Summary of Recent FLSA Amendments

In May 2016, the Department of Labor enacted several important changes to the Fair Labor Standards Act (FLSA) relating to overtime-exempt employees. These amendments substantially expand the number of salaried workers that will be able to claim overtime wages. These new rules go into effect on December 1, 2016. It is important for unions and employees to understand these changes in order to ensure that employers can be held accountable to pay their workers fairly. The most important changes are:

1. An increase in the salary threshold for Executive, Administrative, Professional and Computer (“EAP”) employees (from $23,660 to $47,476). This means employees making less than $47,476 cannot be FLSA-exempt regardless of their duties.

2. An increase in the salary threshold for Highly Compensated Employees (HCE) (from $100,000 to $134,004). This means employees making more than $134,004 are FLSA-exempt under a relaxed “duties” test – only minimal involvement in EAP-related duties is required.

3. The creation of an automatic updating mechanic to increase these levels in the coming years.

4. Under the new rules, the employer may count nondiscretionary bonuses and incentive payments towards salary thresholds, but they may not count for more than 10% of the total.

More specific detail on each of these changes follows:

1. Salary Threshold for Executive, Administrative, Professional and Computer employees

One of the largest categories of overtime-exempt employees are Executive, Administrative, Professional and Computer employees. Each of the exemptions is intended to cover salaried employees in highly-skilled or managerial positions and each of these four categories has a slightly different “duties test.” However, the tests do not apply unless the employee meets the salary basis test as well. The salary basis test has two components: (1) the employee must be paid on a salaried, not an hourly, basis, and (2) the salary paid must exceed a minimum threshold.

The rules for salary basis payment have not changed. Generally speaking, the salaried employee must receive as pay a predetermined amount of compensation, which cannot be reduced because of variations in the quality or quantity of the employee’s work. An employee’s salary under these exemptions must be paid each week an employee works, regardless of the number of hours worked each day (exempt employees do not need to be paid in a week in which no work is performed). Reductions in pay for part-day absences destroys the exempt status of the employee, even if the employee otherwise satisfies the applicable duties test. An hourly employee can be docked pay for each hour missed.

Since 2004, the salary threshold to meet any of these exemptions has remained at $23,660 per year ($455 per week). The 2016 FLSA amendments raise this salary threshold to $47,476 ($913 per week). This salary level change will open up overtime eligibility to many more employees.

2. Salary Threshold for Highly Compensated Employees

In addition to the salary-based overtime exemptions for EAP employees, prior to December 1, 2017 there is an exemption for employees who earn more than $100,000 per year. The HCE exemption has substantially lower standards for evaluating the duties of the employee, known as a “minimal duties test.” An HCE overtime-exempt employee has to simply be in a position where the employee’s primary duty includes performing office or non-manual work and the employee customarily or regularly performs at least one of the exempt duties of an EAP overtime-exempt employee.

The 2016 FLSA amendments raise this salary threshold from $100,000 per year to $134,004 per year. The types of pay that can meet this threshold are wider than that of the EAP exemption — the total annual compensation may consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation; though medical, retirement and fringe benefits are not included. The rise in the HCE threshold will render more highly-compensated employees eligible for overtime, provided they are not exempt under the traditional duties tests for Executive, Administrative, Professional and Computer (“EAP”) employees.

3. Automatic Updating

Prior to the 2016 FLSA amendments, there was no formula or structure to update the overtime-exempt salary thresholds; the levels remained stagnant since 2004. With the passage of the 2016 FLSA amendments, the EAP salary threshold is now set at the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage Census Region (currently the South; $47,476 per year) and the HCE salary threshold is set to equal the 90th percentile of earnings of full-time salaried workers nationally ($134,004 per year). Rather than waiting for the Department of Labor to choose when to update this level in the future, these levels are slated to update automatically every three years based on the 40/90 percentile bases. The Department of Labor is required to public the upcoming salary thresholds 150 days before their effective date.

4. Inclusion of Nondiscretionary Bonuses and Incentive Payments for EAP Employees

Prior to the 2016 FLSA amendments employers were not allowed to include nondiscretionary bonuses and incentive payments, such as commissions, in calculating the annual salary of an EAP overtime-exempt employee. After December 1, 2016, employers will be permitted to use nondiscretionary bonuses and incentive pay in the calculation of an employee’s annual salary, however, nondiscretionary bonuses and incentive pay is capped at 10 percent of the required salary threshold. Discretionary bonuses, such as an unannounced holiday bonus, or a bonus that is at the subjective discretion of a manager, do not count toward the EAP overtime pay threshold.

Table Comparison of Prior Regulations & New Final Rule

Court Approves $2 million Settlement in Class Action Wage Lawsuit

BHMK in collaboration with attorneys from the Oregon Nurses Association successfully settled the class action lawsuit of Thanane v. Providence Health & Services – Oregon.

The lawsuit alleged that Providence violated state and federal laws by withholding wages from employees. Specifically, BHMK attorneys argued that Providence managers fraudulently altered employee timecards to avoid payment of overtime wages. They also argued that Providence systematically underpaid wages by using timekeeping software in a way that rounded clock-in and clock-out times to the detriment of employees.

Providence will pay approximately $2 million as part of a settlement of all claims. More than 25,000 current and former Providence employees were notified that they would receive compensation as part of the settlement. Federal district court judge Michael Mosman approved the settlement at a hearing on June 17, 2015. Checks will be distributed to former and current employees in the next several weeks.

You can read more about the settlement here.

City Not Entitled to Recoup Overpaid Pension Benefits by Self-Help

After the City of Portland discovered a 15-year-old error in its pension payment calculations for public safety members of the Fire Police Disability and Retirement Fund, the City tried to get back overpayments totaling more than $3 million, by taking it directly out of Fire and Police Pension benefits, without giving members a chance to respond or raise defenses.  BHMK Attorney Hank Kaplan brought class action litigation challenging the City’s action, based on violations of Oregon’s wage deduction statute, 652.610.  The City denied the statute applied, and contended that its action was justified by IRS requirements to preserve the tax qualified status of the pension plan.  Multnomah County Circuit Judge Henry Breithaupt, a former tax attorney, rejected the City’s contentions and on July 26, 2012 ruled that the City violated the Oregon wage deduction statutes.

FLSA Action: Two Cases

Approximately 80 Paramedics, Dispatchers, and EMTs filed claims under the Fair Labor Standards Act for wages for training time required to maintain EMT certifications. Hank Kaplan represented the employee class, pursued the case in Federal Court and won a ruling that the employer was in violation of the FLSA and owed two years of back wages for training time.

In another case, Arson Investigators in the Fire Bureau sought overtime for hours worked in excess of standard work week for law enforcement officers, not fire suppression employees. Hank Kaplan brought action in federal court resulted in settlement requiring retroactive and prospective payments to these employees as law enforcement agents.

Unlawful Paycheck Deductions Reimbursed

After an employee was terminated from his employer, the employer made deductions from the employees final paycheck. These deductions were for allegedly incorrect expense account reimbursements. Tom Doyle successfully obtained reimbursement to the employee for all unlawful deductions and penalty wages.