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