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DOL proposal could lead to overtime for millions of white collar workers

Legal News Reporter

Published: August 12, 2015

Millions of executive, administrative, professional, outside sales and computer employees could be eligible for overtime if the U.S. Department of Labor’s proposed rule change becomes a reality.

The proposal pertains to the Fair Labor Standards Act’s ‘‘EAP’’ or ‘‘white collar’’ exemption, which allows employers to forego paying certain workers at least 1.5 times their regular rate for all hours over 40 in a given workweek.

To fall within this category an employee must have certain primary job duties and be paid on a salaried basis that is not less than a specified amount. Currently the regulations require that the worker receive a minimum salary level of $455 a week, the equivalent of $23,660 a year.

The last time the salary amount was increased was in 2004. Now the DOL wants to raise the weekly salary threshold to $970 a week or $50,440 annually for 2016.

“There is a misconception among the public that if an employer pays an employee a salary, any salary, that this worker is exempt from minimum wage requirements and more importantly overtime,” said Susan Rodgers, chair of the Employment & Labor Practice Group at Buckingham, Doolittle & Burroughs. “That is simply not true.

“In reality, for ‘white collar’ workers there is a three-prong test that includes whether the person has a fixed guaranteed salary, that the salary satisfies the minimum level and the person meets the duties test.”

Rodgers said one of the most litigated areas of the FLSA is “the administrative exemption that includes employees in management and business operations such as human resources professionals, office workers in marketing or purchasing and even customer service representatives who are treated as exempt while in many cases they make less than $50,000. Now many of these people may have to be paid overtime,” said Rodgers.

In addition to the salary threshold change, the DOL wants to include annual automatic salary level updates in the future to keep pace with the changing economy.

“The biggest criticism of the minimum salary threshold has always been that it was never tied to inflation,” said Joseph Brennan, an associate at Fisher & Phillips. “Under the proposed rule change annual increases would not only be automatic but would be tied to consumer price indexes.”

The proposed change was published in the Federal Register on July 6. The DOL is accepting comments on its proposal on or before Sept. 4.

“Before any administrative agency can make a rule change, it must publish the proposed change and give interested parties like unions, workers, employers and employer lobby groups time to submit briefs,” said Brennan. “This proposal would be a particularly drastic change.”

Brennan said fast food industry employees would be heavily affected by the proposal, citing the example of an assistant manger that might make $25,000 to $40,000 a year and be required to work a lot of hours of unpaid overtime.

“Under the duties test, these workers would probably still be exempt from overtime but with the new proposed salary increases many may not be.”

Brennan said in cases where a worker is clocking 10 or 20 hours of overtime a week, it might be less costly for the company to increase the person’s salary and avoid overtime payments.

“Still, I would say that in Ohio the idea of a fast food assistant manager making over $50,000 a year is unheard of,” said Brennan.

As a result, he said an employer in that situation might simply hire more part-time people so that the assistant manager is not required to do any overtime and leave the old salary level intact.

Rodgers said employers would also have to grapple with the question of how to track overtime for employees who become eligible for such pay.

“Because of technology, many people who fell under the exempt category enjoyed a lot of freedom to come and go as they pleased,” said Rodgers. “If they no longer fall into this category, employers will have to figure out how to track their time. They may be required to punch in and out, whereas they used to be able to work from home.

“Some companies require workers to carry their smartphone,” said Rodgers. “Now any time spent using it for business will have to be tracked. It could also impact who is allowed to work trade shows due to the travel and extra time involved could be compensable. There are many implications to these changes that have to be addressed.

“I think employers are going to have to re-evaluate their manpower options to determine what works best for certain positions--be it make the position hourly, salaried with overtime or create a fluctuating workweek.”

Brennan said there are still a few exemptions in the FLSA that do not include a salary threshold requirement. For example, Section 7(i), which impacts people working at retail and service establishments who are paid on a commission basis “in whole or part.”

According to the DOL website, in cases where a company is seeking this exemption for a commissioned employee, three conditions must be met: The person must work at a retail or service establishment, his/her regular rate of pay must exceed 1.5 times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked and more than half the employee’s total earnings in a representative period must consist of commissions.

“While there will most certainly be a change to the threshold, it will be interesting to see if the final rule is also accompanied by another proposal that would tweak the duties test,” said Brennan. “Either way employers should brace for a change.”