BY ELI FREEDBERG
If your assistant managers, bookkeepers, administrative assistants and back-office staff work more than 40 hours in a week and earn a fixed salary, you are taking a big risk that could result in a costly class action lawsuit. Indeed, over the last several years, there has been an avalanche of lawsuits and Department of Labor investigations based upon the premise that salaried employees working more than 40 hours in a week did not receive wages owed to them. These lawsuits and Department of Labor investigations have often resulted in massive liabilities in the six- and seven-figure range that can cripple a business.
These lawsuits seem to have proliferated because many employers mistakenly believe that salaried employees do not need to be paid overtime premiums if they work more than 40 hours in a week. This is a misconception, and there is generally a two-part test to determine whether an employee is exempt from the general requirement that employees are entitled to receive time-and-a-half premiums for each hour worked in excess of 40 hours in a workweek. The first element of the test requires an employee to earn a minimum base salary. The minimum salary threshold varies based on where the work is performed. The second part of the test provides that only employees who perform specific duties are exempt from the overtime requirements. The most common types of duties that give rise to the exemption from the overtime requirements are the “white-collar” exemptions that apply to executive, administrative or professional employees. Unfortunately, there is no precise definition or specifically enumerated job duties that automatically make an employee an executive, administrative or professional worker.
This issue was highlighted last month when President Barack Obama drafted a letter directing the secretary of labor of the United States Department of Labor to re-examine the rules governing the white-collar exemptions to the overtime requirements. Obama”™s missive directed the secretary of labor to evaluate whether the minimum salary threshold to qualify for the exemption from the overtime requirements should be raised in the current economic climate. The federal requirement currently provides that exempt employees must earn a salary of at least $455 per week. However, several states, including New York and Connecticut, have adopted regulations that raised the minimum salary threshold needed to be considered exempt from the overtime requirements. For example, a properly classified exempt employee in New York must earn a salary of at least $600 per week (the minimum salary requirement will increase to $656.25 in 2015 and $675 in 2016). Likewise, a properly classified exempt employee in Connecticut must earn a salary of at least $475. Obama, in his March 13 memorandum, called the regulations “outdated” and recommended raising the minimum salary threshold needed to qualify for the exemption.
In addition, he directed the secretary of labor to clarify the actual duties that a white-collar employee must perform in order to qualify for the exemption. Presently, the definition of exempt managerial employees covers those whose primary job duties include managing or supervising a recognized unit or subdivision within a company, who regularly direct at least two or more employees and who have authority to hire and terminate employees. The definition of an exempt administrative employee generally applies to workers whose primary job duties include office or nonmanual work directly related to the management or general business operations of the employer, and whose duties require advanced independent judgment with respect to matters of significance to the company. These definitions lack clarity and precision and as a result, plaintiffs”™ lawyers have exploited the ambiguity by filing lawsuits and extracting large settlements from employers.
Although Obama issued his directive to the secretary of labor last month, it will likely take between 12 and 18 months for any changes to be implemented. Furthermore, while we do not know what the revisions will provide, it is reasonable to expect the following changes: an increase in the minimum salary level for white-collar exempt employees ”“ an increase that will likely be tied to inflation or cost-of-living indexes; a proclamation that an exempt employee cannot perform the same duties as subordinate nonexempt duties for more than a certain percentage of the exempt employee”™s workday; and a requirement that the exempt employee spend a certain percentage of his or her day performing exempt tasks.
Notwithstanding these forthcoming changes, it is always prudent for employers to periodically audit their payroll practices. It is especially worthwhile to examine whether your salaried employees are truly entitled to salaries as opposed to overtime. If you are not paying attention, it”™s possible a plaintiff”™s lawyer is.
Eli Freedberg is the principal shareholder in the Law Office of Eli Z. Freedberg P.C., a law firm that counsels employers in all matters of employment law and defends employers in litigation. His primary office is at 11 Broadway, New York City, and his phone number is 347-651-0044. He also maintains offices in Port Chester and a home office in Stamford, Conn.
