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The U.S Labor Department (USDOL) has finally released the anxiously awaited revised regulations affecting certain kinds of employees who may be treated as exempt from the federal Fair Labor Standards Act’s (FLSA) overtime and minimum-wage requirements. These will be published officially on May 23, 2016.
If you currently consider any of your employees to be exempt “white collar” employees, you might have to make some sweeping changes.
These rules will become effective on December 1, 2016, which is considerably later than had been thought. Unless this is postponed somehow, you must do by this time what is necessary to continue to rely upon one or more of these exemptions (or another exemption) as to each affected employee, or you must forgo exempt status as to any employee who no longer satisfies all of the requirements.
Essentially, USDOL is doubling the current salary threshold. This is likely intended to both reduce the proportion of exempt workers sharply while increasing the compensation of many who will remain exempt, rather than engaging in the fundamentally definition process called for under the FLSA. Manipulating exemption requirements to “give employees a raise” has never been an authorized or legitimate pursuit.
For the first time in the exemptions’ more-than-75-year history, USDOL will publish what amounts to an automatic “update” to the minimum salary threshold. This departs from the prior USDOL practice of engaging in what should instead ultimately be a qualitative evaluation that also takes into account a variety of non-numerical considerations.
USDOL did not change any of the exemptions’ requirements as they relate to the kinds or amounts of work necessary to sustain exempt status (commonly known as the “duties test”). Of course, USDOL had asked for comments directed to whether there should be a strict more-than-50% requirement for exempt work. The agency apparently decided that this was not necessary in light of the fact that “the number of workers for whom employers must apply the duties test is reduced” by virtue of the salary increase alone.
Right now, you should be:
USDOL has provided extensive commentary explaining its rationale for the revised provisions. We are continuing to study the final regulations and accompanying discussion carefully and will provide updates/changes as published.
It doesn’t usually sit well with employees, but they can be required to use their accrued paid time off (PTO) during inclement weather events, wage and hour attorneys say.
“Unless there is a state law restriction or a written policy to the contrary, employers may require employees to use their PTO to cover absences,” said Paul DeCamp, an attorney with Jackson Lewis in Reston, Va., and a former administrator of the Department of Labor’s Wage and Hour Division.
It’s important for an employer to have an inclement weather policy spelling out the rules that apply to exempt and nonexempt employees when the employer is open during inclement weather vs. when it is closed.
The rules for nonexempt employees are straightforward—they are paid only for the time worked. If the employer closes for some of a workweek due to inclement weather, it must pay an exempt worker their usual salary if the employee performs any work during the workweek, even if remotely.
A PTO policy might specifically reference the employer’s ability to require the use of PTO by employees to cover weather-related absences. If an employer closes the office and requires the use of PTO to cover the day, the impact on morale is likely to be negative—more so than if the office is open but the employer allows employees who can’t make it in to use a PTO day. If the employer decides in advance to shut down and it turns out that the expected inclement weather does not materialize, employees who are forced to use PTO on a day they could have made it in will almost certainly react negatively.
It is important that employees understand the expectations about working away from work ahead of time, along with employees being required to accurately report all time worked. Employers should also have policies about how employees can challenge the accuracy of paychecks and the consequences for not making timely challenges.
Courts have held that employees who claim to have worked off-the-clock but who have not notified the employer about that worked time are not entitled to pay for that time.
If an employer stays open despite inclement weather and an exempt employee chooses not to work, that is a personal decision and the day may be docked without jeopardizing the exempt status.
A written policy is an opportunity for an employer to underscore the importance of employees’ safety when determining closures or whether employees should attempt to report to work in inclement conditions.
Employers sometimes ask whether they may discipline employees for choosing to stay home during inclement weather. The employer does not want to allow employees to hinder operations or to force a closure, but the last thing an employer wants to see is a situation where a supervisor orders an employee to come to work in a snowstorm and the employee gets into a car accident. Employers should think very carefully before disciplining in this situation and to err on the side of employee and public safety.
One of the most common questions employers have during inclement weather is if they can force employees with insufficient PTO balances to go into a negative balance situation, or, in other words, whether they can advance the employee extra PTO and then recoup that advance over time.
Generally, an employer can do that, assuming the practice complies with state law and the employer’s written policies.
Another frequent issue that arises is how to treat PTO deficits upon an employee’s separation from employment. State law will dictate whether and when employers may deduct the negative PTO balance from the final pay of nonexempt employees.
For salaried exempt employees, whether the employer can deduct that balance from final pay depends on whether the employer could have deducted it from the employee’s pay at the time of the absence—the missed time that gave rise to the PTO deficit.
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:
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.
President Obama has proposed expanding the availability of overtime pay, which would cause the Department of Labor to do its first overhaul of Fair Labor Standards Act (FLSA) regulations in 10 years.
The President signed a memorandum on March 13, 2014, instructing the Department of Labor to update regulations about who qualifies for overtime pay. In particular, he wants to raise the threshold level for the salary-basis test from the current $455 per week in order to account for inflation. The threshold has been raised just twice in the past 40 years. The President did not specify the exact amount the threshold should be raised though.
“Unfortunately, today, millions of Americans aren’t getting the extra pay they deserve. That’s because an exception that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,660 a year,” Obama said in his remarks on overtime pay.
The memorandum also suggests that both the primary duties and pay of some exempted employees do not truly fit in the executive, administrative and professional employees exemptions, referred to as the white-collar exemptions under FLSA.
In a fact sheet on the President’s memorandum, the White House said: “Millions of salaried workers have been left without the protections of overtime or sometimes even the minimum wage. For example, a convenience store manager or a fast food shift supervisor or an office worker may be expected to work 50 or 60 hours a week or more, making barely enough to keep a family out of poverty, and not receive a dime of overtime pay.” The FLSA’s minimum wage would not protect a salaried worker because salaried workers’ pay must satisfy the weekly salary-basis test rather than the Federal hourly minimum wage, which is $7.25 per hour. The hourly minimum wage in Florida is currently $7.93 per hour.
The memo also pointed out that “only 12% of salaried workers fall below the threshold that would guarantee them overtime and minimum wage protections.“ The fact sheet also called the current FLSA regulations outdated, noting that states such as New York and California have set higher salary thresholds.
Small businesses will be hit particularly hard by a change in the FLSA regulations.
If the regulations shrink the current white-collar exemptions, employers would have two main options to hold down costs. They would have to either increase workers’ salary above the new salary-basis threshold (to avoid paying overtime) or leave employees in the nonexempt category and pay them overtime. Companies could also hire more employees, but the other two options are more likely.
Implications for HR
Once tightened white-collar exemptions are implemented, which is not likely to happen for months now, it could result in far-reaching implications for HR, including wage and hour audits and layoffs. The money to pay for increased overtime wages has got to come from somewhere which might mean layoffs, reducing overtime and taking a fresh look at the fluctuating workweek.
When asked at a press briefing about the burden on businesses if the Obama administration succeeds in efforts to both increase the federal minimum wage and revise FLSA regulations, Betsey Stevenson, a member of the White House’s Council of Economic Advisers, said, “We think these two items are very different, but, obviously, they do feed into the same thing, which is people should be rewarded for fair work.” She suggested that some workers in the white-collar exemptions aren’t even earning minimum wage for all the work they do at low salaries.
Even though the president did not assign a number for the minimum salary-basis threshold, Stevenson said the overtime “protections have been eroded over time. This threshold in 1975 was nearly $1,000 in today’s dollars; today it’s $455.” Stevenson believes that the rule should be modernized as a matter of the “basic principle of fairness.”
We will continue to keep you abreast of any changes to FLSA as well as other regulations that can impact your business. If you have any questions about the current or proposed FLSA regulations, please contact our office.