New overtime rules expected to take effect in early 2016 will make fewer employees exempt from overtime pay requirements and force employers to closely evaluate all of their employees who make under $50,440 a year. Employers will likely have 30 to 120 days to comply with the law. The change will have broad implications for most employers and highlights the need to review job descriptions to ensure that exempt workers are doing exempt-type work.
Under current law, all workers are entitled to overtime (time and a half for all hours worked over 40 hours in a given work week) unless they qualify as exempt. To be exempt, the employee must:
• Be salaried at a rate of at least $455 per week ($23,660 annualized) and
• Be doing exempt work.
The first part of the test is fairly straightforward. The employee either makes a fixed salary of more than $455 each week or doesn’t. The second part of the test has traditionally been more problematic. That is, do the employee’s job duties fit within the Fair Labor Standards Act’s definition of exempt work, under either an executive, administrative or professional exemption (among other exempt categories)? In 2004, sweeping changes were made to the exemption categories and many employers had to make seismic changes to comply. This new law will have a sweeping effect similar to 2004.
Who is Exempt
The proposed changes would require that to be exempt, the employee must be earning a weekly salary of $970 per week ($50,440 annually). The future minimum amount would be tied annually to wage growth, so the exempt salary threshold would likely grow. While there are no proposed changes to the exemption categories, there will likely be increased scrutiny of those by employees and their counsel as a result of the salary change. There are a number of different exemption categories, and each has their own test, so it is difficult, if not impossible, to summarize the tests in a few sentences. Suffice it to say that to be considered exempt one needs to be able to demonstrate some combination of the following: use of discretion and independent judgment in their work, ability to bind the company on matters of significance, oversight of other employees, management of a portion of the company, or a position that requires advanced learning.
The U.S. Department of Labor will also look into proposing regulations on how to track hours for non-exempt personnel working remotely or using personal mobile phones or tablets to check phone or email messages for business. Employers should be analyzing their current and prospective exposure to wage claims by non-exempt personnel based on the use of PDAs (laptops, phones, tablets and more) outside of traditional work hours. For example, non-exempt employees who return calls or answer emails on weekends or at night need to be compensated for this time, or instructed not to do so outside of working hours. This is an area of the law that contains a tremendous amount of
hidden exposure.
The impact of this proposed regulation is immense. Any employee who is currently exempt and is earning between $23,660 and $50,440 per year must be given a raise to the $50,440 threshold to be considered exempt, or they will be entitled to overtime pay for all hours worked over 40 hours. Employers are able to restrict or eliminate overtime, or make adjustments to benefits or bonuses to account for this.
Digging into the Details
Employers should be analyzing their exempt employees to determine if they are truly exempt under the various exemption categories. This requires a review of the job descriptions in light of the Fair Labor Standards Act exempt categories. Further, employers should determine what salary adjustments will need to be made to continue to benefit from the salary exemption, or whether the employer will need to transition individual employees to an hourly rate of pay as the regulation becomes law. Ultimately, employers can in some ways reverse engineer the salary into an hourly rate of pay (taking into account overtime), but this is one area where employers should plan ahead.
Perhaps the most scary aspect is that NH wage statutes deem the individual with authority to bind the company to be an employer, and they can be held personally liable if they knowingly violate wage laws. Therefore, employers should consider a review of their pay practices by legal counsel, as it is protected by attorney-client privilege.
Wage and hour litigation has increased nationally and in NH. If the exempt status of an employee becomes an issue, it is the employer’s burden to show that an employee is appropriately classified as exempt. And there are draconian penalties on companies for failing to pay appropriately. For more information, visit www.dol.gov/whd.
One final note of caution: For many employees, being exempt is a badge of honor, or a status symbol, even if the employee might be better served financially as an hourly employee. Employers should be careful when rolling out any changes to ensure employees understand that the changes are a result of complying with an evolving federal regulatory landscape, and not an indicator of the lack of value the employee brings to your company.
Being forewarned is forearmed, so it is advisable to discuss all of the above with legal counsel to ensure seamless compliance and avoid costly penalties to your company.
Gregg Frame is the managing partner for Taylor, McCormack & Frame in Maine, and represents numerous NH-based businesses and national companies with a presence in NH. He can be reached at GFrame@TMFAttorneys.com or 207-828-2005.
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