August 5, 2010
Previously published on July 2010
Over the past year, the federal government and many states have been stepping up actions to enforce wage and hour laws. In May, the U.S. Department of Labor announced that it would be seeking to change Fair Labor Standards Act (FLSA) regulatory record keeping requirements regarding exempt employees, and states such as New York have announced new laws aimed at curbing employee misclassification and overtime abuse. The Department of Labor’s Wage and Hour Division (WHD) further announced in May that its goal is to foster a culture of compliance to replace what it has described as “a catch me if you can” system. With these new laws and regulations employers can expect to see an acceleration of enforcement proceedings as well as more stringent reporting requirements. Employers can expect the new federal regulations to go into effect within the next year, making now the time to begin a review of the pay structure and the classification of the job positions in the work force in anticipation of these new regulations.
Under the proposed WHD regulations, employers will be required to notify workers of their FLSA rights, and to provide them with information regarding hours worked and methods of wage computation. On similar grounds, the New York Legislature, following the lead of Alaska, Connecticut, Delaware, Hawaii, Idaho and Illinois, has amended Labor Law § 195.1 to now require that all new hires be provided with written notice of: their pay rate(s); their overtime pay rate (if they qualify for overtime pay); and their regular payday. The new Department of Labor regulations will also require every employer that has employees it seeks to exclude from FLSA coverage, i.e., employees falling into the “exempt” categories, “to perform a classification analysis, disclose that analysis to the worker, and retain that analysis to give to the WHD enforcement personnel who might request it.”
For employers, it is unquestionably more convenient to classify an employee as exempt from the overtime provisions of the FLSA. Exempt employees do not punch a clock and do not collect overtime. Tracking their time and leave is simpler. However, the FLSA’s criterion for dividing employees into exempt and nonexempt categories was not drafted with ease and convenience in mind. In order to properly classify an employee under the FLSA, an examination of the following is required: a) salary (amount and basis of payment, i.e., whether the employee receives a weekly “guaranteed minimum” regardless of days worked) and b) duties performed. Whether the duties of a particular job qualify as exempt depends on what those duties are, regardless of the employee’s job title. In order to determine whether an employee is properly classified as exempt, an evaluation of that employee’s actual job duties and how they fit into the employer’s organization must be undertaken. FLSA exemptions are based on actual job duties, and require that an employee be engaged in a job that fits with the defined exemptions, generally executive, professional (including computer professionals), administrative, or outside sales positions. Classification under the exemptions requires an employer to undertake a review of the type of work performed, the amount of time spent on the work, the education level, and the responsibility given to the person performing the exempt position.
In light of the stepped up enforcement efforts, employers should coordinate a review of their current employee classifications with their counsel in order to ensure compliance with current requirements and in anticipation of the expected WHD notice and reporting regulations. Under the proposed regulations the compliance review will require a written evaluation provided to the employee, and kept on file in the event of a WHD audit. Employers should spend the effort up front to ensure that these classifications are correct, as this will be key evidence in any enforcement action in which the classifications are later challenged.
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