Tag Archives: compensation

DOL Finalizes New Salary Minimum

Update: This post from March 2019 has been updated as of September 24, 2019, because on that day the DOL issued the final salary minimum rule, which changed a couple of important items from what was proposed six months ago.

A new federal overtime rule that has been finalized by the U.S. Department of Labor will become effective on January 1, 2020, and employers need to start preparing now to get into compliance.

The final rule requires employers to pay a higher minimum salary to those employees who meet certain white-collar exemptions to the overtime rules of the Fair Labor Standards Act (“FLSA”). Right now, an employer can pay a salaried exempt employee as little as $455 per week ($23,606 annually) and still claim the exemption (and not pay that person overtime) as long as the employee is performing exempt duties, such as executive work or professional work.

On January 1, 2020, the final minimum salary threshold for exempt employees is going to increase to $684 per week ($35,568) annually)(the proposed rule was $5 per week less, so we thought that the annual number was going to be $35,308). That means that if you have any employee whom you are paying on salary in an amount less than $35,568 per year, you as an employer need to spend the rest of 2019 deciding if you will provide that employee with a raise or reclassify that employee as non-exempt and move him to an hourly rate and pay him overtime when he clocks more than 40 hours in any one workweek.

In addition to meeting this increased salary level to $35,568 per year, anyone you are paying on a salary must also actually perform the duties of an exempt employee (the white-collar exemptions: executive, a professional or an administrator). These duties tests are much more difficult to meet than most people think, so don’t just assume that all of your salaried employees are actually exempt. For example, not every “manager” is an “executive exempt employee”, who under the FLSA must have the power to hire and fire and must supervise at least 2 full-time employees, as well as being in charge of a recognizable store, division or branch of your business.

During the rest of 2019, you have time to audit your pay practices to know who you are paying on salary, review their actual job duties to assure that they actually qualify for one of the exemptions, and then confirm that those salaried employees are making at least $684 per week. As you are going through this process, remember that the Equal Pay Act also applies to your salary decisions and you must not violate it when trying to comply with the DOL’s new salary minimum.

And yes, the DOL does measure the salary basis in weekly increments, so the employee must make at least $684 every week, not just averaged out over the year. The final rule does provide employers the ability to make up 10% of the salary basis test with non-discretionary bonuses and commissions. So, if you pay an executive, administrator or professional employee no less than $32,011.20 in yearly salary (divided by 52 weeks) and then the employee earns another $3,556.80 annually in non-discretionary bonuses and commissions (paid on at least a quarterly basis), you will not be in violation of the final rule.

If this proposal gives you a sense of déjà vu, that’s because we went through this process in 2016 when the DOL proposed an increase of the minimum salary for exempt employees of $913 per week ($47,476 annually). That rule was enjoined by a federal judge in East Texas just before it was to take effect and then died in the courts and under the new administration. No such messy reprieve is expected this time with this lower salary threshold, so businesses need to start talking now about properly paying their salaried employees in 2020.

Employer should also be aware that the “highly compensated employee” exemption under the final rule for 2020 has slightly increased. That exemption currently says that any employee making a salary of at least $100,000.00 per year is exempt as long as the employee is performing non-manual work and that employee performs at least one other exempt duty customarily and regularly. The final rule raises that salary threshold for highly-compensated employees to $107,432 per year (the proposed rule was to raise the highly-compensated employee salary minimum to $147,432, which was universally criticized and so reduced by $40,000).

Obviously, if you have to move an employee from exempt status to non-exempt status because of this salary minimum change, you should find a way to clearly communicate that this change is not a demotion, but simply a change in a governmental regulation. You’ll also need to train anyone moving from exempt status to non-exempt status on your timekeeping rules so that all time worked is properly recorded.

Overtime Rules: Are You Ready?

Reminder: The Department of Labor’s final rules regarding the overtime exemption requirements go into effect December 1, 2016. So in the next month, you must get in compliance with these rules:

  • Salary increase for certain exemptions. The minimum salary requirement for administrative, professional, and executive exemptions dramatically increases from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). If you aren’t paying salaried employees $47,476 per year by December 1, 2016, you will be exposing your business to risky Department of Labor investigations and employee lawsuits.
  • Increase for highly compensated employees. The minimum total compensation required for the highly compensated employee exemption increases from $100,000 per year to $134,004 per year, which must include at least $913 paid on a weekly salary basis.
  • A portion of certain bonuses count. Employers may use nondiscretionary bonuses (generally those announced or promised in advance), incentive payments, and commissions, to satisfy up to 10 percent of the minimum salary requirement for the administrative, professional, and executive exemptions, as long as these forms of compensation are paid at least quarterly.
  • Automatic updates. Every three years, the DOL will adjust the minimum salary requirement, meaning you will need to review and adjust (if necessary) exempt employees’ salaries every three years as well.

 

Don’t wait until December; take steps NOW to prepare for the rule changes:

  • Ensure that your “exempt” employees are actually exempt. It takes more than the proper salary for an employee to be exempt. Call me for help with reviewing the primary duties your exempt employees actually perform to ensure they meet the DOL’s criteria for administrative, professional, and executive exemptions.
  • Compare the costs. If your exempt employees’ salaries fall below the new minimum, you will generally have to either: 1) raise their salaries to the new requirement; or 2) reclassify the affected employees as non-exempt and start following the overtime rules whenever they work more than 40 hours in a workweek. Review exempt employees’ salaries and their typical number of hours worked to determine which option is more cost-effective for your business.
  • Review your timekeeping policies. Get from me written policies and procedures for your business to ensure all non-exempt employees are accurately recording all time worked. I can provide training for employees on proper timekeeping practices and otherwise complying the compensation laws.

Overtime Salary Adjustments Could Violate Equal Pay Act

The new overtime rule is causing employers to rethink employee compensation, but I fear that one pitfall is being overlooked – an employer who pays a woman less than a man for performing the substantially the same duties could be violating the Equal Pay Act of 1963.

Employers who can’t pay their salaried employees at or above the new white-collar exemption threshold of $47,476 may be forced to pay those same employees on an hourly basis and time and a half for all hours worked over 40 in any one workweek. Overtime scares employers because it is difficult to budget for and requires higher costs for each hour of productivity after the employee has worked 40 hours that week.

So in trying to juggle the new law and payroll costs, employers are reducing pay, overtime opportunities and benefits. That may be good business, but if the impact hits female employees more than male employees, we could see an increase in Equal Pay Act cases.

The Equal Pay Act requires that female employees be paid the same as their male counterparts with substantially similar job duties. “All forms of pay are covered by this law, including salary, overtime pay, bonuses, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits,” the Equal Employment Opportunity Commission points out.

If a woman files a lawsuit against a company for paying her less than a man performing the same work, the employer must show that the male employee’s higher pay is based on a seniority system, a merit system, a productivity system or another factor other than gender. That sounds easier than it is. Continue reading Overtime Salary Adjustments Could Violate Equal Pay Act

Employers Must Pay for “Unauthorized Overtime”

I see many employee policy manuals that prohibit “unauthorized overtime”, but employers must still pay an employee his overtime pay, whether the time worked was authorized or not.

Employers need to understand that all governmental enforcement agencies, such as the Texas Workforce Commission (“TWC”) and the U.S. Department of Labor (“DOL”), treat paychecks as sacred and not subject to any reduction or withholding because of a disciplinary reason.

Unauthorized overtime can result in disciplinary action, like a written warning, a suspension or a firing, but not docking of a paycheck or any refusal to pay.

The TWC explains it this way in their publication “Especially for Texas Employers”:

Many employers feel that such [overtime] should not be payable as long as the employer has not authorized the extra work, but the DOL’s position on that is that it is up to the employer to control such extra work by using its right to schedule employees and to use the disciplinary process to respond to employees who violate the schedule.

Just saying in your employee handbook that an employee cannot work overtime without prior authorization is not sufficient. You as an employer need to take steps to closely monitor (and pay for) all hours actually worked. Continue reading Employers Must Pay for “Unauthorized Overtime”

Paying Employees on Salary Soon to Get Expensive

In July 2016, in all likelihood you as an employer will have to start paying your employees more than $50,000 per year if you want to pay them on salary.  If an employee makes less than $50,440 per year, by this summer that employee will need to be paid on an hourly basis and receive overtime whenever the employee works more than 40 hours in any one workweek.

The new regulations proposed by the Department of Labor last summer to increase the required salary basis under the Fair Labor Standards Act are expected to be finalized in July 2016, according to a statement made by the Solicitor of Labor to the New York State Bar Association.

Currently, an exempt “white-collar” employee who can legally be paid on salary only has to make $23,660 per year ($455 per week) and meet the specific duties of a professional, an administrator, a computer professional or an executive. This summer that number is widely expected to increase to $50,440 ($970 per week) and will be tied to an inflation formula that will raise that threshold number annually.

Once the final rule is released in the summer of 2016, employers could have as few as Continue reading Paying Employees on Salary Soon to Get Expensive

Texas Employers Need Snow Day Policy

Texas employers should have a policy to give employees advance warning of what to expect on a snow day, particularly in the Texas Panhandle, where we often have a couple of inclement weather days per year.

The easiest way to determine whether to keep your facility open or not is to follow your local school district’s decisions and let your staff find out through the media. That relieves you of having to communicate the decision to every employee. It is also helpful to your employees to be able to stay home with school-aged children who have no other place to go that day.

Texas and federal law do not specifically dictate when an employer must be open or closed during inclement weather, but they do dictate how compensation must be determined during those times.

Hourly employees do not have to be paid when they perform no work. Exempt employees, however, have to be paid their normal salaries when your facility is closed for weather reasons. On days when the company is open, but a salaried employee chooses not to travel because of road conditions near their house and therefore performs no work all day long, the exempt employee can be docked for that day or be required to use available paid time off.

The other pitfall with inclement weather days occurs when employees work at home on a snow day. If you give your employees the ability to remotely access their computers, if you allow them to take work home, or if you expect them to check emails and return phone calls on a snow day, you will need to pay them for those work hours (non-exempt employees) or that whole day (exempt employees).

I suggest that every employer adopt some kind of inclement weather policy similar to this one: Continue reading Texas Employers Need Snow Day Policy

Holiday Gifts and Bonuses Can Trip Up Employers

Employers are generous but sometimes uninformed in December, handing out holiday gifts and bonuses without realizing the legal consequences. As an employer, you have to consider the tax and compensation consequences of your gifts. Bah Humbug!

The Fair Labor Standards Act divides bonuses into two categories: discretionary and non-discretionary. Discretionary bonuses must be decided in the employer’s sole discretion. They cannot be earned by any formula or used as a motivator or incentive. If they are truly discretionary (which is up to the employer to prove), cash bonuses do not have to be rolled into an hourly employee’s regular rate of pay on which overtime is calculated.

Holiday bonuses may be discretionary if they just fall like manna from heaven onto the employee without the employee knowingly working towards the bonus.   Generally, the amounts, timing and basis for the discretionary bonus should not be announced in advance to avoid the appearance of being an incentive.

If the holiday bonus is earned by the employee by meeting certain announced criteria, Continue reading Holiday Gifts and Bonuses Can Trip Up Employers

Employers Can’t Prohibit Wage Discussions

Many employers require their employees to sign and abide by the terms of some type of confidentiality agreement, confidentiality clause, or non-disclosure agreement as a condition of employment.  Usually, the intent of such an agreement is to protect sensitive information and prevent such information from being discussed outside of the company.  But employers should carefully consider the language and wording of confidentiality agreements to make sure they are in compliance with the standards set forth by the National Labor Relations Act (NLRA).

While you might think you are well within your rights to require a confidentiality agreement that prohibits an employee from discussing such things as company “financial information” or “personnel information”, the Fifth Circuit of Appeals (which decides federal appeals for cases originating in Texas) ruled in Flex Frac Logistics v. NLRB that such an agreement is unlawful. The ruling applies even to non-unionized companies like yours.

The Fifth Circuit decided that by prohibiting the employee from discussing company financial information and/or personnel information, the employer was infringing upon the employee’s right to discuss and negotiate the terms of their employment, including salary and hours. The NRLA protects activities by employees that would aid in the formation of unions, including free discussion of the employer’s pay practices.

Therefore, if you are contemplating incorporating some type of required confidentiality agreement or non-disclosure agreement into your company policies and procedures, or if you already have an existing confidentiality policy, the terms and conditions should be carefully reviewed to insure compliance with the NLRA.  And keep in mind that the NLRA applies to ALL employers, regardless of whether or not the employer has union employees.  Also, make sure you don’t have any other policies (written or generally understood) or employment agreements that prohibit employees from discussing wages.

Employers Vulnerable to Overtime Claims

As it routinely does, the United States Department of Labor recently released to the media a report of another Texas employer who had to pay back wages to current and former employees for overtime violations. This time the company was Porter Ready Mix Inc., in Porter, Texas and the amount was $173,863. But it could have been almost any employer because the overtime laws are very difficult to understand and follow. The DOL gets more than 26,000 complaints a year and collected $224 million in back wages in fiscal year 2011. Some of its favorite targets are restaurants, construction companies, agriculture, hotels, healthcare providers, landscapers, preschools and other industries that pay lower wages, but no employer is immune. Porter Ready Mix’s mistake? It paid gravel truck drivers by the trip instead of by the hour.

If you as an employer are paying any employee in any manner other than by the hour and paying time and one-half for all hours over 40 worked in one week, you too could be facing a Department of Labor investigation soon. Paying employees by the day, by the trip, by travel time, by commission, by tips, by bonus, by incentive, even by weekly salary can put you in the hot seat. Salaried employees must fall into one of four or five narrow categories to be exempt from overtime. Many employers put employees on salary or another pay scheme without doing any analysis of whether failing to pay overtime is legal based on that particular employee’s job duties.

Don’t rely on your instinct, your competitors, your experience, your employee’s desires or any other resource other than the Fair Labor Standards Act when you set compensation for a new employee or when you are reviewing your current staff compensation. Do your research before you pay any employee on any basis other than hourly plus overtime.