Commercial Coverage

New “Fair Pay” Laws In Effect

In August the U.S Department of Labor's new “Fair Pay” regulation governing overtime eligibility for employees became effective. The regulations modify rules which had been in place for more than 50 years. The regulations also allow employers to take steps to set up an affirmative defense to certain wage and hour claims.

Due Diligence Requirements

For an employer to lawfully use an exemption, an employee's salary and job duties must satisfy detailed salary and duties tests. The duties tests require a fact-intensive analysis of an employee's actual job duties. The Department of Labor estimates that the new regulations will cause approximately 7 million employees to become reclassified as “nonexempt” and eligible for overtime. An employer's failure to satisfy its due diligence requirements will likely constitute evidence of a “willful” violation of the Fair Labor Standards Act. Employers are exposed to substantial additional liability for “willful” violations.

•  Salary Basis Test : An exempt employee must be paid on a salary basis. This means that the employee must regularly receive, each payroll period, and on a weekly or less frequent basis, a “predetermined amount” of compensation that cannot be reduced because of variations in the quality or quantity of work performed. The new regulations do contain exceptions to this “no docking” rule. For example, an employer may make a deduction from an exempt employee's salary for an absence from work for one or more full days for personal reasons, other than for sickness or disability. An employer may also subject an exempt employee to an unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules. There are other exceptions. However, an employer generally may not make a deduction for partial day absences.

•  Salary Level Test: Under the “Fair Pay” regulations, an exempt employee's salary amount generally must not be less than $455 per week. There are some expectations, the salary must be paid “free and clear” and cannot include the value of any non-cash items such as board or lodging.

•  Duties Tests: In addition to the above, an exempt employee's job duties must satisfy at least one of several duties tests. Under the “Fair Pay” regulations the duties tests have changed. The following is a list of the most common exemptions under the new regulations. 1. Professional Exemption 2. Executive Exemption 3. Taught Professional, Creative Professional 4. Administrative Exemption 5. Certain Computer Employees 6. Highly compensated Employees. Each exemption contains a detailed duties test that the employer must satisfy before utilizing one of the exemptions.

Employers should familiarize themselves with all of the provisions in the “Fair Pay” regulations because of significant changes. Employers should audit all of their expert positions to determine whether they can continue to be classified in the same manner under the new salary and duties tests. Additional information concerning the “Fair Pay” regulations and specific duties tests can be obtained from the Department of Labor's Web site at http://www.dol.gov .