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Those who say it cannot be done, should not interrupt those doing it.
— Chinese Proverb

Sorry, Scrooge, “Bah, Humbug” Will Not Deter the Department of Labor

Why Employers Need to Comply with the New FLSA Regulations

As the holidays approach employers are faced with many decisions, but one they may not have considered involves compliance with new employment regulations that could put a financial damper on the upcoming festivities. On December 1, 2016, the Department of Labor’s (DOL) amendments to the Fair Labor Standards Act (FLSA) regarding minimum pay for white collar, salaried, exempt employees go into effect. The gist of these new rules ensures that white collar employees “who should receive extra pay for overtime hours will do so, and the test for exemption remains up-to-date so future workers will not be denied the protections that Congress intended to afford them” (United States Department of Labor, Wage and Hour Division, Overtime Final Rule, published May 18, 2016). If you are an employer, are you ready? If not, you may find yourself confronting the holidays more like Scrooge than Santa. Therefore, employers, much like Scrooge, the protagonist from Charles Dickens’ classic tale, “A Christmas Carol,” may be embarking on their own trans-formative journey in December.

The FLSA covers employers that generate $500,000 or more in annual revenues. Wait! Don’t stop reading if you are a small business that does not meet this minimum gross sales threshold. If your business engages in interstate commerce, it is also exposed to FLSA compliance. The DOL defines interstate commerce broadly. The fact that your company may receive mail or phone calls from other states could be interpreted as conducting interstate commerce. Keep in mind that, unlike many federal regulations, the FLSA does not include a small business exemption. Accordingly, your company is probably subject to FLSA regulations.

Starting on December 1, 2016, employers covered by the FLSA are required to pay their salaried, exempt employees a minimum of $913 per week, which is an increase from the current baseline of $455 per week. This calculates to $47,476 annually as opposed to the previous $23,660 threshold. What? How did this happen? Cue the Ghost of Christmas Past.

The new FLSA requirements were enacted in response to a 2014 Presidential Memorandum directing the DOL to “look for ways to modernize and simplify the regulations while ensuring that the FLSA's intended overtime protections are fully implemented” (Ibid). Got that? The last time such a review was undertaken was 2004, leading President Obama to note that the minimum salary exemption baseline of $455 per week was below the 2015 national poverty threshold for a family of four. One of the concerns that emerged during the DOL’s recent assessment of the FLSA regulations was that “millions” of employees have been mis-classified as exempt and, therefore, not paid the overtime to which they are entitled. After soliciting public comments from over 270,000 individuals and organizations, the Final Rule was announced by President Obama and the DOL on May 18, 2016 with an effective date of December 1, 2016. It should be noted that the “duties” test for salary exemption, particularly the Professional, Administrative, and Executive exemptions, remain unchanged by the new Final Rule.

Like the Ghost of Christmas Present, the apparitions of “Ignorance” and “Want” loom over employers as they wrestle with the impact of these new regulations. Employers who ignore the new policies do so at their own peril. Ignorance of the law is not a defense to noncompliance. If an employee can establish that he was not paid properly under the FLSA, two years of back wages can be awarded. Moreover, if it is determined that an employer’s failure to pay was “willful,” then three years of back wages may be awarded and recovery could be doubled in the form of liquidated damages. Class action lawsuits brought by employees are reportedly on the rise because the FLSA allows attorney’s fees to be awarded in addition to back pay and liquidated damages.

Similarly, employers who “want” to keep their employees exempt without increasing their pay in accordance with the new FLSA standard, cannot say, “Bah Humbug!” They now have no choice but to meet the new salary threshold Violations can result in claims and litigation--just like they would for those who choose to ignore the regulations. If an employer does not want to increase the salary to meet the new standard, then it can convert the affected employee to non-exempt and ensure that overtime is paid. The DOL estimates that during the first year of enacting these new regulations over 4 million employees will be extended overtime protection (Ibid.). There is also the option of classifying an employee as non-exempt and still pay him a salary, but any work performed over 40 hours would be subject to overtime. It is incumbent on employers who seek to minimize exposure to wage claims that they enact and endorse accurate record-keeping procedures.

What is the future for employers in the wake of these new FLSA regulations? Here, again, Scrooge’s odyssey provides some guidance. During his travels with the Ghost of Christmas Future, Scrooge realized that if he did not change his ways, his prospects were bleak. So, too, employers must recognize that if they have not begun to assess their compliance with FLSA regulations, their future could be impacted. While no one is expecting the DOL to come knocking on December 1, the agency is responsible for enforcement of the new regulations and is expected to use its audit mechanism to ensure compliance.

The uplifting message at the end of “A Christmas Carol” is that it is not too late to change. We at Workplace FactFinders strongly urge employers to engage their human resources, payroll, and legal partners immediately to develop a compliance strategy.

Key things to consider when creating a strategy include:

  • Evaluation and proper classification of employees
  • Clear communication of any reclassification
  • Auditing record-keeping policies and processes
  • Creation of new policies and procedures regarding timekeeping
  • Training of supervisors involved in enforcing any new policies and procedures

Workplace FactFinders is happy to help with policy assessments and referrals to subject matter experts. To further discuss the new regulations, please contact co-founder Stephanie Woodhead, who prepared this information, at (844) 321-9733 ext. 701.

Please note that the information contained in this article is not legal advice and should not be relied upon as such. Employers should consult their attorney for legal advice.

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