by Kathleen M. Mills and Jacob M. Sitman
Change is in the air . . . and in the workplace. The United States Department of Labor (“DoL”) has finally published the long-awaited (dreaded?) new regulations defining who is exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”). The announcement of their release appeared on May 18, 2016, will be published in the Federal Register next week and will be effective on December 1, 2016.
The most significant and most talked about change is in the wage base. In order to be exempt from overtime under the FLSA, an employee must be paid a fixed salary each week, regardless of how much time s/he spends working during that week. For many years that rate has been $455 or $23,660 per year. Commencing December 1, 2016, in order to meet this base wage requirement, an employee will need to earn $913 each week, an annual rate of $47,476. Any employee not being paid at this rate is automatically covered by the FLSA, must be paid for every hour worked and is eligible for overtime at 1½ times his or her base rate for all hours worked in excess of forty (40) in a workweek.
Additionally, the base rate for the “highly compensated” exemption has been raised from $100,000 per year to $134,004.
The impact of the new base rates is compounded by the fact that the DoL regulations include a formula for automatically increasing the base rate every three (3) years as wages generally rise. Of course, once an employee has met the new minimum base pay rate, s/he must still meet the other tests for the exemption involved – administrative, professional, outside sales, computer, etc.
Despite fairly heavy lobbying, the final rules do not contain a carve-out for institutions of higher education. They will be required to comply with the same rules as all other employers, although there will be some flexibility which may enable them to reduce overtime payments. Similarly, there are special regulations to assist entities that provide service to disabled persons, recognizing their need to work within the Medicaid system.
What does this mean for employers? First, the employer should review the pay rates for its current exempt employees. For those who do not meet the new minimum rates, it must decide whether it makes better sense for the organization to increase their base salary to the new rate – or, preferably, something slightly above the minimum rate to allow for the automatic increase provisions of the regulations — (keeping in mind the impact that such increases will have on its overall pay scales, rate ranges and the rates of other employees) or to pay such employees on an hourly basis, including overtime for hours worked in excess of forty (40) each week. As a part of this review, the employer should consider whether it is practical to limit such employees’ workweek to forty (40) hours, thus avoiding the overtime issue.
If the employer decides to treat at least some of the affected employees as now being non-exempt/hourly, it must assure that it can effectively monitor the hours that employee performs work. For many exempt employees this was not an issue so long as the work got done in a timely and satisfactory manner. That will no longer be the case.
This issue will be most obvious in regard to employees who telecommute part or all of the time and those whose job takes them outside the office/plant/etc. The impact will be felt, not only by the employer, but, in all likelihood, by the employee as well.
For telecommuters, the employer will need to devise a system to account for the actual hours during which the employee performs work. For employees accustomed to working odd hours at their own convenience, so long as the work was done on time, this may present a major drawback, since they will now have to work within the confines of the employer’s hour-tracking system. Alternatively, employers may decide to eliminate or seriously curtail telecommuting, which could adversely impact morale for employees who would now need to report to an office each day.
The employer should give serious thought to the most effective means of dealing with the telecommuting issues presented by the new regulations and avoid a knee-jerk reaction. Some considerations are: was the understanding from the time of hire that the employee would telecommute? . . . Does the employee live beyond reasonable commuting distance? . . . Is the employee the employer’s “presence” in a different geographic area? . . . Does the employer have available office space? . . . Does the employer currently make telecommuting available to non-exempt/hourly employees? If the decision is to curtail or eliminate telecommuting, is there a way to transition the change to ameliorate the impact on morale?
The DoL is providing employers two hundred (200) days to come into compliance with the new rules. It will behoove them to use this time to develop the most desirable means of implementing them, as the penalties for non-compliance are significant. An employee not properly compensated may recover liquidated damages (double the amount actually owed), as well as his or her attorney’s fees and costs incurred in bringing the action. This becomes quite significant when it is realized that most such cases are brought as class actions on behalf of large groups of employees.
For more information on how to become compliant with the new overtime rules, please contact Kathleen Mill or Jacob Sitman from our Employment Law and Labor Relations Group at Fitzpatrick Lentz & Bubba, P.C.
