Working Overtime on Overtime

Here’s a big change that will require some work. If implemented as proposed, most employees earning between $23,600 ($455/week) and $50,440 ($970/week) will be eligible for overtime wages under new soon-to-be enacted regulations.

This change in the federal Fair Labor Standards Act (FLSA) will require employers to take decisive steps to comply with the law. At a recent Breakfast Briefing sponsored by Clark Insurance and Pro Search, attorney Gregg Frame of Taylor McCormack and Frame admonished a gathering of Maine employers not to ignore the requirements. Non-compliance has high-dollar consequences for willful violations.

But what about employees who check emails after hours or over the weekend? How about attending training or business events? Do texts and telephone calls after-hours qualify as work? If they are eligible for overtime, the answer is probably yes. Gratefully, according to Jeff Lind of Clark Insurance, there is insurance coverage for defense costs under many Employee Practices Liability Insurance (EPLI) policies if you have an endorsement for Fair Labor Standards Act claims. Typical policies offer a sub-limit of up to $100,000 for attorney’s fees.

The crux of Frame’s remarks centered on determining which employees are exempt from the overtime law versus those who are classified as non-exempt. To qualify as being exempt from overtime, current law states that employers must evaluate job descriptions and actual work performed in these areas:

• Administrative: “primary duty must be the performance of office or non-manual work directly related to the management or general operations of the employer or the employer’s customers; and, the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.”
• Executive: “primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; and, the employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and the employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change in status of other employees must be given particular weight.”
• Professional: “primary duty must be the performance of work requiring advanced knowledge (predominantly intellectual in character) and which includes work requiring the consistent exercise of discretion and judgment; and, the advanced knowledge must be in a field of science or learning; and the advanced knowledge must be customarily acquired by a professional course of specialized intellectual instruction.”

Those making more than $100,000 per year currently are considered highly compensated and are considered exempt. Under the proposed regulations, that annual amount increases to $122,000. Also, these threshold amounts will now be annually adjusted for inflation.

It should be noted that bonuses, commissions, profit sharing or other discretionary sources of income are not considered part of the weekly wage as they are not guaranteed compensation.

Frame also stressed that overtime pertains to a work week, not pay periods greater than a work week. If the non-exempt employee exceeds 40 hours of work in a work week (seven contiguous days), they are due time-and-a-half wages for those extra hours.

Employers do not want to get caught in the bind of salaried versus non-salaried employment. Employees who do not currently submit their weekly work hours may, in fact, be eligible for overtime if they meet the conditions stated in the law – even though they are thought to be on a salary. That means time keeping will be required to ensure accurate records going forward.

It is expected that the Department of Labor will implement the regulations near the first of the year with 120 days allowed to comply before enforcement begins.

What should employers do to prepare for this change assuming they are not going to raise everyone’s wages above $50,440?

• Review job descriptions and be sure they are the same as the work performed. As Frame said, “The movie better match the book” should the employer be audited or sued.
• Be clear, in writing, that overtime must be authorized by a supervisor.
• Consider making systems inaccessible to hourly workers after-hours unless overtime is authorized.
• Update your tracking systems to accurately account for time worked.

Understand how to “reverse engineer” a salary into an hourly wage, and understand the risks of maintaining salary status for non-exempt personnel.
Because “willful violations” carry a significant penalty, Frame also suggested that employers can have a privileged review by the legal counsel – a discussion not admissible as evidence should the employer be subjected to a “willful violation” claim.

Do not stick your head in the sand unless you want a mouthful of grit.