Tyler Volm, The Daily Record Newswire
In 2014, the United States Department of Labor was charged with updating the regulations relating to overtime pay under the Fair Labor Standards Act. Under the regulations currently in place, nonexempt employees must be paid one and one-half times their regular hourly rate for all hours worked over 40 in the workweek. The DOL released the long-awaited proposed revisions to the overtime regulations in June 2015. The biggest proposed change is a substantial increase in the salary an employee must be paid in order to qualify for one of the exemptions.
Under current FLSA regulations, certain employees are exempt from overtime pay. Categories of exempt employees include professional, executive, administrative, outside sales, and some computer professionals. These are often referred to collectively as the “white collar” exemptions. In order to qualify for an exemption, the employee must meet both the duties test (their duties must be primarily executive, administrative, etc.), and the salary basis test. The rules relating to the different duties test for each category of exempt employees is beyond the scope of this article, but employers should carefully review these rules alongside their exempt employees’ job descriptions and actual duties to confirm that they are classified properly.
This is another area of focus for DOL enforcement actions. With respect to the salary basis test, employees must currently be paid a salary of at least $23,660.
Under the proposed rules, the DOL is more than doubling the salary threshold from $23,660 to $50,440. The obvious impact of this increase is that many more employees will qualify for overtime pay once the new regulations take effect. In fact, nearly 5 million workers will be affected. The DOL implemented such a large increase in the salary threshold because the previous increase occurred in 2004. The DOL perceives the current salary threshold to be way behind the times. According to the DOL, the percentage of full-time salaried workers paid overtime has decreased from 62 percent in 1975 to just 8 percent today. The new rules also propose to automatically update the salary threshold on an annual basis, so employers will have to keep a close eye on annual changes to this amount for their currently exempt employees earning at or near the $50,400 salary minimum.
Late last year, the DOL’s chief law enforcement official, Solicitor M. Patricia Smith, announced that the DOL would likely issue the final changes to the overtime rules in late 2016, just in time for election season. The proposed salary minimum of $50,440 was based on the first quarter of 2015, and may change by the time the final rules are announced later this year. Some pundits are speculating that the final rule will set the salary threshold at about $40,000 per year. The DOL received over 270,000 comments during the comment period.
Although the new overtime rules will likely not take effect until early 2017, employers should look ahead to these anticipated changes, especially because it will affect those employees earning an annual salary between $23,660 and $50,440. Although it will require an individualized assessment tailored to each employer, a basic economic analysis audit will help determine whether it makes sense to increase the employee’s salary to the higher level, switch the employee to hourly pay with eligibility for overtime, or split the position so that two or more employees share job duties. The approach chosen by the employer could create morale issues and affect the prestige that certain employees appreciate about an exempt management position, even if they might make more money as an hourly employee. An early assessment now will help ease the transitional burden once the final regulations are in place.
While employers continue looking for ways to increase productivity with decreased labor, they must also be vigilant in enforcing rules that prohibit working unauthorized overtime. Federal and state agencies are expected to increase their enforcement actions as soon as the final rules go into effect.
Employers should review their classifications of exempt employees with their legal counsel to confirm that their employee classifications comply with the anticipated new duties tests and increase salary requirement. Remember, the employer bears the burden of demonstrating that it has properly classified its exempt employees as such. Penalties for misclassification or failure to pay overtime can include back pay (calculated at the overtime rate), interest, and additional penalties and fines for intentional noncompliance. Criminal enforcement is also authorized by the FLSA. In addition, an employee who prevails in a lawsuit may recover attorney fees and costs.
—————
Tyler Volm is an attorney with Barran Liebman.
