Prepare for Imminent FLSA White-Collar Regulations

While waiting for the pending issuance of the proposed Fair Labor Standards Act (FLSA) white-collar regulations, employers can begin taking some steps now to prepare.

Many believe the proposed regulations will be issued in March, although the proposed regs haven’t been sent yet to the Office of Management and Budget.

It is rumored that California’s quantitative duties test may be applied to the FLSA executive exemption, which would require employees to spend at least 50 percent of their time in exempt work in order to be classified as exempt. An adviser stated they would be surprised if thequantitative duties test was limited to the executive exemption and feel it might be applied as well to the administrative and professional exemptions.

Employers may begin doing an analysis now on their exempt population and how this change would affect them.

For many companies, some classes of employees are nonexempt in California, but exempt in the rest of the country. That may change with the new rule as well, if California’s quantitative duties test is applied across the nation.

Five Key Steps 

Various legal counsel recommends five key steps employers should take now in anticipation of the revised overtime regulations:

1. Determine whether you have current job descriptions that accurately reflect job duties and convey the core functions and responsibilities of each role, particularly for exempt positions. Ideally, job descriptions for exempt employees should demonstrate to a reader not familiar with the company—e.g., a DOL [Department of Labor] investigator or a plaintiff’s lawyer—exactly why a role is exempt in clear,straightforward language.
   
2. Identify, under advice of counsel to maintain attorney-client privilege, currently exempt positions that may be in the gray zone between clearly exempt and clearly nonexempt. These roles may present the most immediate concern if, as anticipated, the new regulations significantly narrow the exemptions. This may include positions whose salary is toward the lower end of the exempt spectrum, as well as jobs where the employees may engage in a large amount of arguably nonexempt activity.
3. Make sure business leaders have an understanding that these proposed regulations are coming and that they will have a potentially disruptive effect on the business. Also, business leaders should understand the rules may end up in limbo for several months or more in the event of congressional pushback or litigation. The potential for having to reclassify a large number of employees from exempt to nonexempt may require examining compensation to find alternative ways to incentivize the desired job behaviors, addressing potential benefits consequences and anticipating morale and other employee relations effects. Moreover, employers should know to expect a comment period, followed months later by what will presumably be a final rule that may differ in numerous important respects from the version that appears in the notice of proposed rulemaking.
4. Begin developing contingency plans for how the business will respond if the minimum salary threshold increases substantially to $40,000, $50,000 or even $60,000. If the salary threshold for exempt status lurches sharply upward, businesses may face a tough choice regarding whether to award employees an outsized raise in order to maintain exempt status or, instead, to convert roles to nonexempt status.
   
5. Figure out what the company’s approach will be in establishing work schedules and pay rates for employees converted from exempt to nonexempt. Will the approach be to pay people hourly or to use a salary plus overtime? Will the new pay rates attempt to replicate the employee’s pre-conversion earnings and schedule, such that employees who worked, say, 45 or 50 hours a week pre-conversion will continue to work those hours and now receive premium overtime pay? Or will there be a desire to avoid the heavy marginal cost of the overtime hours, leading the business to adjust employee schedules down to 40 hours, to reduce their overall earnings accordingly and to hire additional head count to cover the workload?

Employers should begin now by talking to the managers or supervisors responsible for these exempt employees to determine the actual job duties for the employees as opposed to the stated job duties, because it’s the facts that matter most.

Employers need to know their workforce and be proactive. They should identify those exempt positions whose classification barely meets the FLSA minimum qualifications for a white-collar exemption under either the duties or compensation components. If either the duty or salary component is affected by regulatory changes, employers will know these identified positions will be targeted first.

The more lead time that a business has to grapple with these issues, the more satisfactory the process and the outcome will be for everyone.