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More than salary level must be reviewed under federal and state overtime exemptions
The salary threshold for exempt status under the new federal overtime rule will soon exceed the current threshold under every state's wage and hour laws, but that doesn't mean employers can ignore state-law overtime provisions.The new federal rule will raise the salary threshold for the Fair Labor Standards Act's (FLSA's) white-collar exemptions from $23,660 per year ($455 per week) to $47,476 per year ($913 per week).Effective Dec. 1, exempt employees nationwide must be paid at least $47,476 per year or be converted to nonexempt status and paid overtime wages."It used to be that many state wage and hour laws had a higher salary threshold than the federal level, but now the FLSA will be higher than even New York or California," said Jeffrey Brecher, an attorney with Jackson Lewis in Long Island, N.Y., in an interview with SHRM Online.
When evaluating whether a position falls under a white-collar exemption (executive, administrative or professional), employers must look at more than just the salary level.The job must also meet the duties test for the specific exemption, which may be more restrictive under certain state laws than under federal law.The FLSA exemptions, for example, examine whether an employee's primary duties include the "exercise of discretion and independent judgment with respect to matters of significance."California law, however, applies a quantitative test, which requires employees to spend more than one-half of their time "primarily engaged" in exempt duties."It's always the best practice to look at both federal and state law when evaluating exempt status," said Allan Bloom, an attorney with Proskauer in New York City."There are situations where you might have obligations under federal law that exceed state law, and vice versa, but the employee is always entitled to the greater protection," Bloom explained. "So after you evaluate both your federal and state law obligations, provide the one(s) with the greater benefits to the employee."
Newly Nonexempt Employees
When the federal overtime rule takes effect, some employees who are presently earning below the new salary threshold may be reclassified to nonexempt status, Brecher said.Accordingly, employers must make sure their method of calculating overtime for nonexempt employees is permissible under the relevant state laws.Some pay practices that are acceptable under federal law aren't permitted under every state's laws.The "fluctuating workweek method" for calculating overtime is one example, Brecher noted.This method is used to calculate overtime for employees who work different hours from week to week, such as restaurant or retail store managers. Under this method, salaried nonexempt employees are paid a fixed weekly salary that is divided by the actual number of hours worked that week to arrive at a base hourly rate. Then employees are paid an additional one-half times the base hourly rate as a premium for each overtime hour worked.Although this method is permissible under the FLSA if certain conditions are met, some states don't allow it, said Brett Bartlett, an attorney with Seyfarth Shaw in Atlanta.As employers reclassify workers to nonexempt status, it also becomes important to take a look at meal and rest break requirements under various state laws, he added.Furthermore, he said when pay is being changed, employers must comply with any state-law notice requirements. Some states require employers to provide specific content in notices to employees when their pay or hours are being changed, he said. Illinois, New Hampshire and New York require that each notice be signed by the employee.Regarding part-time workers, employers don't always realize that there is no prorated exempt salary threshold. In California and other states with daily overtime provisions, part-time employees may be entitled to daily overtime pay even if they're working less than 40 hours in a week.
One of the greatest challenges for HR professionals is recognizing that federal and state laws don't always work in concert with one another, said Ronald Taylor, an attorney with Venable in Baltimore."Imagine you own a restaurant chain that operates in several states with different rules," he said. It gets even more complicated if employers transfer workers between states."If someone was working in Illinois and is transferred to California, you have to ensure that, at least while working in California, the employee is being paid in compliance with California law."Employers should be aware that there are various industry-specific overtime exemptions under state laws, Taylor added. In Maryland, for example, there are different overtime rules for "bowling establishments." In Colorado, there are different rules for certain ski industry jobs.In some states, hospitality jobs have their own set of rules, Brecher said. New York has a separate minimum wage for fast food workers. "A best practice is to start by focusing on compliance with the federal laws, then turn to the state laws," Taylor said. "The federal law is a good starting point, but it can't be the ending point because you'll run into compliance issues."
Monitor for Compliance
The federal salary threshold is scheduled to increase automatically every three years, Brecher said. "It's important for employers to keep in mind that they will have to evaluate every year whether federal or state law is higher."Employers should identify someone internally who is responsible for monitoring those changes and making sure the company is in compliance. They may also want to conduct an annual wage and hour audit in conjunction with legal counsel. "When it appears that a state or federal development may impact or affect a current practice or policy of the company, the HR professional should work with legal counsel to analyze, on a privileged basis, the extent to which the practice or policy is or will be affected by the development and what strategic steps to take in preparation or response," Bloom said.Employers should draft policies with both federal and state laws in mind and consider whether they want to have a national/multistate policy or state-specific policies.A national policy would likely "provide employees in certain states with greater benefits than they otherwise would be entitled to," whereas state-specific policies would be "tailored to the particular state in which employees work," Bloom explained.
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