The Heat is On: Breaking Developments in Overtime Pay Requirements and Increased Department of Labor Scrutiny of Employer Pay Practices

By: Meredith Jeffries

On June 30, 2015, the U.S. Department of Labor’s Wage & Hour Division published its proposed revisions to the Fair Labor Standards Act (FLSA) exemptions from overtime pay requirements for “white-collar” employees. The proposed rule is significant:

  • It more than doubles the minimum salary requirement for an executive, administrative, or professional employee satisfying the exempt duties tests to be exempt from overtime pay, to $970 per week or $50,440 per year.
  • It increases, to $122,148 per year, the salary level at which certain white collar employees are exempt as highly compensated employees.
  • It proposes an index that would increase both minimum salary requirements for white collar exemptions annually.

While this rule is not final and is subject to a 90-day comment period, these provisions are expected to become law by early 2016. Industry leaders estimate that this change in the salary minimum for overtime exemptions will impact 5-15 million employees who are currently not earning overtime pay but would be entitled to it under the new salary threshold.

What does this mean for employers?  Although this rule is not yet final, consider beginning to budget and prepare for it now if you have employees working more than 40 hours a week who you classify as salaried, exempt employees who may be entitled to overtime under the new rules. Furthermore, you should expect that the final rule will contain more rigorous guidelines with respect to the duties-based tests for overtime exemptions because the DOL has specifically asked for comments on this topic, and seems particularly focused on the percentage of time that an employee should have to spend performing exempt duties to be exempt from overtime requirements. Although we expect that the salary threshold will be the most significant change to your operations and budget, we anticipate that the final rule will also make some changes and clarifications to the duties tests for white collar exemptions. Thus, now might be a good time to take a hard look at your job descriptions and classifications of employees as exempt or non-exempt.  None of this will happen overnight. After the 90-day comment period, the rule will take some time to be finalized, and will build in a period of time for employers to come into compliance. However, it is not too soon to begin to plan for these significant changes in your operations and pay practices.

Why is this significant?  Litigation based on alleged violations of the FLSA and state wage laws continues to grow exponentially, with wage and hour lawsuits almost tripling over the last decade. Even before the proposed rule announced today, a myriad of legislative, regulatory, and litigation developments have converged to result in wage and hour disputes posing one of the biggest workplace threats to employers of all sizes.

Exponentially more DOL Audits.  In 2014, the DOL recovered more than $240 million for over 270,000 workers through increased audit efforts, and it is not slowing down. In President Obama’s January State of the Union Address, he charged the DOL to increase its investigations and sanctions of violations of the FLSA with respect to the misclassification of employees and independent contractors and the payment of wages and overtime. Shortly thereafter, the DOL was awarded a $41M budget increase to heighten its enforcement activities. This, coupled with the marked changes in overtime pay practices announced today, means that DOL audits and enforcement activities will certainly increase going forward.

Other significant wage and hour developments in the pipeline.  In addition to making it more difficult to exempt employees from entitlement to overtime pay, we anticipate other developments that would impact our clients:

  • The DOL has announced the upcoming publication of new guidelines and increased enforcement activities on the improper classification of employees as independent contractors.
  • The DOL intends to publish guidance on the compensability of time spent by employees on smartphones and other mobile devices when they are technically off the job.
  • The Supreme Court has agreed to hear Tyson Foods, Inc. v. Bouaphakeo, expected to be a game-changing ruling on the standards for certifying an FLSA wage and hour class action.

How can Alexander Ricks PLLC assist you?  We are here to help you proactively review your pay practices and employee classifications and determine cost efficient measures to strengthen your workforce, bring you into compliance with applicable law, and prevent the risk of costly litigation.

 

Meredith Jeffries is a Member of Alexander Ricks PLLC. Meredith has two decades of experience in the area of labor and employment law and provides comprehensive transactional, counseling, training, and litigation services with respect to all aspects of the employer/employee relationship.