The Fair Labor Standards Act (“FLSA”) requires employers to pay employees a minimum wage and overtime for covered employees. The act applies to private employers (or employees) engaged in interstate commerce; thus, it applies to virtually every security company. Interstate commerce includes commerce that occurs entirely within a state — referred to as “Intra-State Commerce” — so you cannot avoid the act just because your operations are located within a single state. The FLSA also requires the payment of prevailing wages under federal contracts.
Certain categories of employees are exempt from the FLSA minimum wage and overtime requirements. Some but not all of the tests used to determine whether or not the act applies to a particular employee or class of employees includes a minimum salary. If the employee earns more than the minimum salary, assuming you pass the act’s other qualifying tests, the FLSA likely will not apply (state laws may differ). If the employee earns less than the minimum salary, the FLSA applies and you must comply with the act’s overtime rules. These rules are called the salary threshold provisions.
FLSA overtime claims are often the subject of very expensive class action lawsuits. Class action lawyers find a group of employees at one or more companies that failed to pay FLSA-required overtime and sue on behalf of the class seeking back pay for their clients, costs of suit and attorneys’ fees (federal law permits a court to impose fees in certain cases).
Last year, President Obama directed the Department of Labor to revise the salary minimums for the FLSA. Employment law experts expect that sometime this year, the Labor Department will issue a final rule overhauling the Act’s overtime exemption rules and salary threshold provisions.
The Labor Department published its proposed rule last summer. Once enacted, the rule is expected to extend overtime protections to nearly 5 million white-collar workers within the first year of implementation. While it is uncertain what differences, if any, will be made between the proposed rule and the final rule, we do know the final changes to the overtime exemption rules and salary threshold will be significant. Editor’s Note: Please see this month’s People Power column for the answers to common questions on the new overtime exemption rules.
Preparing now for those changes makes good business sense. Here’s what we know:
- The minimum salary threshold for white-collar exemptions to the FLSA overtime law will increase. The current salary threshold that “executive, administrative, professional, outside sales and computer” employees must meet in order to be exempt from overtime is $23,660. In the proposed rule, the DOL sought to increase this threshold to $50,440. The final rule, which the DOL will issue after receiving some 270,000 public comments to the proposed rule, may include a somewhat lower threshold, but it will still likely be significantly higher than the current threshold.
- The threshold amount for “highly compensated employees” exempt from overtime laws will also likely increase. In the proposed rule, this threshold increased from $100,000 to $122,148. Again, while we do not know if this threshold will increase by the amount proposed, we do know that this threshold will increase from the current amount.
- Under the final rule, these thresholds will continue to be adjusted upward to keep pace with inflation. This automatic-increase approach is absent from the current rules. Under the proposed rule, for example, managers who make less than $50,000 per year will be required to be paid overtime for all hours worked over 40 hours in a workweek, even if they meet the executive, administrative, professional, computer or outside sales duties tests.
Before the new rule takes place, employers should assess the possible impact to their business. Auditing employee compensation, duties and hours worked and developing a strategy for conversions from exempt to non-exempt are good first steps.
Keep in mind that the state law applicable to an employee (i.e., where the employee works) may set higher or different standards. Also, based on my experience in these sorts of cases, there may be a few legal tricks you can use to avoid application of the FLSA.
In this area of the law (borrowing a line from a fellow Philadelphian), an ounce of prevention truly can be greater than a pound of cure.
Eric Pritchard is a Philadelphia Lawyer who spends his workday making the world safe for electronic security providers. He can be reached at [email protected]. This column does not constitute legal advice; contact an attorney with questions.
