Lawsuits against Texas businesses for failure to properly pay overtime compensation continue to explode. These can be devastating for a company as they typically involve multiple employees. If the company has broken the law it can be held responsible for unpaid OT payments, penalties, attorneys’ fees (its own and the employees’ attorneys) and court costs. The laws governing OT are getting more and more complicated, and even well-meaning employers can unknowingly violate them. Jerry Mason, our firm’s employment law specialist, recently presented a paper on the basics of current OT law. His outline is below. It hits the high points and will provide you an outline of some of the things to think about when you determine whether your company is in compliance. It also provides some notes on some of the changes that will likely go into effect at the end of 2016. But remember that it is a complicated subject. If you have questions about your company’s situation, don’t hesitate to call.
THE FAIR LABOR STANDARDS ACT (FLSA)
Coverage
Employees who work for certain business organizations (or “enterprises”) are covered by the FLSA. These enterprises, which must have at least two employees, are:
Those that have an annual dollar volume of sales or business done of at least $500,000;
Hospitals, businesses providing medical or nursing care for residents, schools and preschools and government agencies.
Even when there is no enterprise coverage, employees are protected by the FLSA if their work regularly involves them in commerce between States (“interstate commerce”). Examples of employees who are involved in interstate commerce include those who: produce goods that will be sent out of state, regularly make telephone calls to persons located in other States, handle records of interstate transactions, travel to other States on their jobs, and do janitorial work in buildings where goods are produced for shipment outside the State.
Also, domestic service workers (such as housekeepers, full-time babysitters, and cooks) are normally covered by the law.
What determines if an employee falls within one of the white collar exemptions?
To qualify for exemption, a white collar employee generally must:
Be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
Be paid more than a specified weekly salary level;
Primarily perform executive, administrative or professional duties, as defined in the Department’s regulations (the “duties test”). Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers).
The fact that an employee is paid on a salary basis is not alone sufficient to exempt that employee from the FLSA’s minimum wage and overtime requirements. For the EAP exemption to apply, a white collar employee’s specific job duties and salary must meet all of the applicable requirements provided in the Department’s regulations. Accordingly, the duties test must be met even if the employee’s salary exceeds the standard salary level.
WHAT YOU NEED TO KNOW ABOUT THE NEW FEDERAL OVERTIME RULES
A rule change announced May 18 by the U.S. Department of Labor (U.S. DOL) would expand overtime protections to an estimated 4.2 million workers.
Scheduled to go into effect December 1, 2016, the new rule changes overtime regulations under the Fair Labor Standards Act’s minimum wage and overtime protections. Previously, employees were excluded if they were salaried, eared at least $455 per week ($23,660 per year) or were in positions considered executive, administrative or professional. Now, those exemptions will be lifted and the p ay threshold for overtime protections be raised to $913 per week, or an annual salary of $47,476. That pay threshold will be updated once every three years, indexed to wage grow overtime.
In addition, a new rule providing an exemption for “highly compensated employees” subject to a minimal duties test, sets the floor for the exemption at $134,004 per annum.
How will employers implement the updated salary level requirement established in this Final Rule?
Employers have a range of options for responding to the updated standard salary level. For each effected employee newly entitled to overtime pay, employers may:
Increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
Pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
Reduce or eliminate overtime hours;
Reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
Use some combination of these responses.
The FSLA provides the most covered employees must receive overtime pay for hours worked over 40 in a workweek at a rate not less than one and one-half times their regular rate of pay. The use of compensatory time (“comp time”) instead of overtime pay is limited by the FLSA to a public agency that is a state, a political subdivision of a date, or an interstate governmental agency, under specific circumstances. Private employees cannot satisfy their overtime obligations by providing comp time and must pay overtime-eligible employees an overtime premium for hours over 40 in a workweek.
Policies to Consider
Overtime-eligible workers are not required to punch a time clock.
There is no particular form or order of records required and employers may choose how to record hours worked for overtime-eligible employees.
An employer does not need to require an employee to record what time they started or finished, only the total number of hours worked each day. Employers can continue to permit their employees to work flexible hours as long as their total hours each day are accurately recorded.
Employees will need to be trained on how to keep an accurate time card or time sheet.
Employers will also need to review their telecommuting policies, and may want to eliminate the option because of the inability to track hours worked.
Something employers need to be aware of is accounting for hours that are worked outside of the office, like checking email or phone calls. This is compensable time.
Identify your employees and their duties to reclassify, if necessary. Go through your employee list and see who is getting paid what and if they need to be changed from salary to hourly or hourly to salary. Develop new compensation plans, duties and policies for overtime. That’s going to be one of the most important things and that needs to be done in writing, preferable with a policies and procedures handbook.
Challenges to the New Overtime Rules
Ohio joined Alabama, Arizona, Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Main, Michigan, Mississippi, Nebraska, Nevada, New Mexico, Oklahoma, South Carolina, Texas, Utah and Wisconsin in a lawsuit again the U.S. Department of Labor, its secretary, and other federal officials seeking to halt the new overtime rules.
Separately, but in the same court, a coalition of more than 40 business groups, including the U.S. Chamber of Commerce, the National Association of Manufacturers, the National Retail Federation, National Automobile Dealers Association, and the National Federation of Independent Business, also filed a similar lawsuit.
The 21 states in the suit claim the overtime ruling violates the 10th Amendment to the U.S. Constitution in that enforcing the rule infringes upon state sovereignty to employ and pay its workers as it sees fit. The result will hammer state budgets, the suit claims.
The U.S. Chamber of Commerce lawsuit challenges the DOL’s right to index the threshold to inflation. Under the impending ruling, the salaried worker salary threshold will rise with inflation every three years. “DOL’s unprecedented escalator provision in the new overtime rule exceeds any authority granted to the department by Congress, which has never authorized indexing of the minimum salary thresholds related to overtime,” the lawsuit states.
S. Senator James Lankford called for a six-month delay in the rule that will make millions of white-collar workers eligible for overtime. The House of Representatives overwhelmingly approved a bill to delay the rule. Congress won’t go back into session until mid-November, which leaves little time for action. The Obama administration has said it will veto any bill that changes the overtime rule.
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