Examine your company’s internal policies and practices. Properly classifying employees can be tricky; make the corrections you need now and avoid expensive penalties.
Schaun Henry, Esquire
Deciding which employees are exempt from overtime regulations can be one of the more challenging questions companies face. Do a quick Google search for “wage violations’’ and you’ll find plenty of articles about businesses facing employee lawsuits or penalties.
The U.S. Department of Labor issued proposed new rules on July 6, 2014 in the Federal Register. The Notice of Proposed Rulemaking (NPRM) invites interested persons to post comments on or before Sept 4, 2015. The long expected NPRM surprised many interested parties by only updating the minimum qualifying wage for exempt employees while only asking for employer comments on the “employee duties” portion of the well known white collar exemptions tests. The DOL in its press release on the issue calls the NPRM “a critical first step in ensuring that hard-working Americans are compensated fairly…” With that sort of commentary many fear more sweeping changes may be in the wings. But the news isn’t all bad. Employers can use this opportunity to review their practices and make any necessary changes before they become costly mistakes. The change in minimum salary requirements is expected to result in a reduction of about 50% in the current exempt workforce total, with those employees being reclassified as non-exempt.
Employers can be on the hook for up to two years of overtime—three if the Department of Labor finds the action was willful. In deciding damages in a misclassification case, the department can consider any record the employee can produce, even if it’s a note handwritten on the spot.
Under the previous federal regulations, the threshold wage for the white collar exemptions was $23,660 a year, or $455 a week. The NPRM proposes a new salary threshold equal to that of the 40th percentile of all salaried workers. That works out to approximately $970 a week (or $50,440 a year). The proposal would call for an update of that minimum salary annually based on the 40th percentile. Essentially the rate would constantly change, an idea that is sure to thrill HR professionals.
Three Common Overtime Misconceptions
#1: Salary is the Sole Factor
Many employers still make the mistake of thinking an employee making more than the threshold salary weekly is automatically exempt from overtime pay. Not true. Other factors such as duties and number of employees supervised must be considered. Those duties tests are more often than not the determining factor. Instead of changing the duties tests, DOL has chosen to ask a number of questions in the NPRM regarding the duties tests. Whether the answers they obtain will lead to more comprehensive changes remains to be seen.
#2: Highly Skilled Employees vs Specialized Training
The duties tests as they currently exist can be tricky, while executive employees with the discretion to make determinations and run an organization are exempt from overtime, provided the other portions of the test are met, that’s not the case for those who only have special training or skills.
The classic example emerged when the Department of Labor determined that paraprofessionals, such as paralegals and paramedics, are eligible for overtime. Yes, they make important decisions, but only under the direct supervision of a lawyer or doctor, and following a protocol established for every situation they encounter. The take away here is that it may behoove you to make comments as requested in the NPRM. Your comments may help to temper any additional changes
#3: Regulatory Changes will Require Wage Increases
Not necessarily. Depending on the situation, employers may shift workers out of the exempt classification and establish protocols to have the employee work as an hourly employee making no more that what his pre change salary was in regular and overtime hours rather than raising the employees wage to keep him exempt. Employees who fall on the cusp of the proposed increase in the minimum-overtime pay level can have their base pay increased and be reclassified as exempt, again with an eye on total income paid in the past.
Plan Ahead
We strongly urge you to comment in the federal register and make your voices heard. Employers can do themselves a great service by reviewing the pending changes and submitting comments. The Department of Labor generally pays attention to comments and incorporates them into the final regulations. We do not know what the final regulations will look like. Changes would likely go into effect in 2016.
After examining your company’s internal policies and practices, you may want to contact an attorney with significant experience in this area. Properly classifying employees can be tricky; an advisor with experience in the matter can help you make corrections and avoid expensive penalties.
Schaun Henry is a Member of the Labor & Employment practice group at McNees Wallace & Nurick LLC (Harrisburg, PA) and provides representation and counseling to employers on a wide range of labor and employment matters. Schaun can be reached at (717) 237-5346 or e-mail [email protected].