Just to Make Sure You Can Sleep This Weekend…

By John Lowe IV

If you hadn't heard, the U.S. Department of Labor issued new regulations this week for determining whether employees fit the "white collar" exemptions from the Fair Labor Standards Act's requirements that people be paid overtime for time worked in excess of 40 hours in a week. Before anyone spends the weekend trying to make sense of the new regulations, know that they do not got into effect for 120 days after they are published in the Code of Federal Regulations, which hasn't yet happened.

To be clear, the statutory definitions of the "white collar" exemptions have not changed. What has changed are the Department of Labor's regulations interpreting the statutory language. Generally, the new rules relate to employees who are employed in a bona fide executive, administrative, professional, or outside sales capacity. The salary threshold for exemption has almost been tripled, to $455 per week ($23,660 annually). People making less than this amount are automatically eligible for overtime.

The old "long test" for determining executive status has been gutted: executives no longer need to "regularly exercise discretionary powers." The prohibition on executives working more than 20% of their time on non-exempt work has also been deleted. Interestingly, two proposed changes for the administrative exemption did not make the final rule. Instead of the "position of responsibility" and "high level of skill or training" tests, the old "discretion and independent judgment" test still applies.

In addition to the new rules for the exemptions, changes have been made relating to deductions from pay. Much like the Supreme Court announced in 1998 relating to harassment complaints, the Department has set up a system to help protect employers who have a "clearly communicated policy" (i.e., written and distributed), that includes a complaint mechanism (i.e., someone to talk to), that prohibits improper pay deductions, reimburses employees for improper deductions and makes a "good-faith commitment" to comply with the Regulations (i.e., when you say it, mean it).

The Department states that the new rules will benefit both workers and employers because "having clear rules" will make them "easier to understand and enforce." I hope they are correct, but I have my suspicions.

If, by chance, you have not been particularly careful about compliance with the FLSA, this is a good time to start. FLSA suits are now more prevalent that discrimination suits, and the Department of Labor has been setting collection records in each of the last few years going after unwary employers. Also, because of the changes, now is a good time for employers to change policies without tipping off employees that technical violations may have occurred in the past.

We have been following the proposed changes through the rule making process and we expect to be scheduling a great number of meetings with clients at their places of business to briefly audit their pay practices and attempt to ensure compliance with the new rules. As always, please feel free to contact us to schedule such a meeting.

And have a good weekend.