The U.S. Department of Labor recently announced a proposed rule that would change the minimum salary threshold for exemption for the so-called “white collar” exemptions – the administrative, executive, and professional exemptions.

The federal Fair Labor Standards Act (“FLSA”) requires that employees receive minimum wage and overtime (calculated at one-and-a-half times the regular rate of pay for hours over 40) unless they are “exempt” from one or both requirements. The most popular exemptions are the so-called “white collar exemptions,” which apply to executive, administrative, and professional employees who meet rigorous criteria based on their duties. To be exempt, these employees must be paid a salary of at least $455 per week and the employer must pay on a salary basis (meaning no docking for partial workweeks, subject to limited exceptions). Doctors, lawyers, and teachers can be exempt under the FLSA even if they are not paid on a salary basis and there is no minimum salary for these employees. (The computer professional exemption has special rules under which employees can be paid hourly, but in any event, there is no computer professional exemption under Connecticut state law.)

The proposed rule would increase the salary threshold from $455 per week ($23,660 annually) to $679 per week ($35,308 annually). Nondiscretionary bonuses and incentive payments (including commissions) may account for up to 10 percent of the minimum salary level under the proposed rule, while discretionary bonuses would not count toward the minimum salary level.  The duties tests are not changing under this rule. The threshold for the “highly compensated employee” exemption increases from $100,000 to $147,414, but Connecticut does not recognize this exemption, so employers should not rely upon it for employees in the state.

Raising the salary threshold is expected to transform many exempt employees into non-exempt employees overnight. Some employers will be able to weather this change better than others. Virtually every employer in the country is subject to the FLSA, even if there is only one employee. This includes non-profits and public sector employers. In Connecticut, where the cost of living is high, the effect of this change may be lower than elsewhere in the country. It is more likely here than elsewhere that employees who meet the duties tests are already earning at least $679 per week. However, non-profit, low-profit, and government employers may find that many of their employees are subject to this rule change and these employers may have more rigid budgets that cannot withstand the impact. Employers with an annual volume of sales or business of less than $500,000 may wish to consult an employment lawyer to see if they are one of the very few employers not subject to the FLSA.

Assuming the rule is ultimately promulgated, employers will need to either raise salaries of affected employees to ensure they meet the threshold or begin treating these employees as non-exempt. Raising salaries is straightforward, but remember that the rule is likely to require periodic increases, so the amount will change going forward. If employers do not wish to raise salaries, the employees must be treated as non-exempt. This means that employers must keep records of their hours worked and they must be paid overtime for hours over 40. It is legally permissible to cap hours at 40 by prohibiting employees from working overtime and some employers may choose to hire multiple employees to do what was once one employee’s job. Collective bargaining agreements may limit employers’ options.

Employers with exempt employees earning less than $679 per week should consider their budgets and operational practices to determine how they wish to comply with the rule if and when it goes into effect.  The last time the Department of Labor promulgated a rule on this subject, it was halted by a court decision, so employers should be prepared for a great deal of uncertainty regarding whether and when this proposed rule would go into effect.  Nonetheless, it is a change that may require significant advance planning, so it is a good idea for employers to examine their payrolls now.

Our team of labor and employment attorneys can assist employers in adjusting to the new white-collar exemption requirements and ensuring compliance with all applicable labor and employment laws.  Contact us to arrange a wage-and-hour self-audit for your organization.

As summer approaches, many companies are beginning to hire students to work as unpaid interns.  While unpaid internships are a time-honored tradition, they are almost always illegal in the for-profit world.  Typically, the so-called “intern” is actually an employee who must be paid minimum wage and, if applicable, overtime.  Depending on state law, Workers’ Compensation and Unemployment might also apply to these individuals.  Recent years have seen a dramatic increase in enforcement surrounding this issue, and employers can no longer assume their unpaid internships will go unchallenged.  Like with most other employment laws, it does not matter if the individual agrees to an arrangement that is not permitted by law.  “The intern agreed to work unpaid” and “everyone in my industry does it” will not defeat a lawsuit or Department of Labor audit.

Many employers are under the mistaken impression that if the intern receives academic credit, there is no need to pay the intern.  This is not true.  Although some states require academic credit in order for the intern to be unpaid, this is never the sole factor.

According to the U.S. Department of Labor’s 6-part test, for-profit companies must pay interns at least minimum wage, unless all of the following criteria are met:

  1. The intern must receive training and the training  is similar to what would be given in a vocational school or academic educational instruction;
  2. The training is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under their close observation;
  4. The employer derives no immediate advantage from the activities of the intern, and on occasion the employer’s operations may actually be impeded;
  5.  The intern is not necessarily entitled to a job at the conclusion of the training period; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in training.

Continue Reading Keep Your Unpaid Intern Away From the Photocopier!

The Obama Administration’s goal of increasing the minimum wage to $10.10 has for the moment stalled in the Senate.   A Republican led filibuster has all but killed the President’s hopes of signing the Bill, which would increase the minimum wage by the November mid-term elections.

Senate Republicans, citing concerns about the effects that an increase on minimum wage would have on economic growth, were able to whip up support behind the filibuster, forcing the Democratic majority to withdraw the Bill.

Immediately following the Bill’s withdrawal, President Obama expressed his disappointment and vowed to continue the push in securing the minimum wage increase, which was his primary goal in 2014.   Because the Bill was only withdrawn, the Senate may reintroduce it at any time.

As we reported earlier, Connecticut has already passed and signed a bill which will raise the State’s minimum wage to $10.10 by 2017.  The Bill which failed today in the United States Senate would have impacted other States where the minimum wage still follows the federal rate.

Seven (7) Long Island restaurants have consented to a settlement with the United States Department of Labor (“DOL”) that includes $1.6 million in back pay as well as over $110,000 in penalties and interest for willful violations of the Fair Labor Standards Act (“FLSA”).  Specifically, the DOL found the restaurants failed to pay employees a minimum wage, paid employees in cash, had illegal tip pools, and failed to keep records of all hours worked.

Continue Reading Dept. Of Labor Settlement Highlights Importance of Proper Wage and Hour Policies

A recent speech by Labor Secretary Thomas Perez at the IAFF conference provided some details about the changes to the managerial exemption to the Fair Labor Standards Act (“FLSA”).  Significantly, Secretary Perez reiterated that the current salary threshold of $455 is inadequate and that the primary duties test creates an employer friendly “loophole” that is used to prevent many low income employees from earning overtime. 

The last changes to the managerial exemption occurred in 2004 when the salary threshold was raised from $250 to $455.  This was the second increase in the 40 years the exemption has existed.  The remarks by Secretary Perez mirror those made by President Obama back on March 13th that the current $455 threshold is inadequate.  

Continue Reading Obama and Labor Secretary are working to Overhaul Overtime Rules for Exempt Employees

While both the Fair Labor Standards Act (“FLSA”) and Connecticut law permit an employer to include the reasonable value/cost of lodging provided to an employee as part of such employee’s wages towards the minimum wage, employers need to pay close attention to the differences between federal and state law. 

Under the FLSA, an employer may credit against its minimum wage obligations the “reasonable cost” to the employer of furnishing the employee with lodging.  The FLSA regulations define reasonable cost as the actual cost of the lodging provided, i.e. “the cost of operation and maintenance,” meaning that the employer cannot make a profit.  29 C.F.R. § 531.2 et seq.   As an example, if a hotel employer furnishes a room to an employee that costs guests $100 per night, the hotel may not simply consider $100 per night as the employee’s wages, but may only account for its actual cost for the room.  This is the case except in the unlikely event that the actual cost is greater than the fair rental value, in which case the fair rental value is used.

Similarly, Connecticut law provides that wages may include the reasonable value of lodging if that condition is known to and accepted by the employee.  Unlike the FLSA, however, Connecticut law states that where housing consists of more than 1 room, the reasonable allowance that may be deducted is “guided by the prevailing rentals for similar quarters including those authorized by the local housing authority in privately or publicly funded housing.”  Conn. Agency Regs. § 31-60-3(f).   

Connecticut courts have recognized the distinction between federal and state law.  In turn, where an employer improperly credits the value of lodging, an employee is entitled to recover an amount equal to whichever calculation provides the greater remedy.  Thus, where the FLSA generally sets the higher bar by authorizing an employer to account only for the actual cost of the lodging provided, as opposed to the prevailing rental value as authorized by CT law, employers are encouraged to abide by the FLSA calculation. 

Significantly, the FLSA and the case law provide that an employer may not account for the value of lodging if the employee is required to live on the employer’s premises for the benefit of the employer.  For example, an on-site hotel manager that is required, as a condition of employment, to live at the hotel and be available to greet guests arriving late at night or to be on-call for similar duties for the employer’s benefit is entitled to that lodging without the value being factored into wages. 

Lastly, it is important to note that the employer is required to maintain records that prove the cost of the lodging.  Where an employer fails to provide evidence of the cost to furnish an employee with housing, courts have routinely denied offsets under the FLSA.

Employers in the construction industry should not be surprised if the Department of Labor comes knocking at their door in the near future.  Recently, the Hartford office of the U.S. Department of Labor’s Wage and Hour Division announced an enforcement initiative to identify and eliminate wage and hour violations through increased compliance with the federal Fair Labor Standards Act (FLSA).  The initiative is targeted at Connecticut and Rhode Island employers in the construction industry.   

The DOL is developing new strategies to better identify and remedy labor violations in an effort to effect change across the entire construction industry.  According to the DOL, some contractors are subcontractors “cut corners with respect to wages, hours and employment conditions” and the initiative is a means to protect workers against exploitation.  Of paramount concern for the DOL is that general contractors require and ensure FLSA compliance by all of their subcontractors. 

Included in the initiative is the investigation of general contractors and subcontractors on large projects, and aggressive pursuit of corrective action for violations of the law, including payment of back wages, civil money penalties, and liquidated damages.  Between 2000 and 2010, the DOL conducted nearly 300 investigations of construction industry employers in Connecticut and Rhode Island, resulting in the payment of $5.6 million in back wages to workers.  With this new focus, the DOL seeks to increase the number of investigations and the amount of back pay paid by employers to workers.  The DOL’s press release announcing the initiative can be found here.

Some of the major FLSA requirements and pitfalls that employers encounter include:

  • Payment of at least the minimum wage.  While the federal minimum wage is $7.25 per hour, Connecticut law requires payment of $8.25 per hour and Rhode Island requires payment of $7.40 per hour.
  • Payment of one and-one half times (1 ½) an employee’s regular rate of pay for hours worked over 40 per workweek.
  • Proper determination of what constitutes an employee’s “regular rate of pay.”  Regular rate of pay can include more compensation than the employee’s hourly rate, such as shift differentials or pay incentives for hazardous work.
  • Payment for all “hours worked,” as the term is interpreted under the FLSA.  Depending on the circumstances, waiting time, on-call time, travel time, and meal periods can all constitute work time for which an employer must compensate an employee.

Compliance with recordkeeping requirements, including maintaining specified information about each employee and his/her hours worked and wages earned.  In addition, employers are required to preserve at least 3 years of payroll records, collective bargaining agreements, and sales and purchase records.  Records must be open for inspection by a DOL representative.

Given the DOL’s initiative to identify and remedy FLSA violations, Connecticut and Rhode Island employers in the construction industry are well advised to review their current wage and hour practices to ensure compliance with the law.  Significantly, in some instances, failure to comply with the FLSA can result in an award of double the amount of back wages for the past 2 or 3 years, plus attorney’s fees and court costs.