When it comes to overtime, “even the most diligent and proactive employer can run afoul of the FLSA” — including the US Department of Labor (DOL) themselves. This quote comes from Philadelphia attorney Dilworth Paxson, who writes a blog called The Employer Handbook, and affirms that “[overtime] laws can be very difficult to master.” But if this difficulty extends to the very entity that wrote the laws, how can any other employer expect to interpret them correctly?
First, a little background
The Fair Labor Standards Act of 1938 (FLSA) — a landmark piece of legislation — originated in President Franklin Roosevelt’s New Deal, establishing the first minimum wage, a total hour limit for the workweek, and several standards for recording hours worked, wages paid, and overtime wages owed. It also banned child labor.
Over 20 amendments have been made to the FLSA since its origin, including several minimum wage increases over the years and the Equal Pay Act, which prohibits differences in pay based on gender. For more information, an overview of all current FLSA requirements can be found at the DOL website.
So where does overtime come in?
Under the FLSA, nonexempt employees “must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay.” While this seems fairly straightforward, determining which employees are exempt and nonexempt from overtime can prove difficult, and varies greatly depending on salary, hours, duties, and the nature of each job.
Though certain jobs are automatically deemed “exempt” by definition (example – all outside sales employees are exempt, while inside sales employees are nonexempt), for the most part you can determine exempt and nonexempt status through the following tests:
Salary level test: Employees paid under a certain amount annually are nonexempt.
Salary basis test: This determines whether or not employees have a guaranteed minimum salary, and whether or not reductions made to their salaries are “permissible” or “impermissible.”
Duties tests: Employees who meet the salary level and basis tests can still be exempt if they perform exempt job duties for any of the following categories:
- Exempt executive job duties (employee must regularly supervise two or more employees, have management as the primary duty of the position, and have some genuine input into the job status of other employees)
- Exempt professional job duties (the duties of most traditional “learned professions,” including lawyers, doctors, dentists, teachers, architects, clergy, etc, are considered exempt)
- Exempt administrative job duties (employee must engage in office or non-manual work, directly related to management or general business operations, and a primary component of this work most involve exercising independent judgement and discretion about matters of significance)
Oftentimes, determining exemption requires case-by-case evaluation.
Confused yet? The Department of Labor was too
In 2006, the American Federation of Government Employees Local 12 filed a collective action complaint, claiming that the DOL had violated its own FLSA requirements regarding overtime. According to a statement made by Snider and Associates, the Baltimore firm representing the union, “A large portion of the settlement is allocated to back pay and to compensate employees who, in some cases, worked overtime hours for years without compensation.”
The lawsuit ultimately claims the the DOL had misclassified workers under the previously described administrative exemption (one of the three duties tests). The FLSA website itself describes this third duties test as “the most elusive and imprecise of the definitions of exempt job duties” — a statement undoubtedly confirmed by this DOL mishap.
And yet, ever the model employer, the DOL has since gone on to take “numerous steps to enhance its pay practices.” According to DOL spokesman Stephen Barr, the department has “reviewed all job positions, directed agencies to make corrections, revised guidance to supervisors on overtime eligibility issues, and added internal controls on the department’s timekeeping system.”
Want to review your pay practices? Now is the time
Overtime compliance has never been a cakewalk — the DOL settlement is just one of the many instances proving this. Every business could stand to review their wage and labor policies and FLSA compliance, particularly in light of the upcoming changes to federal overtime law. Come December 1, 2016, your overtime policy is going to have to conform to the new rules, which increase the salary threshold for exemption (from $23,660 annual salary, to $47,476), among other things. As the DOL has demonstrated, dealing with overtime retroactively can cost your business millions of dollars. Before the changes go into effect, take the time to review this best practices overview, and this guide to navigating the new overtime rules. You can also find resources provided by the DOL.
To get specific questions answered, register for our Oct. 25th Live Q&A webinar with labor attorney R. Brian Dixon, and HR Information Systems & Payroll Manager Andrew Anderson Devine, of Trunk Club Inc. They will be answering all questions and concerns regarding new overtime rules.