Major Change in Overtime Pay under FLSA Will Have a Big Impact
By Tom Delaney
On March 13, 2014, the Obama administration released a Presidential Memorandum in which the president stated “… regulations regarding exemptions from the Act’s overtime requirement, particularly for executive, administrative, and professional employees (often referred to as “white collar” exemptions) have not kept up with our modern economy. Because these regulations are outdated, millions of Americans lack the protections of overtime and even the right to the minimum wage.” He directed the Department of Labor (DOL) to propose revisions to modernize and streamline the existing overtime regulations under the Fair Labor Standards Act (FLSA). The specific regulations are those that define the exemptions from both minimum wage and overtime for executives, administrative, professional, and outside sales employees. Those regulations were last revised in 2004 and had not been revised previously since 1975.
I participated in a July 11 meeting by the Small Business Administration Office of Advocacy, which takes its direction from small businesses and hosts roundtables to receive input on what issues are of greatest importance. Dr. David Weil, the new administrator of the Wage and Hour Division of the DOL, and Dr. Winslow Sargeant, chief counsel for Advocacy, were present to listen to a wide range of views from small businesses on the potential impact of this memorandum. They wanted to hear up front from small businesses before changes in the regulations were published, so I made a special point to add the fact that our industry is seasonal and has busy months where a good amount of overtime occurs. Some industry participants expressed their fear of major changes and unintended circumstances that would lead them to transition some salaried pay plans to hourly pay plans with overtime. They explained how this change would not be ideal for employees and would be dictated by the impact on profitability for small businesses.
FLSA provides an exemption from both [underline>minimum wageovertime pay<UNDERLINE] new and those hired as bona fide executive, administrative, professional, sales employees. To qualify for exemption, employees generally meet certain tests regarding their job duties must paid on basis at less than $455 per week or $23,660 It’s this is expected increase. Although proposed rule has not yet been written, outside groups have recommended that be raised $50,000 year. This threshold would, course, eliminate a number of positions from exempt classification, unless employers are willing to increase the guaranteed salary amount.
Qualifying for an overtime exemption is not necessarily easy. Contrary to popular thought, job titles do not determine the exempt status for positions. In order for an exemption to apply, an employee’s specific job duties and salary must meet several “tests” as defined by Department of Labor regulations. Also, under the FLSA, the definition of “primary duty” (as it relates to the Executive Exemption’s requirement for an employee’s primary duty to be management of the enterprise, department, or subdivision) in some cases, allows an employee to be considered as “performing exempt management duties” while performing routine duties. Although this may be permissible under federal regulations, some states have statutes that require the management time to be more than 50 percent of the employee’s work time exclusive of performing routine duties. Many states have their own overtime exemptions that mirror the white collar exemptions but that have more stringent (or more lenient) “tests” to qualify. For example, California has a 50 percent rule whereby the term “primarily engaged in” means that one-half the employee’s work time must be engaged in exempt work. To minimize risk, companies must consider both state and federal regulations and should comply with the more stringent of the two since they can be investigated by either agency.
Jean Seawright, president of Seawright & Associates and PLANET’s HR Adviser, said, “Employers get into trouble when they get too creative with their pay plans and think that because they are generously paying employees, the method is irrelevant. Unfortunately, the opposite is true. It isn’t so much the amount that matters; it’s the method. If the method is noncompliant, an employer can end up paying overtime on top of already-provided generous earnings.”
To ensure compliance, Seawright recommends that employers arrange for comprehensive HR audits of pay practices, overtime classifications, and compensation plans. A thorough audit can help identify areas of risk and provides an opportunity to correct them before a government agency or attorney knocks at the door.
No doubt, substantial changes to the federal overtime regulations are on the horizon. However, to implement changes in its regulations, the DOL must go through a standard rule-making process that includes publishing proposed changes for public comment. The comment period is typically 60 to 90 days. Once the comments are received and reviewed, final regulations are issued. We will let you know when they are available so you can comment.
Tom Delaney, is director of government affairs at the Professional Landcare Network (PLANET). He can be reached via e-mail at TomDelaney@landcarenetwork.org.
