Tag Archives: Fair Labor Standards Act

Department of Labor Weighs In on New Age of Salary Servitude for ‘Executives’

Today’s post comes from guest author Roger Moore, from Rehm, Bennett & Moore.

Most of the U.S. workforce has the right, provided by the Fair Labor Standards Act, to be paid overtime for working more than 40 hours in a week. Before the federal government set rules for overtime, most employees worked longer hours, and millions of Americans worked six or seven days a week, as Chinese factory workers do today. Salaried workers also have the right to be paid a premium for overtime work, unless they fall into an exempt category as a professional, an administrator, or an executive. Exempt employees must be skilled and exercise independent judgment, or be a boss with employees to supervise. However, many companies have worked to get around these overtime rules by classifying employees like cooks, convenience store employees or restaurant workers as “managers,” “supervisors,” or “assistant managers or supervisors,” so that their employer can deny them overtime under this exception. 

In May 2016, the Department of Labor issued its final rule establishing a new minimum salary threshold for the white-collar exemptions (executive, administrative and professional) under the Fair Labor Standards Act. This new threshold of $913 per week ($47,476 annualized) more than doubles the current minimum weekly salary threshold of $455 per week ($23,660 annualized).  While that may seem like a huge increase, the old threshold level is only $2 a week above the poverty level for a family of four. Twenty-one states have filed suit to challenge this rule, citing the rule will force many businesses, including state and local governments, to unfairly and substantially increase their employment costs. 

The old rule allowed companies to put employees on “salary” at a low rate and require them to work sometimes significant overtime. The fact that so many government entities are concerned about this new rule substantially increasing their employment costs underscores the extent to which even government entities have taken advantage of employees in this fashion. Can you imagine earning $25,000/year and having to work 50, 60 or 70 hours a week? Even at 50 hours a week, that equates to an hourly wage of only $8.01!

In the first year, the department estimates that the new rule may affect, in some manner, over 10 million workers who earn between $455/week and the new $913/week threshold.  

The median worker has seen a wage increase of just 5 percent between 1979 and 2012, despite overall productivity growth of 74.5 percent (Mishel and Shierholz, 2013), according to the Economic Policy Institute. One reason Americans’ paychecks are not keeping pace with their productivity is that millions of middle-class and even lower-middle-class workers are working overtime and not getting paid for it. Before this rule change, the federal wage and hour law was out of date. This change purports to correct this modern day servitude that the law – for the last 30 years – has carved out a huge exception, allowing workers to be taken advantage of simply by assigning them a title and paying them a salary.  

 

Sources:

FLSA – Minimum Wage & Overtime

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, and youth employment standards. The FLSA establishes a federal minimum wage of $7.25 per hour and requires overtime pay at a rate not less than 1.5 times the regular rate of pay after 40 hours of work in a workweek for covered nonexempt workers. Many states also have minimum wage laws and where a worker is subject to both federal and state minimum wage laws, the employee is entitled to the higher minimum wage.

Bona fide administrative, executive, professional, and outside sales employees are exempted from minimum wage and overtime pay under Section 13(a)(1) of the FLSA. However, a job title does not exempt an employee from those provisions. Instead employees must meet certain tests regarding their job duties and receive a salary of at least $455 per week ($23,600 per year). President Obama drew attention to the low salary standard in a 2014 Presidential Memorandum directing the Department of Labor to update the minimum wage and overtime standards. Effective December 1, 2016, the standard salary level will increase to $913 per week and will automatically update every three years to reflect economic changes.

Many employees are often unaware of minimum wage and overtime pay laws until it is too late. Generally, under the FLSA an employee cannot recover back pay more than two years after it is due to him. However, if the employer willfully violates the FLSA, an employee has three years to assert his claim. To file a complaint under the FLSA, contact the U.S. Department of Labor’s Wage and Hour Division.

Unpaid Intern or Employee?

In New York, after prevailing in trial court, unpaid interns for Fox Entertainment Group were able to receive class credit and minimum wage for their work on the set of the film “Black Swan.” Their win made the Second Circuit Court of Appeals adopt a test to be used in determining whether an unpaid intern should be classified as an employee. Here are the factors that should be applied in determining whether they are actually an employee:

 

  1. The parties’ understanding regarding expectation of compensation
  2. The similarity of the internship training to that available in an educational environment
  3. Whether the internship is tied to the intern’s education and accommodates the intern’s academic commitments
  4. The duration of the relationship
  5. Whether the intern’s work complements, rather than displaces, paid employees
  6. The parties expectation about a permanent job offer at the end of the internship.

 

These factors only apply in the Second Circuit (Connecticut, New York & Vermont), but they do provide some guidance when evaluating and setting up internship programs to comply with the Fair Labor Standards Act.  

For more information see Laura Lawless Robertson’s post on The National Law Review online.