Tag: White-Collar

FLSA Update: New White-Collar Exemption Rules Permit “Catch-Up” Payment to Satisfy Minimum Salary Requirement

The Fair Labor Standards Act’s new white-collar exemption regulations did more than increase the minimum salary requirement for exempt executive, administrative and professional employees from $455 to $684 per week. They also let employers use nondiscretionary bonuses, incentives and commissions to satisfy up to 10 percent of the minimum salary requirement.

In other words, if an exempt employee’s annual salary, including nondiscretionary bonuses, incentives and commissions, is less than $35,568 at the end of the year, employers may make one final payment of up to $3,556.80 to satisfy the minimum salary requirement for that employee. These “catch-up” payments are subject to the following rules.

  • Employers may only use nondiscretionary bonuses, incentives and commissions that are paid annually or more frequently.
  • Employers may utilize any 52-week period as the year (calendar year, fiscal year, hire-date anniversary, etc.).
  • If an employer does not identify a specific 52-week period in advance, the calendar year will apply.
  • The “catch-up” payment must be made no later than the next pay period after the end of the year.
  • If the “catch-up” payment is made after the end of the 52-week period, it may count only toward the prior year’s salary amount and not toward the salary amount in the year it was paid.

According to the Department of Labor, this change was made in recognition of evolving compensation practices in a growing number of workplaces. “Catch-up” payments are not required, but many employers are expected to take advantage of the new rule. The new white-collar exemption regulations are effective January 1, 2020, so employers don’t have much time to evaluate their current payroll practices and take corrective actions if necessary.

Regulatory changes often create uncertainty, so employers should carry Employment Practices Liability Insurance that includes limited wage & hour coverage. Please contact us if you would like to learn more about employment practices liability insurance.

Are the New White-Collar Overtime Exemption Rules Finally Dead?

Can you believe it’s been nearly three and a half years since President Obama first directed the Secretary of Labor to update the white-collar overtime exemption regulations? Since then, employers endured the uncertainty of not knowing if, when or how they would be affected by the new overtime rules.

But now, at long last, it looks like employers can stop thinking and worrying about the 2016 white-collar overtime exemption regulations. Finally.

Recall that under the new regulations, which were published May 23, 2016, the minimum salary level for exempt white-collar employees increased from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The new regulations also created an automatic updating mechanism that adjusts the minimum salary level every three years, starting January 1, 2020.

Shortly after the new regulations were published, two federal lawsuits challenging their validity were filed, one by a group of states and the other by a group of national business organizations. These two cases were later consolidated into a single case.

On November 22, 2016, the court in the consolidated case issued a temporary injunction blocking the new white-collar regulations from going into effect on December 1, 2016. The Department of Labor (Department) immediately appealed the injunction and requested expedited briefing. Though progress slowed when control over the Department passed from the Obama administration to the Trump administration, the appeal process continued.

Then, on August 31, 2017, the lower court essentially rendered the appeal moot when it ruled that the new white-collar overtime exemption regulations were invalid. According to the court, the new regulations were inconsistent with Congress’s unambiguous intent, which was to define the white-collar exemptions with regard to duties. As such, the Department exceeded its authority by essentially rendering an employee’s duties irrelevant when it more than doubled the previous minimum salary level.

“[T]the Department creates a Final Rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties. The Department estimates 4.2 million workers currently ineligible for overtime, and who fall below the minimum salary level, will automatically become eligible under the Final Rule without a change to their duties.”

Having determined that the Department lacks the authority to use a salary-level test that will effectively eliminate the duties test required by the Fair Labor Standards Act, the court deemed the Department’s new white-collar overtime exemption regulations invalid. Five days later, the Department voluntarily dismissed the appeal regarding the November 2016 injunction that prevented the new regulations from ever becoming effective.

For the time being, it looks like the prospect of new overtime exemption rules is gone. Since the new regulations never went into effect, the manner in which employers must evaluate and apply the white-collar overtime exemptions has not changed. Neither has the need for employers to consider Employment Practices Liability Insurance to protect against various employment-related claims, including limited coverage for wage and hour claims.

Please contact us if you would like to learn more about protecting your business with employment practices liability insurance.

To receive regular updates about developments which may affect your business, subscribe to Setnor Byer Insurance & Risk’s weekly risk management news brief.

Now What? Preparing for the New FLSA White Collar Overtime Exemptions

On December 1, 2016, it will be more expensive for employers to take advantage of the Fair Labor Standards Act’s (FLSA) so-called white collar overtime exemptions. Since FLSA violations have always been expensive, employers should begin the process of determining whether and to what extent they will be affected by the new overtime exemption regulations .

The new rules focus primarily on the minimum salary and compensation levels needed to qualify for the FLSA’s executive, administrative, professional, and computer employee overtime exemptions. Employers can ask the following questions to determine the potential impact of the new overtime rules.

Are there any employees classified as exempt under one of the FLSA’s white collar overtime exemptions? If no, you should not be affected by the higher standard salary levels under the new rules. If yes, move on to the next question.

Do any of these employees ever work more than 40 hours in a workweek? If no, you should not be affected by the higher standard salary levels under the new rules. If yes, move on to the next question.

Do any of these employees earn a salary of less than $913 per week? (This works out to $1,826 biweekly, $1,978 semimonthly, $3,956 monthly or $47,476 annually.) If no, you should not be affected by the higher standard salary levels under the new rules. If yes, exemption classifications and compensation practices will need to be adjusted before December 1, 2016 to avoid violating the new rules.

Various adjustments can be made to ensure compliance under the new rules. However, the most appropriate adjustment(s) will likely depend on each employer’s specific circumstances, such as the number of newly-nonexempt employees, their salaries, how often they work overtime and how much overtime they work.

Depending on their circumstances, employers may implement one or more of the following adjustments.

Increase Salaries. The obvious adjustment, and the one likely envisioned by those enacting the new rules, would be to increase the salaries of exempt white collar employees to no less than $913 per week. Though this may be the simplest and least disruptive adjustment, it may also be the most unrealistic. Though salary increases for some employees may be nominal, they can be more than double for others.

[Remember, employees are not exempt simply because their salaries satisfy the increased salary levels under the new rules. Their primary job duties must also involve the kind of work associated with the specific white collar exemption. Employees must satisfy the minimum salary level requirement and the applicable “standard duties test” to be exempt.]

Pay Newly-Nonexempt Employees Overtime Compensation. The alternative to increasing salaries is to re-classify these exempt white collar employees as overtime-eligible employees. If they work more than 40 hours in a workweek, they must be paid one and a half times their regular rate. As with other nonexempt employees, employers must track the number of hours worked each day and the total hours worked each workweek by newly-nonexempt employees. For many, this will be an entirely new experience and will take some getting used to.

This may not be a problem for employees who rarely work or who work very little overtime. These employees can continue working the same number of hours. Though employers will pay more for occasional overtime work, they may still be paying substantially less than $913 per week. The same cannot be said about employees who regularly work or who work a lot of overtime. The cost of paying time and a half to these employees could be very high, and may even approach $913 per week.

Prohibit Overtime. Newly-nonexempt employees can be prohibited from working overtime. If no overtime is worked, no overtime compensation is required. This option may be simple, but it may not be easy. Exempt employees typically work more than 40 hours in a workweek because they have more than 40 hours of work to do. This work must still get done, but someone else will have to do it.

Adjust Personnel, Schedules or Assignments. Those who prohibit overtime may have to make various operational adjustments. For example, workload distribution and workforce scheduling may need to be adjusted to compensate for the loss of overtime work. In some cases, new employees may need to be hired to make up for any lost productivity.

Adjust Wages. If newly-nonexempt employees are allowed to continue working overtime as always, employers will end up paying more money for the same amount of work. Reallocating regular wages and overtime compensation is a way to keep the hours worked by and the amount paid to newly-nonexempt employees largely the same. However, employers may not reduce an employee’s hourly wage below the highest applicable minimum wage (federal, state, or local) or continually adjust wages each workweek in order to manipulate the regular rate.

Employers cannot wait too long to begin planning for the upcoming change. It takes time to properly implement organizational adjustments to exemption classifications and compensation practices, particularly if they are substantial or complex. With all the publicity surrounding the new white collar overtime exemption rules, it’s probably safe to assume that violations will be noticed not only by those employees who are affected by the new rules, but by the Department of Labor too.

Since the Final Rule is sure to bring a level uncertainty and confusion, employers may benefit from having Employment Practices Liability Insurance to protect against various employment-related claims. Limited coverage for wage and hour claims may be available.

Please contact us if you would like to learn more about complying with the FLSA’s new white collar overtime exemption rules.

To receive regular updates about developments which may affect your business, subscribe to Setnor Byer Insurance & Risk’s weekly risk management news brief.