by Judith E. Kramer Fortney & Scott, LLC

The U.S. Department of Labor's (DOL) new overtime regulations will take effect December 1, 2016. Under the current regulations, to be properly classified as exempt from the overtime requirements of the Fair Labor Standards Act (FLSA), an employee must be paid on a salary basis of at least $455 per week ($23,660 per year) and have as her primary responsibilities the performance of exempt duties. Effective December 1, the salary threshold for exempt employees will increase to $913 per week ($47,476 per year).

Employers in Puerto Rico recently received a reprieve. Legislation signed on June 30 prevents the new salary threshold from taking effect for up to two years.

For employers in the rest of the United States, here are recommended actions to be taken well in advance of December 1:

1. For all currently exempt employees who earn less than $47,476 a year, decide whether to increase their salary above the new threshold to maintain their exempt status or, instead, to reclassify them as nonexempt.
2. In making the classification decision, keep in mind that under the new regulations, there will be automatic adjustments to the salary threshold every three years. The DOL anticipates that on January 1, 2017, the threshold will be raised to $51,168, although there is reason to believe the figure will actually be higher. Thus, to keep an exempt employee exempt, you will need to make periodic salary adjustments.
3. If your reclassification decisions are to be revenue-neutral, you will need to estimate how much overtime your currently exempt employees are working. For those you will reclassify, you will need to set their hourly rate at a level that will result in their straight time and overtime compensation being equal to their current salary.
4. Consider your workplace culture and the impact that reclassification will have on employee morale and behavior. Developing an effective communication plan is key.
5. Keep in mind that December 1 is a Thursday. To be in compliance with the new requirements by that date, you may need to make your salary adjustments or your reclassification decisions no later than the pay period that ends before December 1.

Court of appeals rules first responders nonexempt

The 4th Circuit has issued one of the first decisions to interpret the "first responder" regulation. The regulation, issued in 2004, directly speaks to the exempt status of firefighters, police officers, paramedics, and other first responders by stating that the exemptions to the FLSA do not apply to these personnel, regardless of their rank or pay level. The regulation, however, goes on to state that they are not exempt because their primary duty is not the performance of exempt duties.

In a suit filed by Fairfax County, Virginia, fire captains for overtime compensation, the county argued that some met the requirements of the executive exemption and others met the requirements of the administrative exemption because of their supervisory and administrative duties. The court of appeals disagreed. Although the regulation could be read on its face to state that first responders must always be classified as nonexempt, none of the parties in the case—or even the secretary of labor, appearing as an amicus (friend of the court) in the case—took that position. Instead, the parties agreed with the secretary that whether firefighters and other first responders are exempt executives or administrators is governed by the "primary duty" standard, under which the captains are exempt if (and only if) their primary duty is "management" or administrative work "directly related to . . . management."

In other words, first responders, like other employees, are exempt only if their primary duty is the performance of exempt duties. The importance of the regulation, according to the secretary and the court of appeals, is that it clarifies the application of the primary-duty test to first responders, primarily through the example offered in the regulation: "Thus, for example, a police officer or firefighter whose primary duty is to investigate crimes or fight fires is not [an exempt executive] merely because the police officer or firefighter also directs the work of other employees in the conduct of an investigation or fighting a fire."

The court ruled that the primary duty of these fire captains was emergency response and that they therefore did not meet the requirements of the executive or administrative exemption. Morrison v. County of Fairfax, VA, decided June 21, 2016.

Withholding exempt employee's pay does not destroy exempt status

While the other white-collar exemptions require that an employee be paid on a salary basis, the computer employee exemption provides two paths to exempt status: (1) Pay the employee on a salary basis of $455 per week (soon to be raised to $913 per week) or (2) pay the employee on an hourly basis of at least $27.63 per hour.

Todd Pioch was paid by the hour, and there was no question that he was correctly classified as exempt. However, after an audit revealed that he had improperly collected over $147,000 in per diem payments, his employer withheld his final three weeks of pay.

This was the first time any U.S. court had addressed this issue. The 11th Circuit had to decide whether the employer lost the benefit of the exemption by paying Pioch nothing at all for his final three weeks. The court held that it did not because the exemption requires only that a computer employee be paid $27.63 per hour, which at 40 hours per week would equate to $57,470 per year. Even without his last three weeks of pay, Pioch earned far more than that amount. Therefore, the court held, he remained exempt, and he could not use the FLSA as a vehicle for recovering his final three weeks of salary. Pioch v. Ibex Engineering Services, Inc., decided June 14, 2016.