Work to Do – Businesses Need to Be Proactive to Cope with the New OT Rule

On May 18, the Department of Labor (DOL) finally released its highly anticipated revisions to regulations governing the Fair Labor Standards Act (FLSA). Under the FLSA, employees who are considered exempt under one of the so-called ‘white-collar’ exemptions are not entitled to be paid overtime if they work more than 40 hours in a workweek.
The threshold salary level for exempt status is currently $455 per week, which is equivalent to an annual salary of $23,660. However, under the revised regulations, on Dec. 1, the new minimum salary threshold will go up to $913 per week, annualized at $47,476. Any employee who is not making the minimum salary threshold will automatically lose their exempt status and be entitled to overtime pay. It’s estimated that 86,000 Massachusetts workers would then become entitled to overtime pay.
Fortunately, employers have time to decide how to handle this huge change. The first step is to conduct a wage/hour audit by identifying those employees whose minimum salary level falls below the new threshold. Employers should ask those employees to begin tracking their hours of work. Decisions about how to handle these workers will depend, in part, on whether the employee currently works more than 40 hours in a workweek and, if so, how many hours the employee generally works.
At the same time, companies should be reviewing their exempt employees’ job responsibilities to determine whether the job descriptions for these workers truly qualify them for exempt status.
In a recent case, Marzuq v. Cadete Enterprises, the U.S. Court of Appeals for the First Circuit ruled that store managers’ claims for unpaid overtime could proceed to trial. In that case, one of the store managers, Gassan Marzuq, earned $825 per week, or $42,900 per year, in 2012, only slightly less than the new minimum salary level. So in Marzuq’s case, Dunkin’ Donuts might have sought to preserve his exempt status by raising his salary to the new minimum threshold.
But even if the manager’s salary meets the new minimum, that does not mean that he will pass the test for exempt status. Dunkin’ Donuts store managers spend a substantial amount of time substituting for crew members who miss their scheduled shifts, serving customers, and cleaning, in addition their other responsibilities, which include calibrating equipment, handling cash, training and supervising employees, and substantial paperwork. In his lawsuit, Marzuq claimed he had been misclassified as exempt and was therefore entitled to overtime pay whenever he worked more than 40 hours in a workweek.
Under the DOL regulations, a manager can be considered exempt even if he is serving customers at the same time that he is supervising employees. The issue is whether the manager’s exempt duties are his primary duty. Marzuq claimed that he spent most of the time, perhaps as much as 90{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}, performing non-exempt work. Courts reviewing exempt status will look at a number of factors, including the amount of time spent performing exempt work. Time alone, however, is not the determinative test; it is the ‘overall character’ of the employee’s position that determines whether exempt or non-exempt work is the employee’s primary duty.
The court found that, since the managers spent a large portion of their days performing manual labor normally assigned to a non-exempt worker, it was questionable how much time was actually spent in management roles. The court concluded that a jury should decide whether the managers’ work was truly exempt. It noted that, in addition to their work in non-exempt roles, administrative tasks were a relatively small portion of the workweek, store managers’ authority to problem solve or terminate an employee was apparently limited, and taking into consideration the number of hours worked by each manager each week and the fact that the non-exempt employees could receive tips, the non-exempt staff might actually make more per hour than their managers.
Looking at the overall character of the managers’ primary duty, the First Circuit determined that a jury should decide how many hours the managers regularly worked, how much time they spent in non-exempt work, and the portion of that non-exempt time in which they were performing both exempt and non-exempt duties. In addition, the court found there might be a jury question as to whether the managers had a substantial role in decisions affecting their crew members.
The bottom line here is that, even for those employees whose salaries are close to the new minimum, raising their wages to meet the new threshold won’t solve the problem if their job duties do not qualify for the exemption. So the court’s analysis here is significant for all exempt workers, even for those whose salary level may not need to change after the DOL’s final regulations are issued.
As a result, the time is ripe for employers to re-evaluate their exempt/non-exempt classifications. If you are concerned that some of your exempt workers may be misclassified, the new regulations will give you a reason to revise the classification without necessarily creating liability for past wages. Consult experienced labor and employment counsel if you need guidance on how to properly classify your exempt workers.