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Obama's Budget Does Not Spare Employers

While the Department of Labor's overall proposed budget was cut, the president is seeking an additional $50 million for ongoing efforts to fight the misclassification of workers as independent contractors. The budget also calls for increases for the Equal Employment Opportunity Commission, Occupational Safety and Health Administration, and the Office of Federal Contract Compliance Programs. In addition, it gives the Pension Benefit Guaranty Corp. more leeway to adjust corporate premiums.

Thursday, February 17, 2011
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President Barack Obama's proposed budget for fiscal year 2012 includes -- in recognition of the nation's tenuous finances -- a number of dramatic cuts to programs that are important to him and his supporters, such as slashing in half the funds that provide heating assistance to low-income Americans.

Even so, enforcement programs aimed at the nation's employers were mostly spared; indeed, some receive additional money.

The Department of Labor's proposed budget of $12.8 billion represents a $1.2 billion cut from the previous fiscal year.

However, it includes an additional $50 million to support the DOL's ongoing efforts to fight the misclassification of workers as independent contractors, with the money to be dispersed among the Wage and Hour Division, the Occupational Safety and Health Administration, the Employment and Training Administration and the Office of Federal Contract Compliance Programs.

The 2012 budget signals to the business community that, fiscal difficulties notwithstanding, the Obama administration isn't backing off from its efforts to vigorously enforce the nation's workplace laws, say observers.

Yet some of those efforts -- particularly the ongoing crackdown on employee misclassification -- will hinder companies as the economy slowly recovers, says Mark Wilson, a Washington-based consultant who served as deputy assistant secretary for employment standards under President George W. Bush.

"The misclassification issue is the No. 1 business concern, simply because that area of the law is so ambiguous and difficult to decipher," he says.

What's No. 2?

"The greater leeway the administration is proposing to give the [Office of Federal Contract Compliance Programs] in terms of the way it conducts its investigations," he says.

Obama proposes to increase that agency's budget by $4 million, compared to fiscal year 2010, the last time a proposed budget from the administration was passed by Congress.

Although the number of OFCCP compliance audits is expected to decline by 26 percent, he says, the manner in which they'll be conducted will include more on-site investigations, in-depth witness interviews and a focus on corporate-wide compliance.

"The OFCCP recently proposed rescinding the guidance it gives to employers regarding how it's going to conduct reviews of compensation decisions, which means employers will have even less in the way of guidelines," he says. "Essentially, the OFCCP will have more leeway to do what it wants."

Obama also proposes increasing the Equal Employment Opportunity Commission's budget by $19 million and bolstering its staff by 8 percent.

Robert Fisher, a partner at the Boston office of Foley Hoag, says he's "startled" by the increase.

"I think the administration feels it has to show it's being aggressive in this area," he says. "This money is going to further those efforts -- we should expect to see a much more active EEOC in the near future."

The 2012 budget would also give OSHA an extra $6.4 million for safety and health standards, an additional $5 million for whistleblower protections and nearly $8 million more for enforcement, including the hiring of 25 additional compliance safety and health officers.

Ed Foulke, former assistant secretary of labor for OSHA under the recent Bush administration, says the increases may reflect an attempt by the administration to advance its goals via enforcement and rulemaking rather than trying to get new safety legislation through a hostile, Republican-controlled House of Representatives.

"It may also be that they're anticipating getting less for OSHA from Congress this year, so they could simply be asking for more in order to minimize the severity of potential cuts by the legislative branch," says Foulke, now a partner at Fisher and Phillips in Atlanta.

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One interesting aspect of the proposed OSHA budget, says Foulke, is that -- unlike the previous budget -- it does not include a cut for the agency's Voluntary Protection Program, which exempts employers from regular OSHA inspections if they maintain exemplary safety records.

"In their last budget, there was a significant budget cut for the VPP; this year, they're saying they won't cut it," he says.

The VPP represents a cooperative approach between industry and the federal government, he adds, which contrasts the Obama administration's more enforcement-driven approach.

"Injury and illness rates were trending downward well before the current administration and I think it's partly because companies are genuinely interested in improving safety," says Foulke. "Obama is more focused on enforcement being the real tool, but I personally think enforcement alone is not going to get you to zero fatalities."

Obama also proposes to shore up the nation's defined-benefit pension plans by giving the Pension Benefit Guaranty Corp. the authority to adjust its premiums to reflect a company's financial condition and the risks to its pensions.

Arthur Noonan, a partner at Mercer's Pittsburgh office, says "the jury's still out" as to whether it will work.

"Before I could say whether it's good or bad, I'd need to know what kind of criteria they're going to use to make these judgments and what kind of sliding scale is going to be used to determine the financial risks of a plan and its sponsor," he says, adding that the idea for giving the PBGC this authority was originally proposed by the previous administration.

Among other items, Obama proposes to strengthen the nation's enormously stressed unemployment-insurance system by giving states a two-year suspension of interest payments on UI loans they've received from the federal government.

He also wants to encourage states to put their UI systems on a better financial footing by increasing the minimum level of wages subject to unemployment taxes to $15,000, starting in 2014.

The president also calls for a $380 million "Workforce Innovation Fund," in which states and regions will compete for the money by transforming their workforce-development programs.

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