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The potential cost of non-compliance to FLSA regulations is high, with hundreds of millions of dollars paid out each year by businesses struggling to comply. Overtime laws in particular see an incredible amount of noncompliance — these complex laws are the top reason for noncompliance lawsuits, and they’re about to change yet again.
The current proposed change to overtime — the Working Families Flexibility Act — was addressed thoroughly by wage and hour legal expert Brian Dixon (of Littler Mendelson) in our most recent overtime webinar.
Read on for an overview of these new overtime changes and the impact they can have on businesses and employees alike* (and for a more in-depth take, find the discussion in its entirety here):
What is overtime?
Currently 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.
The difficulty with overtime
The complex and subjective nature of determining exempt vs. nonexempt employee classification is difficult enough, and the following factors only further complicate the overtime compliance process:
- Geographic variations: State-level overtime regulations vary, so if your organization spans multiple states your compliance laws may vary depending on location.
- Rise of mobile workforce: The mobile workforce may not keep traditional work hours and schedules, and things can get complicated when employees use mobile devices (laptops, smart phones, etc.) for work-related tasks after hours. This can be a grey area when it comes to classifying what does and doesn’t count as overtime work.
Our State-by-State Compliance Guide gives you a more detailed look into labor laws on the state level.
The impact of overtime lawsuits
The number of overtime lawsuits has significantly increased in the past decade, and will likely continue to increase with the proposed changes. Some statistics:
- 2015 saw 8,954 overtime lawsuit filings in federal courts
- The top settlements secured were worth nearly $2.5 billion
- The year-to-year increase has gone up by 450% since 2000
- Out of all wage and hour allegations, overtime is the most common at 42%
- 90% of cases resulting in back wages have an overtime violation
Proposed federal changes last year (still in limbo)
The Obama-era overtime change would have raised the salary threshold for nonexempt workers from $23,660 to $47,476. The duties test would remain unchanged, but the definition of a highly-compensated employee would go from $100K annual salary to $134K.
Though supposed to go into effect in December of 2016, this law was stalled indefinitely by a federal judge’s injunction. As of June 30th, 2017, the U.S. Department of Labor issued a last-minute reply brief stating their decision to not defend the Obama-era overtime rule, and instead seek to begin a new rulemaking process, that will likely lower the salary threshold for exemption.
Proposed federal changes this year
The latest bill — the Working Families Flexibility Act — proposes to tweak the FLSA’s stipulation that employers must pay employees overtime (at 1.5 times the regular rate for time worked over 40 hours each week). If the bill passes, then employers would have the option to offer non-exempt employees compensatory time off (banked at the rate of 1.5 times the number of overtime hours worked, up to 160 hours) in lieu of overtime pay. The bill — already passed in the House — is currently being considered by the Senate, with revisions anticipated. If it passes, it likely would not go into effect until sometime in 2018.
This proposal has been introduced in the past, but never passed into law. Though seemingly straightforward, the bill has garnered a fair amount of opposition that claims it will increase potential for wage theft and make it easier for employers to take advantage of employees.
Next steps for businesses
It behooves every business to get ahead when it comes to overtime compliance. Next steps should be to:
- Emphasize accurate tracking of hours worked and time off for all employees — exempt and nonexempt
- Watch out for potential confusion in record-keeping when it comes to “earned” vs. “used” comp time
- Understand that the costs of overtime legislation extend beyond payroll — new regulations can have real effects on employee morale
- Update employee handbooks and implement specific policies around accrual, use and cash-outs
- Consider whether accrual of comp time may be considered vacation (which must be cashed out on termination)
- Implement additional employee and supervisor training
*Note: The materials available at this website are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.