Overtime Rule – Dead? What Employers Still Need To Do

Since Reince Priebus, President Trump’s Chief of Staff, issued a memo on January 20, 2017, to freeze federal regulations that have not gone into effect, it is looking like the overtime rule might be losing its pulse. While this doesn’t mean it is absolutely over, it’s hard to imagine the Trump administration fighting to implement the Obama administration overtime rule.

Even though the overtime rule might not be a concern, employers still have some work to do. The bigger picture of the overtime rule was identifying which positions were exempt for overtime pay, and verifying the employees would be paid correctly.  Although the rule has been shelved,  any inaccuracies discovered in pay practices still need to be fixed.

As employers learned with the overtime rule, the first step in determining the Fair Labor Standards Act (FLSA) exemption is the Salary Basis Test.  While the overtime rule tweaked the salary basis, many employers overlooked the second test to qualify as exempt, the Duties Test.  The position must comply with one of the duties tests to be exempt from overtime pay.  So, employers should subject each unique position to both the salary basis test and the duties test to get a final determination on the exemption from overtime.  Unless both tests are met, the position is non-exempt and employees in those positions are entitled to overtime pay.  A position cannot be forced into exemption.  You can try, but the DOL is pretty savvy at determining exemption status.

In addition to misclassification, another issue is paying employees correctly within the classifications. It is a common occurrence to come across misunderstandings on how each classification should be paid.  Sometimes employers can get too “crafty” in looking for ways to reduce payroll and violate FLSA requirements.

Exempt positions are paid a predetermined amount (salary basis) and pay is not dependent on the hours or days worked, or the quantity or quality of the work performed.  Situations in which an employer can make permissible deductions to an exempt employee’s salary are a short list:

  • Exempt employees do not need to be paid for any workweek in which they perform no work. Answering work related text messages and emails are considered working.
  • Exempt employees who are absent for a full day or more for personal reasons other than sickness or accident.
  • Exempt employee absences of a full day or more caused by sickness or disability, if the company maintains a plan that provides compensation for loss of salary caused by sickness and disability and the employee exhausted his or her “bank” of leave.
  • Penalties imposed for violation of safety rules of major significance
  • To offset any amounts received by an employee as jury or witness fees or military pay. However, deductions may not be made for absences caused by employee jury duty, attendance as a witness or temporary military leave.
  • Unpaid disciplinary suspensions of one or more full days for breaking workplace conduct rules.
  • Partial weeks worked during the initial or final weeks of employment.
  • In some cases, when a salaried/exempt employee has worked a reduced or intermittent work schedule under the Family and Medical Leave Act (FMLA).

The employer may not make deductions from an exempt employee’s pay for absences caused by the employer or by the operating requirements of the business; such as the business being closed for inclement weather. If the exempt employee is ready, willing and able to work, deductions from the employee’s pay may not be made when no work is available.

Additionally, the permissible deductions need to be applied consistently. If you deduct one exempt employee’s pay to offset jury duty fees you need to do it to all exempt employees.

Following the guidelines for the DOL’s permissible deductions is vital. If an employer makes an impermissible deduction this could violate the exemption status.  Violating the exemption status will render the position non-exempt and the individual in the position will be eligible for overtime, and could incur penalties per each misclassification.

Alternatively, non-exempt get paid for actual hours worked, all hours worked.  It does not matter if the employee was not scheduled to work.  If the employer requires or allows an employee to work, on or off the clock, the employer has suffered or permitted the employee to work and the employee needs to be paid.

Since non-exempt positions are paid by hours worked it is important to know what the DOL considers compensable hours. Problems occur if employers are not aware when non-exempt employees need to be paid.  The DOL has Defined Non-Exempt Compensable Time and includes:

  • Waiting Time
  • On-Call Time
  • Sleeping Time and Certain Other Activities
  • Lectures, Meeting and Training Programs
  • Travel Time

But the one that is often breached is rest and meal time. Rest periods of short duration, usually 20 minutes or less, are common and are customarily paid for as working time. These short periods must be counted as hours worked. Unauthorized extensions of authorized work breaks need not be counted as hours worked when the employer has expressly and unmistakably communicated to the employee that the authorized break may only last for a specific length of time, that any extension of the break is contrary to the employer’s policy, and any extension of the break can be disciplined.

While bona fide meal periods (typically over 20 minutes) generally do not need to be compensated as work time, the employee must be completely relieved from work duties during the meal break. If the employee is not relieved and performs any job duties, whether suffered or permitted, the employee must be paid for that meal break.

A common example would be if a non-exempt employee is eating a meal while at their desk working, or if the company has a lunch meeting, the employee must be paid. If the employer makes a deduction then it could be in FLSA violation of:

  • Not paying an employee for time worked;
  • Unauthorized deduction if your payroll system automatically deducts for meal breaks; or
  • Violating state laws that require meal breaks.

While federal wage and hour laws require non-exempt employees to receive overtime pay for any time worked over 40 within the defined workweek, employers need to know their state overtime laws as well. Some states have daily overtime requirements in addition to the workweek.

Additionally, private employers need to always pay non-exempt overtime as required. It is completely prohibited for private employers to use compensatory time (comp time) in lieu of paying non-exempt employees overtime wages.

While the FLSA Overtime Rule is now nothing but a shadow, the lesson from the overtime rule is employers still need make sure the positions are classified correctly and they are making proper deductions and paying as required by FSLA. Those rules have not changed.

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