'White-collar' revisions could be delayed, but preparation advised

By G. Phillip Shuler

By now, most of you already know that the United States Department of Labor issued its long-awaited final revisions to what are known as the "white-collar" exemptions to the Fair Labor Standards Act (FLSA) in April.

That is, it explained the new way employers must determine which employees are entitled to overtime pay. What you may not know is that the Senate quickly proposed legislation essentially designed to block the new rules from taking effect on Aug. 23 as planned.

When that legislation reached the House of Representatives, however, it was dropped.

But there are still some stirring legislative efforts to stop the exemption revisions from taking effect, and there is still a large measure of uncertainty about what will happen - especially given the backdrop of the upcoming November elections.

Notwithstanding this uncertainty, prudent employers should begin preparing themselves now to be ready and in compliance by Aug. 23. The Department of Labor expects that this is happening and specifically so stated in the preamble to the new regulations. It noted that "updating the rule is an action-forcing event and a catalyst for compliance. Employers who may not have undertaken an audit of the classification of their workforce may be more likely to do so after the promulgation of the final rule."

In short, notwithstanding the effort and expense it will take, advance work to help ensure compliance is a good idea and will, ultimately, benefit you and your business in the long run.

If you take this advice, you will not be alone. Thompson Publishing's FLSA watchdog group reports that the Department of Labor estimates that employers will spend in excess of $620 million in the coming year to update their policies to conform with the final regulations, and another $100-plus million to review and reclassify covered jobs.

Clearly, it is understood that employers who begin this process earlier rather than later will have more time to properly classify or reclassify their workers, update their applicable payroll policies and, hopefully, help insulate themselves from litigation, legal fees, and the potential for double damages possible under the regulations.

With this in mind, we have collected below some of the basic things employers can and should do now to begin the process of bringing themselves into compliance with the new white-collar exemptions and related regulations.

Recognize and prepare for the new salary basis test. One of the most notable things about the new regulations is that they changed the minimum salary basis for exemption from $155 to $455 per week - or from roughly $8,060 to $23,660 per year. This all but assures that any salaried employee earning less than $23,660 per year will qualify for overtime pay for any hours worked more than 40 in a workweek.

Thus, one of the first and easiest things that an employer can do is to make sure that it is complying with the new salary requirement for exempt employees. The Department of Labor has observed that there are more than 2.5 million salaried employees who currently earn between $155 per week and $455 per week - this is where a lot of decisions will have to be made by employers.

If an employee that qualified as exempt under the old salary level no longer qualifies, the employer has two choices: categorize the worker as non-exempt and pay him or her overtime, or increase his or her salary to at least $455 per week, assuming that the worker also has "exempt duties" - which is discussed below.

Audit payroll practices and train payroll department employees. Employers should also start auditing their payroll practices. By this we mean that each employer needs to review its payroll distribution, salary levels, and partial-day salary deductions, actively looking for possible salary-basis test violations. It is much cheaper to find and correct them now.

Employers also need to begin training their payroll departments about the new salary-basis test provisions. They likewise need to begin making human resources personnel, supervisors, and managers aware of the FLSA's new rules, as well as any relevant state wage laws.

Human resources and payroll personnel who are well-trained and well-versed in the new regulations can help ensure that managers make only proper wage deductions, and that similar periodic audits are conducted on an ongoing basis.

The sooner your payroll personnel, supervisors, and managers are trained to seek out and catch these potential violations, the sooner you will be able to return your focus to actually running your business - with the added comfort that someone is helping to protect it from FLSA violations.

Update job descriptions. In conjunction with this, now is a good time for employers to review and revise employee job descriptions. The goal here is to ensure that each job description accurately depicts what employees working under that description are actually doing.

In accomplishing this update, employers would be wise to become familiar with the terminology that the Department of Labor uses in the new regulations and actually use it yourself in crafting new job descriptions whenever possible.

This will hopefully make compliance with the "duties test" for exemption more automatic and, at the same time, it may make your job descriptions less a source of misclassification.

Along these same lines, and in keeping with your need to comply with the duties test if you are going to classify an employee, or class of employees, as exempt, Employers would be well advised to describe in as much detail as possible how the job duties performed by an exempt worker require him or her to exercise "discretion" or "independent judgment," which is a fundamental requirement under most of the duties tests in the white-collar exemptions.

Put another way, if a particular employee's job, or a category of jobs, is supposed to be an exempt position, you should avoid drafting the related job description using language that suggestions that the work is routine, technical, basic, or closely supervised. The point being that you should underscore any "discretion" that an employee under each job description must exercise on a regular basis.

This will help strengthen your claim for exempt status if that job or classification is challenged.

Document your exemptions. This is the white-collar-exemption opportunity for us to echo the advice we so often give employers: document, document, document. In this way, reviewing and revising your employees' job descriptions is no different than the steps you take in protecting yourself from any other source of potential liability you have in the workplace. Employers should create and keep a record explaining why each position was classified as non-exempt or exempt.

As a central part of this, you should also elaborate upon and document each job or classification's "primary duty" and explain why it is considered exempt and under which exemption you believe this is so. While the thought of doing this may seem like torture, this type of documentation may very well protect you if a dispute over an exemption ever arises and, perhaps more importantly, it may help you support a "good-faith defense" on a claim for damages and penalties.

Seek a "safe harbor." In the new regulations, the Department of Labor put forth a new "safe harbor" rule that can save employers from certain kinds of salary-basis test errors. An employer can only take advantage of the safe harbor rule if it has:

• A clearly communicated policy prohibiting improper deductions
• A system in place by which employees can lodge complaints regarding deductions, etc.
• A policy of reimbursing employees for wrongful deductions
• When the employer commits to future compliance with the FLSA

Revising your policies and handbooks to include the items required for safe harbor protection will help you avoid "willful violations" of the FLSA - which is important because such a finding is what triggers a three-year statute of limitations period for back-pay claims. Likewise, it is very important for employers to make sure that they properly and fairly address any employee complaints regarding improper deductions because, notwithstanding any written policy prohibiting them, an employer may still be liable for violations.

In closing, while there is still healthy debate about the ultimate effect of the new regulations, because they are still quite complicated to navigate, it is generally agreed that they do more good than harm - if for no other reason than their clarifying effect on points that were previously far less clear.

With some guidance from your labor counsel and some attention on your part, you can make the new regulations work for you while, at the same time, helping your business prevent liability based upon the FLSA.

Editor's Note: G. Phillip Shuler is a partner in the New Orleans office of Chaffe, McCall, Phillips, Toler & Sarpy.