The Department of Labor (“DOL”) plans to more than double the minimum annual salary necessary for FLSA exemptions – currently $23,660 to $50,440. The DOL will likely issue a final rule later this year. This will be one of the biggest workplace regulatory changes of the year (hence, why you have probably heard so much about it). The proposed change will inevitably alter companies’ operations through reclassification of employees, rearranged work schedules, modified job duties, etc. Employers that are particularly susceptible to the risk of employee misclassification include those in the manufacturing, non-profit, education, home health, restaurant, hospitality, and retail industries. According to one DOL director, employees in the hotel and hospitality industry are “some of the most vulnerable workers.”
For many, the proposed changes will convert otherwise proper employee classifications into misclassifications. And employee misclassifications can have costly consequences. For example, in 2012, Wal-Mart agreed to pay $4.85 million in back wages to more than 4,500 vision center managers who were misclassified as exempt; in 2014, Lowe’s paid $9.5 million to settle a class action brought by HR managers alleging they were misclassified under the executive exemption; and this past September, Halliburton agreed to pay nearly $18.3 million in overtime owed to approximately 1,000 employees after a DOL investigation revealed the company misclassified 28 job positions as exempt. Now, with the proposed rules changes, lawsuits and DOL audits are expected to increase dramatically.
You should evaluate the impact of these rules on your company in advance of the anticipated implementation of the new FLSA rules. Specifically, we recommend you conduct an internal audit of all the positions within your organization and consider how many exempt workers you employ with a salary below $50,440. Then, you should develop the proper strategy for (1) managing employees’ conversions to nonexempt status and/or continued exempt status and (2) implementing comprehensive policies regarding nonexempt employees’ time cards, lunch breaks, PTO, vacation, sick leave, “off the clock” work, and the like. It may be as simple as raising certain employees’ salaries to the new minimum, or it may require restructuring operations to restrict schedules and avoid overtime expenses. Regardless of the simplicity or complexity of the rule’s impact on your company, changes are coming and changes must be made. And a thorough review now could save you money, time, and potential litigation later.
For many, the proposed changes will convert otherwise proper employee classifications into misclassifications. And employee misclassifications can have costly consequences. For example, in 2012, Wal-Mart agreed to pay $4.85 million in back wages to more than 4,500 vision center managers who were misclassified as exempt; in 2014, Lowe’s paid $9.5 million to settle a class action brought by HR managers alleging they were misclassified under the executive exemption; and this past September, Halliburton agreed to pay nearly $18.3 million in overtime owed to approximately 1,000 employees after a DOL investigation revealed the company misclassified 28 job positions as exempt. Now, with the proposed rules changes, lawsuits and DOL audits are expected to increase dramatically.
You should evaluate the impact of these rules on your company in advance of the anticipated implementation of the new FLSA rules. Specifically, we recommend you conduct an internal audit of all the positions within your organization and consider how many exempt workers you employ with a salary below $50,440. Then, you should develop the proper strategy for (1) managing employees’ conversions to nonexempt status and/or continued exempt status and (2) implementing comprehensive policies regarding nonexempt employees’ time cards, lunch breaks, PTO, vacation, sick leave, “off the clock” work, and the like. It may be as simple as raising certain employees’ salaries to the new minimum, or it may require restructuring operations to restrict schedules and avoid overtime expenses. Regardless of the simplicity or complexity of the rule’s impact on your company, changes are coming and changes must be made. And a thorough review now could save you money, time, and potential litigation later.