FLSA Deadly Sin #7: DOL vs State Regulations

Not Staying Up-To-Date on DOL or State Regulations

What’s the best way to keep up to date with Federal and State Labor Regulations?

Meet Our Experts

Attorney Staci Ketay Rotman from Franczek Radelet.

Staci Ketay Rotman

Franczek Radelet

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Attorney  Michael S. Kun from Epstein Becker & Green.

Michael S. Kun

Epstein Becker & Green

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Attorney Mark S. Goldstein from Reed Smith, LLP.

Mark S. Goldstein

Reed Smith, LLP

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Attorney James R. Mulroy from Jackson Lewis.

Jonathan M. Young

Greenberg Traurig, LLP

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New FLSA regulations could take effect at any time — are you prepared?

If you’re not up to date on both state and federal regulations, the answer is no.

“The Federal law is one thing,” says Maria O. Hart, “but it’s the minimum. Each state is well within their authority to create a more robust or stronger law. Business owners need to be aware and up-to-date on both.” Failing to do so could have damaging and costly consequences. But it also makes you guilty of our seventh (and most deadly) deadly sin: Not Staying Up-To-Date on DOL Or State Regulations.

Here’s the deal, the law is always changing. New cases arise, reinterpretations emerge, and changes happen. Failing to stay up-to-date means failing to understand what’s expected from you and your employees — which can easily result in FLSA lawsuits.

As always, ignorance is not an alibi. And while it can be nearly impossible to understand or interpret the law on your own (for starters, it’s quite long and filled with legalise), you’re still responsible for keeping current.

“This is a good opportunity for business owners to get in the habit of staying current,” says Hart. Start by informing your HR department to be on the lookout for cases that may change how the FLSA statutes affect your business and your industry. Then, schedule regular check-ins with your employment counsel to ensure your business is staying compliant.

In the meantime, we’ve reached out to the nation’s top wage and hour experts to ask them, “How can employers stay up-to-date?” And, “What can we do to prepare?”

Attorney Daniel Abrahams from Brown Rudnick LLP.
“The FLSA’s wage and hours provisions are a complicated, shifting target. And the law is being reinterpreted in new ways all the time through court rulings, making it very difficult to stay on top of every nuance in real time. Make sure your HR team has an ear to the ground when it comes to pivotal court cases in your industry, and enlist legal counsel to help you stay abreast of changes that may impact you.”

You’re About To Be Hit With An FLSA Overtime Lawsuit

What can employers do to ensure they are up-to-date on federal and state regulations?

Attorney James R. Mulroy from Jackson Lewis.
“As an initial matter, it should be understood that federal, state, and increasingly, local laws regarding employment are constantly evolving. What is more, many states and local governments are increasingly protecting their citizen-workers in areas where Federal law is silent or deemed to be insufficient. Due to these frequent changes and differentiated standards, employers are advised to hire or appoint an employee to stay abreast of those changes. Many businesses also routinely perform audits to ensure that they are complying with the myriad of employment laws. Audits are particularly helpful where the employer has workers in jurisdictions throughout the United States and is treating all of their workers similarly through a single company policy. Many jurisdictions have different laws and employers risk a class-action suit for failing to comply with them.”

What can employers do to prepare for the new overtime rule?

Attorney Staci Ketay Rotman from Franczek Radelet.
“Conduct a privileged compliance review. At the outset, get your in-house or outside counsel involved and establish privilege for the review. If the review is conducted solely by human resources and/or the business, it is discoverable if later sued. Another reason to get counsel involved early is their understanding of the rules and their implications. ”
“Employers should identify all exempt employees and review their salary and job duties to ensure that those employees are properly classified — review their job duties to confirm that they meet one of the white collar exemptions or any other applicable exemption. Employers should also consider interviewing managers/supervisors as necessary to get a complete picture of job duties performed and hours worked. Identify any jobs that involve special issues related to work time, including travel time, working remotely, seasonal work, etc. From there, determine the appropriate response – such as increasing pay, restructuring the job, or reclassifying the job.”
Attorney  Michael S. Kun from Epstein Becker & Green.
“Although the new rule does not go into effect until December 1, 2016, employers would be wise to take the time now to assess how the new rule will impact them rather than wait until the deadline is near, as many will need to make some important decisions and calculations that should not be rushed. Employers should review their workforces and determine which persons currently treated as exempt are not paid enough to satisfy the new salary thresholds. For those persons, employers will need to decide whether to increase an individual’s annual salary to satisfy the new threshold, or whether to convert the employee to non-exempt such that he or she would be paid hourly and receive overtime compensation going forward.”

Key Takeaway

The most important thing an employer can do to prepare is to start NOW. Don’t wait to analyze your compliance or make important changes. Schedule compliance reviews, get your employment counsel involved, and remember: an ounce of prevention is worth a pound of cure.

What options are available to employers pertaining to the new overtime rule?

Attorney Staci Ketay Rotman from Franczek Radelet.
“For exempt employees who make less than $913/week in salary, option 1 is to increase their salary to the new $913/week salary level. Simple. Option 2 is to reclassify those employees as non-exempt and manage overtime where possible. This option is only viable if the employer can’t afford to raise those employees’ salaries or if the employee’s job duties are not considered exempt. If this option is chosen, the employer will need to determine an appropriate payment method and develop appropriate time-keeping protocols. In tandem with increasing salary or reclassifying the position, the employer may want to consider option 3: restructuring the job. This could come in many different forms, such as rearranging duties, splitting the job between two employees, or hiring part-time employees to handle any overage.”
Attorney  Michael S. Kun from Epstein Becker & Green.
“Some of the available options are more obvious than others — making for an easy decision for employers. For instance, if an individual is currently being paid a salary that is $500 below the new salary threshold, we would anticipate that many employers would simply give the employee a $500 raise so that it may continue to treat him or her as exempt. On the other hand, if an individual is currently being paid $15,000 less than the new threshold, we would anticipate that many employers would choose to convert the employee to non-exempt rather than give him or her a $15,000 raise.”
“Where employers will have to make the most difficult decisions would likely be where they would have to give individuals salary increases of several thousand dollars to maintain the exempt status, or where they would have to give significant salary increases to large group of employees to maintain the exemption for them.”
“Importantly, if they convert any employees to non-exempt, employers will need to determine what individuals’ new hourly rates will be based on how much they want to compensate those employees and how much overtime they anticipate those individuals will work. We often refer to this process as “reverse engineering.” An employer presumably knows how much they want to pay an employee for his or her work over the course of a year. To figure out what an individual’s hourly rate will be, the employer would need to estimate the hours an individual is expected to work, including overtime, then work backwards to calculate an individual’s new hourly rate. And, of course, that new hourly rate must at least be the minimum wage. The math is not particularly difficult, but it requires some thought to do it right. If an employer doesn’t include overtime in making the calculation, or underestimates the expected overtime, it could end up paying the employee much more than it wishes. By the same token, if it overestimates the expected overtime, the employee could end up being paid less than he or she was previously paid for doing the same work as an exempt employee, which could lead to a serious morale problem.”
Attorney Mark S. Goldstein from Reed Smith, LLP.
“Options include increasing the salaries of currently exempt employees to meet the new weekly threshold, which will change every three years; converting currently exempt employees to non-exempt status and paying them an hourly wage and overtime if actually worked, or converting such employees to non-exempt but capping their workweek at 40 hours and barring unauthorized overtime (although all overtime hours worked, even if unauthorized, must be compensated); reducing the number of staff or the hours of current staff members; adding staff so that fewer employees are needed to work overtime hours; utilizing the fluctuating workweek method to compensate newly-converted non-exempt employees; or raising prices to offset additional labor costs imposed by the final overtime rule.”

Key Takeaway

When it comes to the new overtime rule, there are more options than just “reclassifying exempt or non-exempt employees” — and the options are rarely ever so black and white. In nearly every case, it’s best to seek the guidance of your employment counsel to ensure you’re making the right decision for your business.

Business owners should consult with legal counsel as they prepare for possible FLSA overtime changes.

What businesses or industries will be most at risk of violating the new rule?

Attorney  Michael S. Kun from Epstein Becker & Green.
“The new rule would seem to impact small businesses, the hospitality industry, and the retail industry the most, along with businesses that operate in areas with lower costs of living. Any business that was paying exempt employees salaries that were close to the current salary threshold, or that is working on small margins, is likely to find itself having to make some difficult decisions.”
Attorney Mark S. Goldstein from Reed Smith, LLP.
“I think the types of businesses that will be most impacted by the new overtime rules are those in the retail and hospitality industries. Small businesses, educational institutions, and nonprofit organizations may also be more likely to feel the sting of the new requirements, which could result in those businesses slashing hours and/or staff, hiking prices, or some combination of the same.”

Key Takeaway

If you work in the retail or hospitality industry, you’ve got a higher risk of getting hit with an FLSA lawsuit due to violating the new rule.

Will employers see more FLSA lawsuits as a result of this new rule?

Attorney  Michael S. Kun from Epstein Becker & Green.
“FLSA litigation is already at an all-time high. It is difficult to imagine that it will increase even more, but it certainly could if employers ignore the new rule or if they communicate their new decisions poorly. One way in which FLSA litigation might increase after the rule is implemented relates to past practices. Employees who were treated as exempt, but who are converted to non-exempt and paid overtime after the rule is implemented, may begin to question why they were treated as exempt before and why they didn’t receive overtime before. In other words, they may question whether they were previously misclassified as exempt. To be classified as exempt, an individual must not only be paid a certain salary, but he or she must also perform certain duties. It would not be surprising for persons previously treated as exempt to file suit saying that they should not have been treated that way and should have been paid overtime all along.”

Key Takeaway

FLSA lawsuits are at an all-time high — and those numbers are predicted to rise. But experts predict that next year’s numbers will be a reflection of past practices rather than employers breaking the new rule. Reclassified employees may begin to question their past classification — which is why it’s always best to make the switch sooner than later.

In Short

  • The new overtime rule is coming fast — experts urge employers to make changes now to avoid being caught off guard — or worse, hit with a lawsuit
  • Schedule compliance reviews and know your options when it comes to the new overtime rule — options are rarely as cut and dry as they seem
  • Retail and hospitality workers are at higher risk of violating the new rule
  • Your past practices may come back to bite you in 2017 — make changes now to avoid unhappy employees

Meet The Experts

Attorney Staci Ketay Rotman from Franczek Radelet.

Staci Ketay Rotman

Staci Ketay Rotman is the Community Investment Officer and Co-Chair of the Wage and Hour Practice Team at Franczek Radelet Attorneys and Counselors. She's the editor and co-author of the firm's wage and hour blog (wagehourinsights.com) and she has also co-authored a number of articles on wage and hour topics. Staci advises and represents employers in all aspects of labor and employment law.

Attorney  Michael S. Kun from Epstein Becker & Green.

Michael S. Kun

Michael S. Kun is a Member of Epstein Becker Green in the Employment, Labor & Workforce Management practice, in the firm's Los Angeles office. He is also the national Chairperson of the firm's Wage and Hour practice group. Kun speaks before professional and business groups on a variety of employment-related topics, and his is the co-editor of the wage and hour defense blog (wagehourblog.com). Additionally, Kun is one of the creators of the Wage & Hour Guide for Employers app, which provides employers with easy access to federal and state wage and hour laws.

Attorney Mark S. Goldstein from Reed Smith, LLP.

Mark S. Goldstein

Mark S. Goldstein is a senior associate in the New York office of Reed Smith and a member of the firm's Labor and Employment. Goldstein's practice is focused on defending employers in a wide range of employment litigation matters. In addition, Goldstein has provided workplace training to managers and Human Resources professionals and has drafted employee handbooks and individual workplace policies to ensure compliance with federal, state, and local law. He is also a contributor to the Firm's blog (employmentlawwatch.com). On Twitter, follow @MarkGoldstein.

Attorney James R. Mulroy from Jackson Lewis.

Jonathan M. Young

Jonathan M. Young focuses his practice on labor and employment matters, including wage and hour claims, class action benefit claims, class action contract and tort cases, state Attorney General investigations, commercial litigation, Department of Labor investigations and banking settlements.