Wake Up! The Overtime Alarm Clock is
Ringing.
Panelists:
Laurent S. Drogin, Esq.
Head of Labor and Employment Practice
Tarter Krinsky & Drogin LLP
212-216-8016
[email protected]
David N. Kleinmann, Esq.
Co-Chair, Restrictive Covenant Practice Group
Tarter Krinsky & Drogin LLP
212-216-1115
[email protected]
David Warren, Esq.
MetLife Legal Affairs- Employment Law Unit
212-578-3025
[email protected]
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Why are we here?
WHY ARE WE HERE?
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Litigation Epidemic
• Federal court wage and hour cases: 8,871 for the year
ending Sept. 30, 2015 up from 1,935 in 2000.
• In 2014, the SDNY was the second busiest jurisdiction for
FLSA cases. EDNY was the third.
• Exposure can go back 3 years under the FLSA and 6
years under New York Labor Law. Can include liquidated
damages, attorney’s fees and interest. For each unpaid
dollar more than three can be owed.
• How much is owed; not “if.”
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The Wage and Hour Universe
• Federal Fair Labor Standards Act (FLSA)
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Administered by U.S. Department of Labor (and the Plaintiffs’ bar)
Implementing regulations (29 CFR)
“Opinion letters” (now “Administrator’s interpretation”)
Field Operations Handbook
• State Labor Laws
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Administered by agencies (and the Plaintiffs’ bar)
Implementing regulations
Wage orders (Building service, hospitality, “Miscellaneous”)
Opinion letters
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The Wage and Hour Universe
FLSA: Minimum wage and overtime only
State Labor Laws: Minimum wage and overtime plus…
• Notice requirements
• Rules for specific industries (Building service, tipped
employees)
• Credits towards the minimum wage (allowances)
• Meals and rest periods
• Days of work or rest
• Frequency of pay
• Improper deductions from pay
• Pay when employment ends
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The Wage and Hour Universe
• State labor laws
• New York State Labor Law and “Wage Orders” (NY DOL)
• Payment of minimum wage and overtime
• Follow federal exemptions and adds others
• State specific rules
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Notice to ALL employees (even you)
Frequency of pay
Content of paystubs
Spread of hours pay
Meal and break periods
Laundry allowance
• Overtime after 8 or 10 hours in a day / Sundays, in some states
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Three Prerequisites For Exemptions (FLSA)
• Salary basis test: the employee must be paid a
predetermined and fixed salary that is not subject to
reduction because of variations in the quality or quantity
of work performed (limited exceptions);
• Salary level test: the amount of salary paid must meet a
minimum specified amount; and
• Duties test: the employee’s job duties must meet the
duties required for each exemption as defined by the
regulations
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Overview of Common Federal Exemptions
• Professionals
• Executives
• Administrative
• Highly compensated employees ($100,000 -> $134,004)
• Computer ($27.63 / hour)
• Outside salespeople
• Motor carrier drivers/helpers (interstate)
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Uncommon Federal Overtime Exemptions
• Aircraft, truck, boat and farm implement salespeople
• Salespersons and mechanics at auto dealerships
• Homeworkers making wreaths
• Motion picture theater employees
• Radio station employees in small markets
• Local delivery drivers and helpers
• Livestock auction workers
• Fruit and vegetable transportation employees
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Uncommon State Overtime Exemption Laws
• Most states track the federal exemptions but beware the
State exemptions with no FLSA counterpart
• NY: Camp counselors, Building superintendents
• NJ: Limousine drivers, hotel workers
• MA: Golf caddies
• Beware the States that do not have parallel exemptions
• IL: No computer exemption
• MI: No outside sales exemption
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Common Myths and Misconceptions
• We pay everyone a salary
• We use ADP/Paychex
• We call everyone by an
important sounding title
• This is how it’s done in the
industry
• We prohibit overtime
• They make it up next week
• We give “comp” time
• We tell them not to but they
choose to do it anyway
• We didn’t know they were
working
• We use independent contractors
• Our independent contractors
sign agreements
• My employees love me
• When we pay severance we
have them sign a release
• Employees need permission
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The New “Overtime” Rules (eff. 12/1/16)
• “Overtime rules” is a misnomer
• Increases the salary level to $913 per week ($47,476 annually);
• Increases the total annual compensation requirement for highly
compensated employees to $134,004 ($2,577 per week);
• Establishes a mechanism for automatically updating the salary and
compensation levels every three years;
• Amends the salary basis test to allow employers to use nondiscretionary
bonuses and incentive payments (including commissions) to satisfy up to
10 percent of the new standard salary level; and
• Will be challenged in the Courts.
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Oddball Changes
§ 541.709 Motion picture producing industry.
The requirement that the employee be paid ‘‘on a salary basis’’ does not apply to an
employee in the motion picture producing industry who is compensated, as of
December 1, 2016, at a base rate of at least $1,397 per week (exclusive of board,
lodging, or other facilities); and beginning on January 1, 2020, and every three
years thereafter, is compensated at a base rate of at least the previously applicable
base rate adjusted by the same ratio as the preceding standard salary level is
increased (exclusive of board, lodging, or other facilities). Thus, an employee in this
industry who is otherwise exempt under subparts B, C, or D of this part, and who is
employed at a base rate of at least the applicable current minimum amount a week
is exempt if paid a proportionate amount (based on a week of not more than 6 days)
for any week in which the employee does not work a full workweek for any reason.
Moreover, an otherwise exempt employee in this industry qualifies for exemption if
the employee is employed at a daily rate under the following circumstances: (a) The
employee is in a job category for which a weekly base rate is not provided and the
daily base rate would yield at least the minimum weekly amount if 6 days were
worked; or (b) The employee is in a job category having the minimum weekly base
rate and the daily base rate is at least one sixth of such weekly base rate.
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What’s really new?
• Many states have higher weekly thresholds (NY $675)
• California $41,600 per year
• Duties tests were not changed
• No changes to major exemptions (e.g., computer)
• Heightened scrutiny by employees, DOL and Plaintiffs’ bar
• Increases pool of prospective plaintiffs
• Will more exempt employees lead to reduced litigation?
• Will employers pay closer attention to pay practices?
• Forces employers to revisit compensation structure to minimize
actual cost.
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Winners and Losers
• Winners:
• The “newly exempt” employee getting a raise to $913 per week
• The “highly compensated” employee going to $134,004 per year
• $30,000 employee earning the same as the $47,476 employee
• Losers:
• The “old exempt” under $913 per week (or $134,004 per year), getting
no raises ($676/week employee in NY and no overtime)
• The $914 per week, $134,005 per year employee, not getting a raise
(getting squeezed)
• $47,476 employee being paid the same as the old $30,000 employee
• Employers, who will have to learn, sell and live with it
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Best Practices
• Conduct an exemption analysis under federal and state law
(or obtain legal opinion letter) on classification
• Attempt to comply helps avoid “willful” violations
• Remember to check for uncommon exemptions
• Special attention to inside / outside salespeople
• Ensure clarity of commission agreements
• Discretionary rather than guaranteed bonuses
• Tracking hours; off the clock time; rounding errors
• State specific notices, payroll rules and uncommon laws
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Best Practices Continued
• Analyze and ensure accuracy of paystubs for full and
correct content
• Check recordkeeping requirements (what and how long)
• Publicize safe harbor provisions
• Reconsider “off the books” employees
• They work a lot more than you think
• Maintain cash payment ledger and get receipts
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Employer Responses to the New Regulations
Ideas from the DOL:
• Increase the weekly salary of non-exempt employees to
$913 (must meet the duties test)
• Keep employees non-exempt and pay an overtime
premium of one and a half times the employee's regular
rate of pay for any overtime hours worked
• Do the math, as this may lead to more overtime
• Adjust hours to reduce or eliminate overtime hours
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Employer Responses to the New Regulations
Ideas from the DOL:
www.dol.gov/whd/overtime/final2016/general-guidance.pdf
Employers can adjust the amount of an employee’s earnings to
reallocate it between regular wages and overtime so that the total
amount paid to the employee remains largely the same.
Employers may not, however, reduce an employee’s hourly wage
below the highest applicable minimum wage (federal, state, or local),
or continually adjust wages each workweek in order to manipulate the
regular rate.
The employees’ hours worked must still be recorded, and overtime
must be paid according to the actual number of hours worked each
week.
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Potentially Great Solution
Explained:
• Keep paying a salary, but build in overtime
• “Pre-pay” overtime by building it in to the expected hours
and hourly rate
• Reduce the hourly rate and allocate a certain amount of
overtime each week to hold total weekly pay constant
• Must advise the employee and get it in writing
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Example
• To avoid overtime I must pay you: $913 per week
($47,476 per year)
• I don’t want to. I will continue to pay you $37,180 and you
are non-exempt
• That is $715 per week (rain or shine, just like it is now)
• Your salary is intended to cover 50 working hours
• You will be paid for 40 hours @ $13.00 /hr. (must be
above minimum wage) and 10 hours @ $19.50 /hr.
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Example Continued
• If you work more than 50 hours in a week, each hour will
be paid @ $19.50 per hour
• 40 hours x $13.00 = $520. 10 hours x $19.50 = $195
• $520 + $195 = $715. $715 x 52 weeks = $37,180
• $47,476 - $37,180 = $10,296.
• $10,296 ÷ $19.50 = 528 hours per year savings
• 10 hours per week (average) before you are in the red
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Selling it to Unhappy Employees
• It’s the law (not our fault)
• The lawyers (or CPAs) are making us do this
• You are still getting your salary; it’s just shown differently
• Overtime may increase your compensation
• Just another way of paying the same amount
• No change in your title or loss of prestige
• New use of time clocks, time sheets, palms and portals
(beware of off the clock)
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Class Waivers and Arbitration Provisions
• Agreements can contain class waivers and provisions
requiring that all claims be arbitrated
• Best reason for arbitration is that it can be cheaper than
litigating in Court and it can somewhat shield the claims from
public disclosure. No guarantees here.
• This is not one size fits all.
• Do we always want to litigate the claims separately? Are 50
$10,000 (wage notice/wage statement) claims with attorney’s
fees to a prevailing party better than one class claim?
• Will not stop a DOL investigation.
• Require confirmation of Award with court approval?
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