When the U.S. Department of Labor (DOL) finalized a rule updating the Fair Labor Standards Act (FLSA)'s minimum overtime pay threshold for certain "white-collar" employees in 2019, legal experts advised employers to prepare.
Generally, attorneys and other experts who spoke with HR Dive in the run-up to the rule's Jan. 1 effective date recommended that employers audit both pay practices and employee classifications potentially impacted by the new $35,568 threshold. Doing so would help employers determine whether they should raise salaries or convert workers to hourly, overtime-eligible status, they said.
This raises an important question: are employers heeding the advice? This topic was addressed in a Jan. 2 newsletter post by FisherBroyles partner Eric B. Meyer, who asked readers of his newsletter, The Employer Handbook, to describe how their businesses prepared for the overtime rule.
The next day, Meyer released the results. The majority of respondents, about 73.6%, said they were not affected by DOL's update because they didn't pay salaried employees below the new threshold. Just 11.3% said they would convert salaried employees paid below the new threshold, called "tweeners" in Meyer's poll, to hourly status.
These numbers weren't too surprising, Meyer wrote: "Most private-sector for-profits that pay salaries are already at or above $684 per week." But the poll also collected written responses, asking "When was the last time your company audited its pay practices? What did it do?"
"Never," one respondent wrote. "We have some 'exempts' I know shouldn't be, but the owners are convinced it's OK.” Another response shared by Meyer read: "Probably never, my company has no pay grade and instead only gives raises when you threaten to leave."
Meyer told HR Dive in an interview that he was slightly more surprised by these responses, though they're not unprecedented in his experience. He described a situation in which a client had done a pay audit to determine whether there were issues with its pay practices. Meyer walked through a number of options with the client, he said, including proactive fixes.
The client chose a different route. "The company decided to keep doing what they've been doing," Meyer said, comparing the situation to the comments he'd received in the survey. "That came up in that comment."
He noted, however, that the comments in his poll came from a small sample size — between 50 and 100 individuals subscribed to an employment law blog. "There's a whole world of people who don't subscribe, who don't really talk about wage and hour considerations," Meyer said. "Or they're just not thinking about it … it's not on their radar." Those in the poll who said their company did pay audits said that those audits were done with pay equity in mind more so than the FLSA, he noted.
Raising salaries alone won't necessarily solve all of employers' compliance problems either. Employees who were exempt under the previous salary threshold "are more likely misclassified than not to begin with," Meyer said. This is where employers should consider the role of the FLSA's duties test, he added. "There may be a bigger problem here."
On top of that, employers need to balance the financial impact of their choice — to either raise pay or convert salaried workers to hourly workers — with the impact it could have on morale, Meyer said.
State laws are another piece of the puzzle to consider. Some states, including New York and California, already have salary thresholds either higher or more complex than the new federal threshold — or are trending in that direction. "My point is, you've got to pay attention," Meyer said.
Perhaps the biggest takeaway from the survey is that different companies make different risk calculations around overtime, Meyer noted. "A lot of business owners and decision-makers, they purchase flood insurance after the flood," he said. "Less mature companies, and by that I mean newer companies, may not have the resources to do a pay audit." Overall, Meyer said he expects more companies will consider audits moving forward.
