November 2015
By: James B. Sherman, Esq.
The DOL’s proposal to more than double the minimum salary level for white collar workers – from $23,660 to $50,440 – may be finalized and put into effect any day now although expectations are that this will occur in a few months, sometime in the coming spring of 2016. When implemented the new regulations could “reclassify” more than six (6) million workers from exempt, to non-exempt status for purposes of overtime pay. Most employers have at least some employees whose status will change as a result of the new regulations. However, some employers foresee dozens if not hundreds of their employees becoming non-exempt and thus entitled to overtime pay. The most obvious challenge these new regulations present involves paying previously exempt individuals, time and one-half their “regular rate of pay” for all hours worked in excess of 40 hours in any given workweek. This will involve tracking all hours worked, meal and possibly rest breaks, sick days, etc. for previously exempt individuals who were paid by salary and worked unrecorded hours. The failure to track hours worked and/or to pay time and one-half for overtime, will leave unprepared employers open to wage and hour lawsuits that have become so commonplace in recent years. Yet the sweeping changes these new DOL regulations soon will bring, present at least one important opportunity for proactive employers – the best possible circumstances in which to switch potentially misclassified employees from exempt, to non-exempt, without causing a noticeable stir.
In today’s legal environment, where class action wage and hour lawsuits abound, it is hard to find a single employer that can say with confidence that its employees all are properly classified exempt/non-exempt from FLSA’s and related state law overtime requirements. Indeed, a great number of employers secretly acknowledge known problems with at least some of their employee classifications. However, the reason these employers do not act to correct the situation by reclassifying questionable workers currently treated as exempt, is that doing so will expose the fact that they have not been paying overtime to the employee(s) in question. The rationale is somewhat understandable: why make a change that can result in claims for overtime going back 2-3 years (the potential limitations period under the FLSA)? But this “ignorance is bliss” approach is likely to work only temporarily, as wage and hour lawsuits continue to grow at an alarming rate and plaintiff lawyers sniff out misclassified workers. So while the new DOL regulations surely pose concerns for most employers, there may be no better time than now to bite the bullet and make changes to questionably classified workers amid the tumultuous reclassification of some six (6) million workers resulting from the new DOL regulations!
Frankly it does not matter whether the new regulations will have a specific impact on a particular worker or class of jobs. The important thing is that sweeping changes are being made by the DOL. Moving employees from exempt to non-exempt to fix past misclassification of their status, at the same time as changes to the regulations are causing massive numbers of workers to be reclassified, provides an easy answer for the change. Employers asked by an employee why he or she was paid by salary yesterday but must now punch a time clock or fill out time cards, or why the employee now receives overtime pay but did not in the past, will have a simple, honest answer: the U.S. Department of Labor is changing the regulations and we as a company are reacting to those changes.
The last time the DOL overtime regulations were changed (the first time in 50 years) was in 2004, during the Bush administration. We assisted numerous employers in seizing the opportunity created by those changes, to make changes of their own to fix problems with their classification of exempt employees who probably should have been treated as non-exempt employees all along and paid overtime. While there are no guarantees that this approach will not cause affected employees to ask questions, coupling these changes with DOL changes to its wage and hour regulations resulted in relatively smooth sailing and, more importantly, no lawsuits. Today, 10 years later, these employers sit comfortably in having put their exposure to wage and hour lawsuits over employee misclassification and overtime claims behind them.
There are a number of additional measures an employer can take to minimize the chance of being challenged when reclassifying employees from exempt to non-exempt. Normally a basic strategy can be prepared through a consultation meeting of no more than an hour or two. For assistance with preparing for the new DOL regulations and/or to take advantage of their changes to evaluate a strategy to fix problematic exempt employee classifications, feel free to contact Wessels Sherman attorney James Sherman at (952) 746-1700 or email him atjasherman@wesselssherman.com, or arrange a teleconference or meeting with him by contacting Christine Beggan at chbeggan@wesselssherman.com.
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