The Top 6 Highlights from the DOL’s New Overtime Pay Regulations

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After receiving and reviewing over 270,000 public comments, on May 18, 2016 the U.S. Department of Labor (“the DOL”) released its much anticipated Final Rule regarding overtime pay eligibility for certain “white collar workers” under the Federal Fair Labor Standards Act (“FLSA”).

The changes are dramatic – the DOL estimates some 4.1 million workers will become eligible for overtime pay, and another 100,000 will receive salary increases to meet the new minimum salary threshold.  Under the FLSA, non-exempt employees are entitled to overtime pay of 1.5 times an employee’s “regular rate of pay” for all hours worked over 40 in a workweek.

Below are the notable highlights of the Final Rule:

1. A Doubling of the Minimum Salary Threshold. The Final Rule for the Executive, Administrative, and Professional (“EAP”) Exemptions raises the minimum salary level from its current level of $455 per week ($23,660 annualized) to $913 per week ($47,476 annualized) in 2016. This new threshold represents the 40th percentile of full-time salaried workers in the “lowest wage Census region” (currently the South)

2. A 34% Increase to the Minimum Salary Necessary for the Highly Compensated Employee Exemption. The Final Rule raises the total annual compensation required to qualify for the Highly-Compensated Employee (“HCE”) exemption from $100,000 to $134,004 annually. This threshold represents the 90th percentile of full-time salaried workers nationally. Employers can still make one catch-up payment to satisfy the new HCE salary threshold “during the last pay period or within one month after the end of the 52 week period.

3. Automatic Updating of Salary Thresholds Every 3 Years. The DOL’s Final Rule will automatically update the salary threshold every three years beginning January 1, 2020. Each salary update will raise the minimum threshold to the 40th percentile of full-time salaried workers in the lowest wage Census region (currently the South). That threshold is estimated to rise to $51,168 in 2020. The HCE threshold will also automatically update to the 90th percentile of full-time salaried workers nationally, and is estimated to rise to $147,524 on January 1, 2020. The Final Rule requires the DOL to post the new salary levels 150 days in advance of their effective date, (i.e. on or about August 1, 2019)

4. Non-Salary Compensation and Catch-Up Payments can be Utilized to Meet the Salary Threshold. The Final Rule gives employers some flexibility by allowing them to include non-discretionary bonuses, incentive pay, and/or commissions to meet the new EAP salary threshold. However, in order to be included these payments must be made on at least a quarterly basis, and cannot exceed more than 10% of the required salary threshold. The Final Rule also permits employers to make a catch-up payment not exceeding the 10% limit once per quarter to meet the EAP salary threshold

5. No Changes to the “Duties Tests.” In order to classify an employee as exempt from the FLSA’s overtime pay requirements, an employer must establish that the employee satisfies both the minimum salary threshold and the “duties test” for the particular exemption. Each exemption has its own set of duties that an employee must perform. In its proposed rules the DOL had solicited public comment on whether to change any of the “duties tests” for the EAP Exemptions, but in the end made no changes. Of course, employers must still make sure that their exempt employees satisfy the current duties tests of the exemptions they rely on.

6. Effective Date of December 1, 2016. In somewhat of a surprise, the DOL has given employers over six months to come into compliance with the Final Rule – the new salary thresholds will go into effect on December 1, 2016. Employers were concerned that the DOL would give them as little as 60 days to come into compliance. Given the significance of the changes, however, this slightly lengthier implementation period is justified.

The $50,440 Question: When Will the New FLSA Overtime Regulations Become Final?

As most every U.S. based employer and “HR Genius” knows by now, the Department of Labor (“DOL”) has proposed major increases to the minimum salary level necessary for certain “white collar” employees to be deemed “exempt” from the Fair Labor Standards Act’s (“FLSA”) overtime pay requirements.  The DOL proposal more than doubled the current minimum  salary level  to $50,440 annually.

Despite this dramatic increase, and perhaps hoping to avoid an avalanche of “feedback,” the DOL gave the public a mere 60 days to file written comments.   Like a roomful of annoying moviegoers, however, the public spoke loudly and often, burying the DOL with almost 270,000 comments by early September of 2015.

This, of course, begs the question – when would the DOL finish wading through all of these comments and issue the final overtime pay regulations?   So here’s your first test, HR Geniuses:

When  has the DOL stated the proposed overtime pay regulations would be finalized and released:

  1. By the spring of 2016
  2. By July of 2016.
  3. By late 2016.
  4. All of the above.
  5. None of the above.

If you chose #4 – “All of the above” – you are a true HR Genius.   In public pronouncements two high ranking DOL officials  and the Wage and Hour Division (of the DOL) have offered up no less than three different deadlines for when to expect the final regulations to be issued.   At least the DOL avoided the problem Ralph Waldo Emerson noted of “consistency being the hobgoblin of little minds.”

Given this uncertainty, however, it is all the more important for employers to begin to prepare for the eventual changes sooner than later, so as to avoid being caught flat footed by an ambitious DOL.  Some steps to take now are discussed here.

The Cost of Doing Business Just Went Up (Again) – The DOL Proposes New Overtime Pay Regulations

“Money can’t buy you happiness, but it can buy you a yacht big enough to pull up right alongside it.”
 
– David Lee Roth (Lead Singer – Van Halen)

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The U.S. Department of Labor (“DOL”) just released proposed rules that will significantly increase the number of employees entitled to receive overtime pay under the Fair Labor Standards Act (“FLSA”). The highly anticipated changes will make an estimated 5 million currently “exempt” employees eligible for overtime pay for all hours worked over 40 in a workweek.

The major changes relate to the amount of salary required for the “executive, administrative, and professional” exemptions, and the amount of total annual pay required for the “highly compensated employee” exemption.

The proposed rule for the executive, administrative, and professional exemptions more than doubles the minimum salary level from its current level of $455 per week ($23,660 annualized) to approximately $921 per week ($47,892 annualized) in 2015, and $970 per week ($50,440 annualized) in 2016. The DOL has proposed automatically updating this salary amount so that it will increase without additional rulemaking.

The proposed rule also raises the total annual compensation required to qualify for the highly-compensated employee exemption from the $100,000 to at least $122,148. Like the base salary requirement, the DOL has also proposed updating the total annual compensation amount for this exemption so that it will increase without additional rulemaking.

Many stakeholders expected the DOL to propose changes to the “duties test” applicable to the executive, administrative, and professional exemptions. The DOL did not propose specific changes to any of the duties tests, but rather, solicited public comments on them, as well as on the proposed salary levels.

As the changes are “proposed,” they do not currently have the force of law.  They could also be modified after the public “comment period” and further DOL review.  When the final regulations are issued they will likely not take effect for several months after publication. These administrative steps will likely push the effective date of the legally binding “final” regulations into 2016.

In the interim, employers would be well served  to revisit their current “salaried exempt” classifications, as they will have some important decisons to make, including: (1) whether to increase certain job classifications’ salaries to meet the new salary thresholds; (2) whether to convert certain salaried employees to hourly non-exempt and track hours worked; (3) when to implement any changes; and (4) figuring out how to pay for the increased labor costs.

 

Wisconsin Modifies Wage Law’s Recordkeeping Requirements

Wisconsin employers recently received some good news from the Legislature: effective April 17, 2014 employers are no longer required to keep payroll records tracking the “hours worked” of their salaried employees who are “exempt” from Wisconsin’s overtime compensation laws.  This change brings Wisconsin’s payroll recordkeeping requirements in line with those of the Federal Fair Labor Standards Act (“FLSA”). Wisconsin companies no longer have to keep precise daily or weekly time records for their salaried exempt professional, executive (i.e. managerial and supervisory), administrative, and computer professional employees.  See Wis. Stats. §104.09.

Employers who previously struggled complying with Wisconsin’s recordkeeping obligations will obviously welcome the lowered administrative burden. But this lower burden may come at a higher price – what if an employee files an overtime pay claim in court or at the Department of Labor (“DOL”) alleging that the employer “misclassified” him/her as overtime exempt?

Often in these cases an employee claims to have worked substantial amounts of overtime hours each week, and offers as “evidence”: (1) a self-serving log or spreadsheet showing a huge number of overtime hours worked; and/or (2) self-serving testimony that he/she worked all hours of the day and night, including weekends. Employers who do not have time cards to refute the claimed amount of overtime hours worked are then forced to rely on anecdotal evidence such as: (1) observations of when the employee “typically” arrived at and/or left work; or (2)  the employee’s computer “log on” and “log off” times.  The DOL or jury then decides how many overtime hours the employee worked each week.

Given this risk, employers would be well served to re-examine whether the employees they classify as “salaried exempt” truly satisfy all of an applicable exemption’s requirements.

Mitchell W. Quick, Attorney/Partner
Michael Best & Friedrich LLP
Suite 3300
100 E. Wisconsin Avenue
Milwaukee, Wisconsin 53202
414.225.2755 (direct)
414.277.0656 (fax)
mwquick@michaelbest.com
http://www.linkedin.com/in/mitchquick
 Twitter: @HRGeniusBar
 @wagelaws

 

Salary Levels and Overtime Exemptions Under the Fair Labor Standards Act

Employers who wonder whether they have properly classified their salaried employees as exempt from overtime under the Federal Fair Labor Standards Act (FLSA) would be well advised to consider one simple principle: the higher the employee’s salary, the more likely the employee will be found to be exempt.

The Department of Labor’s (DOL) comments to its FLSA regulations provide:  “employees at higher salaries are more likely to satisfy the requirements for exemption as an executive, administrative or professional employee.”  DOL investigators have also admitted to me in wage and hour audits that they will closely scrutinize the duties performed by any salaried employee who makes less than $45,000 annually (even though the FLSA’s annual minimum salary is only $23,660).

This makes sense as a practical matter.  The DOL assumes that if an employee is being paid a significant salary, the employee is likely performing exempt work, as the company would not pay a high salary for mindless or menial work.  Furthermore, the DOL has less concern that an employee who works a lot of hours is being “taken advantage of” if he is compensated well.

Of course, one has to meet the “duties test” of any exemption.  But any company concerned about whether its salaried exempt employees are improperly classified should first look at the amounts of salaries paid.  The higher the salary, the less scrutiny there will be on whether the employee satisfies a particular exemption’s “duties test.”

Mitchell W. Quick, Attorney/Partner
Michael Best & Friedrich LLP
Suite 3300
100 E. Wisconsin Avenue
Milwaukee, Wisconsin 53202
414.225.2755 (direct)
414.277.0656 (fax)
mwquick@michaelbest.com
http://www.linkedin.com/in/mitchquick
Twitter
:  @HRGeniusBar
@wagelaws

HR Tip – Save Those Voicemails

Probably every Human Resources Manager has received a voicemail from an employee advising them he is “quitting.”  Sometimes the employee even “thanks” the HR Manager and/or the company for the “opportunity,” and does not say anything negative about his employment experience.

I strongly recommend saving such voicemails from any employee the company suspects is a “litigation risk” (in their original audio format) for at least a year, and preferably two.

Why save them?  Employees often conveniently change their “stories” or recollections after quitting.  Such voicemails present compelling evidence to defeat an employee’s later claim that he was “fired” or “forced to quit”  (aka “constructive discharge”).  They are particularly useful in knocking down unemployment compensation claims and previously unreported claims of harassment.   The employee is left to “explain away” his own statements, and will not appear credible in doing so.

Why save them that long?  Under most federal and state laws, claims for discrimination, harassment and retaliation generally have to be asserted within 300 days of the alleged adverse employment action.  Retaining the voicemail for at least a year will ensure you have it available if a claim is filed.  Keeping them two years is preferable because claims under the Federal Family and Medical Leave Act (FMLA) and the Federal Fair Labor Standards Act (FLSA) can be asserted 2 (or even 3) years later.

Bottom line:  don’t hit the “delete” button, and you may “save” your case!

Mitchell W. Quick, Attorney/Partner
Michael Best & Friedrich LLP
Suite 3300
100 E. Wisconsin Avenue
Milwaukee, Wisconsin 53202
414.225.2755 (direct)
414.277.0656 (fax)
mwquick@michaelbest.com
http://www.linkedin.com/in/mitchquick
Twitter
@HRGeniusBar
@wagelaws

Fight Club’s First Rule of HR – You DO NOT Talk About Your Lawyer

Remember the classic scene in the movie Fight Club?  Brad Pitt, founder of the “Club,” is talking to prospective pugilists about its rules.  He boldly declares the First Rule of Fight Club: “you do not talk about Fight Club.”  He then gives the Second Rule: “you DO NOT talk about Fight Club.”  Needless to say, everyone got the point – keep your mouth shut to avoid trouble.

In homage to Fight Club’s simple genius, I offer a modified version of this Rule for Human Resource Managers:

YOU DO NOT TALK ABOUT YOUR LAWYER.

You see, part of my job as a management side employment lawyer is preventative in nature:  I  consult with companies before they make a termination decision.  I do so in order to help them (hopefully) avoid lawsuits, and to put them in the best position to defeat any litigation that ensues.  Among other things, the client and I discuss the rationale(s) for the termination decision, the performance history of the employee, the existence (or lack thereof) of supporting documentation, whether the company is following its own disciplinary policies and/or practices, and the legal risks involved if the employee falls into a “protected” classification under discrimination laws.

These attorney-client discussions are treated under the law as “confidential” – they are protected from involuntary disclosure by the “attorney-client privilege.”  I cannot ethically disclose them.  Likewise, the company representative I am talking with cannot generally be forced to reveal them at deposition, in an interrogatory answer, or at trial.  This protection is critical, as it allows the client and I to engage in candid discussions of sensitive issues, without the fear of later disclosure.

Unfortunately, HR managers often violate my modified Rule. They say things like “we checked with our lawyer and he told us ….,” or “we will talk with our lawyer and get back to you”  in termination or disciplinary meetings with employees, or when discussing “reasonable accommodations” with them. To a degree it is understandable, as part of the normal  “give and take” of a conversation with an employee.

Moreover, on their face such remarks seem harmless.  But in reality, they are subtly dangerous.  Why? First and foremost, the client may have just waived the attorney-client privilege.  Remember, the privilege is for the client’s benefit.  But it can also be waived by the client. Any statement that references the content of a client’s prior conversation with their lawyer will likely be construed (or at least argued) as a “waiver” of the privilege.

If waived, the employee’s lawyer could ask the client probing questions about the details of that conversation, including all statements made before the decision to discipline, discharge or not accommodate.  This could result in the disclosure of comments that, even if not acted upon by the client, will be presented as evidence of a discriminatory or retaliatory intent, and/or at least an awareness of the potential for litigation.  Such statements will be trumpeted as “smoking guns” for the company’s “real” motivation behind its decision.

Second, such comments often “raise a flag” in an employee’s mind.  The employee thinks his situation has become “serious” –  for goodness sake, the company just told him/her that its lawyer has become involved!   With this knowledge, the employee usually does one of a couple of things: (a) he becomes very sensitive and files a “retaliation” claim for any adverse employment action taken against him, believing it was caused by his raising of a “legal” issue; or (b) goes out an immediately retains his own lawyer to advocate on his behalf; or (c) both.

None of these outcomes are positive for the company.  So apply the First Rule of HR:

YOU DO NOT TALK ABOUT YOUR LAWYER

Mitchell W. Quick, Attorney/Partner
Michael Best & Friedrich LLP
Suite 3300
100 E. Wisconsin Avenue
Milwaukee, Wisconsin 53202
414.225.2755 (direct)
414.277.0656 (fax)
mwquick@michaelbest.com
http://www.linkedin.com/in/mitchquick
Twitter: @HRGeniusBar
@wagelaws