Today, wage-and-hour lawsuits represent the largest category of employment-related, class-action filings. In spite of this, the US Dept. of Labor (DOL) recently announced a revamping of the “white collar” exemptions test, more than doubling the minimum salary threshold for exempt employees. When the changes become effective, employers can expect greater scrutiny and a further increase in wage-and- hour lawsuits. It is therefore important for employers to understand the upcoming changes to the overtime rules and to begin preparing now.
Under the federal Fair Labor Standards Act (FLSA), in order to classify a position as exempt from overtime requirements (the so-called “white collar” exemptions), generally that position must pass both a salary test and a duties test. Currently, the salary test requires a weekly salary of $455 per week ($23,660 per year). The duties test depends upon the exemption, but typical duties to look for include: directing and supervising the work of others; the authority to hire, fire and promote; non-manual work; and exercising independent judgment and discretion.
Under the announced exemption revisions, the DOL has proposed raising the salary test from $455 per week to $913 per week ($47,476 per year). The DOL has also proposed raising the salary threshold each year.
The last time the DOL changed the standards for exempt employees in 2004, the number of wage-and-hour lawsuits increased from 3,617 in 2004 to 7,310 in 2007. The pattern is alarming at best.
Considerations that should be examined by employers include:
- The number of hours potentially affected exempt employees currently work.
- Potential salary compression issues, where employees end up making close to the amount their supervisors do.
- How the new rules will affect employers across state lines, since the DOL’s proposed rule does not consider differences in pay across regions.
- Any incentive payments or similar compensation. If employees are re-characterized as non-exempt, non-discretionary payments will affect their overtime pay.
- Employees may no longer have the ability to go above and-beyond, perform outside of regular work hours, or put in the extra effort to secure additional training
- If employees routinely perform work at home, including answering emails, this should be reviewed. Once an employee is reclassified as non-exempt, routine and minor work at home can constitute work time.
Employers should be aware of workplace morale and its impact on productivity when deciding on any solution. Simply re-designating previously exempt employees as non-exempt can have negative effects. First, employees might view this as a demotion, especially supervisors who have worked their way up. Second, previously exempt employees will likely lose schedule flexibility and benefits provided only to exempt employees. Equally important is their status in the workplace.
Employers could also use alternative methods to help limit the impact of the new regulations, such as the fluctuating schedule or moving employees to non-exempt salaried status. However, before making any changes, employers should ensure that they are complying with both state and federal law, which often have different requirements.
Whatever steps a company chooses to take, clear communication with affected employees is paramount. Some employees may need to be let go, some jobs may need to be restructured, and some duties may need to be absorbed across several jobs – all of these operational and other changes will need to be carefully explained.
Wage-and-hour complaints have become the most common employment-based lawsuits, and a change in the law frequently results in an increase in lawsuits filed. By being proactive, understanding the new rules, and taking action now, employers can limit their exposure.