Aside from the obvious reasons to be terrified of the coming year (a presidential election where all of the candidates, regardless of your party affiliation, are frightening; global terrorism; economic uncertainty – no real need to continue because if this doesn’t send you running for cover, nothing will) employers also need to be very concerned about the Department of Labor’s proposed changes to the so called “white collar” exemption regulations and the fact that the popularity of FLSA cases with the plaintiff’s bar continues to rise.
Employers were put on notice that changes to the DOL regulations governing the “white collar” exemptions (generally “executive”, “administrative” and “professional”) to the FLSA’s overtime requirements were imminent by the end of 2015. We recently learned that the proposed rule changes would not be implemented until 2016, likely in the middle or latter part of the year. While the delay gives employers additional time to prepare, it should not be used as an excuse to ignore what is coming.
The DOL’s current proposed changes involve “only” a change in the salary threshold from the current threshold of $455 per week (approximately $23,660 per year) to $970 per week (approximately $50,440 per year). When I say “only” a change in the salary threshold I don’t mean to imply that this is a minor alteration; I mean that currently, this is the only change we know of. It is, in fact, a major change. What it means is that if an employer has a salaried employee who earns less than the new threshold amount, they cannot be exempt from the overtime requirements of the FLSA. To analyze exempt status, we look at three things: (1) is the employee paid a salary; (2) does that salary meet the threshold requirement; and (3) what are the employee’s duties (do they meet the duties test for one of the “white collar” exemptions?). Using the new threshold test, employees earning less than $50,440 per year can’t be exempt. Employers won’t even get to the duties test for these employees.
Although we are not sure of the exact reasons for the delay in implementation of the new threshold test, there is some speculation that the reason for the delay may also be cause for significant concern. Initially, it was thought that the DOL would leave the “duties” test alone. Currently, if an employee’s “primary” duty or duties are exempt, then the employee may be correctly classified as an exempt employee if they meet the other two test discussed above (they are paid a salary and the salary is above the current threshold). There is concern that the DOL would like to go to a new duties test which would require that exempt duties comprise more than 50% of the employee’s actual duties. We can only speculate on this issue currently, but it is something else that employers should not ignore. Now would be a good time to examine how much of your exempt employees time is actually spent performing exempt work.
A change in the duties test is potentially more frightening than a change in the salary threshold test. For example, many smaller employers have “working” supervisors. This means that the supervisor’s primary duties are exempt (hiring, firing, setting schedules, verifying payroll etc.), however the supervisor may spend a majority of his or her time actually doing the same type of work as the people he is supervising. If the duties test changed such that more than 50% of an exempt employee’s time had to be spent performing exempt duties, that would likely put an end to the concept of the “working” supervisor as well as many other previously exempt positions.
The bottom line is that the time to prepare is now. Employers should immediately determine which of their employees simply won’t meet the salary threshold test. Employers should then begin analyzing the cost of projected overtime for these employees. Employers may want to consider whether or not certain employees’ salaries should be raised above the new threshold based upon the potential cost savings that may result from not having to pay overtime. These are just some ideas that employers should consider in consultation with their employment counsel. Of course, none of this matters if an employee does not perform exempt duties, so now is also good time to examine the duties that your current exempt employees are actually performing to make sure that they are really exempt and to begin considering what portion of the employee’s time is spent performing exempt duties.
The best reason to audit your exempt employees (and I recommend doing this on an annual basis) is to make sure that they are truly exempt. As I mentioned earlier, the plaintiff’s bar loves FLSA cases. They can net liquidated (double) damages for employees and more importantly for attorneys, the FLSA has a provision for payment of the employee’s attorney’s fees by the employer. Because of the benefits of these cases and the errors often made by employers in classifying employees, the number of FLSA cases filed continues to increase. 2015 saw yet another increase in the number of these cases filed nationally over 2014. The best defense to these types of lawsuits is a good offense, and that means auditing your exempt employees on a regular basis. Simply put, you can pay your attorneys a little to do this now, or you can pay everybody’s attorneys, yours and the employee’s, a lot to deal with it later.
If you have questions or concerns after reading this article, please do not hesitate to contact an Ancel Glink labor and employment attorney or your own labor counsel so that you can be ahead of these issues and have less to fear in 2016. Happy New Year.