS regulations, employers must pay all regular local, state and federal payroll taxes, including Social Security and unemployment (FICA, FUTA and SUTA). Employers are also responsible for assisting workers in obtaining Social Security cards upon their arrival. DOL requires that employers keep time sheets or time records of all hours worked by employees in a given week. This can be a manual time card system or electronic.

Keep copies of all pay statements in the event of an Audit by DOL.

IV. Record Keeping

The employer must retain, for a period of three (3) years, the H-2B recruitment report, resumes (if any), advertising, and evidence of contact with applicants.

IV. Transportation/Subsistence Reimbursement

Under the FLSA, employers are required to either pay or reimburse transportation and subsistence expenses for workers to the place of employment after the worker completes 50% of the period of employment in the job order. The current subsistence rate for meals is $12.46 per day without receipts or $55/day with proper receipts. Payment of return transportation and subsistence is required if the worker completes the job order period or is dismissed early.

We recommend that employers reimburse workers for transportation costs and visa-related fees in the first work week to avoid violation of the FLSA. Any such reimbursement should be by check so that there is appropriate evidence of the required reimbursement. Workers may also sign an acknowledgement of reimbursement.

Please note that the employer is responsible for subsistence and travel reimbursement from the worker’s hometown to the consulate where they will apply for their visas, this includes any required hotel accommodations.

The employer is also responsible for visa processing costs: Payment or reimbursement of visa, border crossing, recruiter fees, and related government mandated fees in the first workweek. The Current Consular Processing Fee is $190. DOL prohibits passing on fees associated with the H-2B applications or employment, such as application/petition costs, attorney fees, recruitment fees or other related fees to the H-2B worker.

Employers should maintain documentation in their files confirming the payment or reimbursement for H-2B related costs. It is a best practice for workers to sign a statement in their native language confirming receipt of this reimbursement.

V. Tools, Supplies and Equipment

Employers are responsible for providing all tools, supplies and equipment required to perform the job, including uniforms, shoes, etc. Employers may not charge workers a fee for these expenses and should ensure that bard foreman or supervisors are not charging on the back-end. .

VI. Copies of Job Order/Employment Contract to Workers

Employers must provide workers with copies of the job order in their native language no later than the time at which the worker applies for the visa, if the worker is departing directly from his or her home country, and display a poster describing employee rights and protections in English and, if necessary and made available by the DOL, another language common to your workers.

It is advisable that employers have the workers sign a statement in their native language confirming receipt of this documentation.

VII. Termination/Early Departure of Workers

Employers must notify DOL and USCIS when an H-2B worker abandons or voluntarily leaves the job or is terminated for cause. This is an often overlooked requirement, which results in significant fines and penalties against employers. Any departure prior to the end date of the H-2B contract must be reported, even if it is at worker request.

Employers must report the termination or departure of any H-2B worker both to the USCIS and USDOL in writing within 2 business days of the termination or departure.

VIII. H-2B Visa Costs

All costs associated with the H-2B visa program are the responsibility of the employer, including advertising costs, legal/agent preparation fees, filing fees, travel costs, tools or equipment, etc. Employers may not pass on ANY costs associated with the visa to the employees. Employers should advise lower-level managers of this restriction and ensure that they are not charging workers any fee for participating in the program. The employer is ultimately responsible for the actions of their lower-level managers and supervisors.

IX. Worker Arrivals

Unrealistically, the DOL expects that all H-2B workers will arrive at the same time pursuant to the start date indicated on the application. DOL does not permit staggered arrivals as they must correspond with the stated date of need. If some workers arrive later, which is common due to unexpected processing delays, the employers should write a memo to the H-2B worker’s personnel file explaining the circumstances surrounding the late/staggered arrivals, such as consular processing delays, passport renewals, travel delays, etc. DOL has been taking a no tolerance approach to this, assessing significant fines.

X. The DOL WHD Site Visit

A. Documents/Copies Requested by Investigator:
• Copies of most recent pay stubs for H-2B workers: this is to confirm that the workers are being paid at least the prevailing wage rate
• Copies of ID’s of those they interview (management and H-2B visa holders)
• Payroll Reports for up to 3 years
• Business cards of employer representative
• Copy of newspaper advertising for H-2B positions
• Will ask to see where the USDOL Wage/Hour Division “Employee Rights Under the H-2B Program” notice (https://www.dol.gov/whd/posters/pdf/H2B-eng.pdf) is posted

B. Questions Asked to Company Management:
• How many H-2B employees are employed at the office?
• What are their jobs/titles?
• What are their job duties?
• Where do the H-2B workers physically work?
• What is the H-2B employee’s start/hire date?
• Where is the H-2B employees’ housing located?
• Transportation: (do you provide transportation to/from housing to work location, or use of vehicles, etc.)?
• If H-2B’s workers are able to be included in employee activities and if they are, is there sign-up sheets for those activities? (used to confirm/prove they are actually at work location)
• Will ask if they can visit and take photos of work area(s)
• Do your H-2B workers stay until the end date listed on petitions/visa?

C. Questions Asked to Workers (approx. 10 questions)
• What is your hourly pay?
• Are you paid OT for any hours over 40?
• Were you required to pay any travel expensed to the U.S. for which you were not reimbursed?
• Did you have to reimburse the employer for any costs associated with your visa?
• Did you have to purchase anything or items to be able to work?
• What is your job title?
• What are you job duties?
• Where do you work – location?
• Have you been threatened, bullied, etc. during your employment?
• The investigator will ask to review the workers visa and passport to compare against photo that they have in the file to confirm identity

Bottom line: Now is the time for employers to review current practices and develop best practices and procedures to maximize compliance efforts that can be used as a defense in WHD proceedings later on.