Changes to overtime exemptions coming soon
 
Changes to overtime exemptions coming soon
02 MARCH 2016 9:03 AM

U.S. hoteliers trying to prepare for possible changes to overtime protections received some guidance at the recent Hospitality Law Conference.

HOUSTON—The proposed changes to wage laws regarding overtime exemptions this year has the U.S. hotel industry worried, as they may change how, and how much, countless employees are paid.

The U.S. Department of Labor has indicated it believes the “fissured” hospitality industry is a field where violations of federal wage and labor laws are likely, said Andria Ryan, partner and chair of the hospitality practice group at Fisher & Phillips LLP. Ryan addressed the topic during “DOL sets its sights on hospitality industry—Exemptions, independent contractors and other compliance challenges” at February’s Hospitality Law Conference. She said hotels employ vulnerable workers, such as young people and migrant workers, who are less likely to complain when they are treated or paid improperly.

In describing a closed-door meeting her firm had with federal labor department officials, Ryan said her colleagues asked about the reasoning behind the position. The federal officials said they weren’t basing this off of any statistics, according to Ryan, rather they “just realize this is what’s happening.”

“For those of us thinking a new administration would make it go away, it’s not going to go away,” Ryan said about the proposed changes.

Under consideration
The Fair Labor Standards Act currently has three “white-collar” exemption classes: executive, administrative and professional, Ryan said.

The executive exemption has a high duties test standard to meet, such as managing an organization or recognized unit/subdivision and supervising at least two full-time employees, she said, so the administrative exemption is treated like a catch-all for those that don’t qualify for executive exemptions. That exemption requires office/non-manual work related to the management or general business of operations as well as having work that includes discretion and independent judgment in “matters of significance.”

The professional exemption, which is based on intellectual work in a field of science or learning, does not apply much to the hotel industry.

The FLSA mandates that employees in jobs that do not pass the duties tests and do not meet the minimum salary standard must receive overtime pay.

The purposes of the proposed minimum salary requirements for the exemptions are to encourage employers to hire more employees instead of paying overtime premiums, provide more income to the middle class and increase payroll tax contributions to Social Security and Medicare, Ryan said. The current minimum salary requirement is $455 a week, which is equivalent to the poverty level for a family of four.

“It’s hard to argue about it, to argue with the idea these regulations need to be updated with,” she said.

The proposed salary change would increase the minimum weekly salary to about $970 a week, or $50,400 annually, Ryan said. The Department of Labor would review that number each year, she said, so it would likely change annually.

The proposed regulations are not final, Ryan said, and the department has been in a public comment period. There are approximately 250,000 comments on the proposed changes, she said. Comments from corporations have asked for phasing in these changes, for setting different salary minimums by region as the cost of living differs across the country and for a longer period of time for comments. The decision is due by Labor Day this year, and Ryan said she doesn’t expect the department will let Election Day go by without announcing its decision.

“Most are saying (the announcement will be) mid- to late summer,” she said. “Implementation would be 60 to 120 days after. For budgeting purposes, it’s hard for me to say what that means for you.”

What hoteliers can do
Employers should create three lists, Ryan said. One list should include the names of employees they will raise to $50,400 or more, but beware of the need for future increases and verify that these employees satisfy the duties requirements. The second list should have the names of employees who will not receive a salary raise to $50,400, and the final list should include the names of employees who require additional evaluation and attention.

“That’s the one, if you haven’t done this yet, you need to get to the point where you’re on list No. 3,” she said.

Another option is modifying pay options, Ryan said. Nonexempt employees can still receive a salary instead of hourly pay, she said, employers just have to pay them overtime as well. That would require determining the hourly rate for the employee, she said, which could be 40, 50 or 55 hours a week.

“It’s hard,” she said. “You have to do it manually. Payroll will hate you.”

The Department of Labor also accepts fluctuating work weeks. It’s a challenge, Ryan said, and while payroll departments don’t like it and employees don’t understand it, it is legal.

Employers can give bonuses each month that contribute toward the proposed $50,400 annual minimum, Ryan said. The bonuses must be nondiscretionary, essentially guaranteed, and if employers don’t reach the minimum requirement, the employee can lose exempt status and then must receive overtime.

Employers should develop a communication plan, Ryan said, because employees are going to hear more about the proposed changes and will have questions.

The duties test
The current Department of Labor proposal on changes to white-collar exemptions has focused only on wages, Ryan said, but the department has hinted it may change the duties test.

“The corporate community will go bananas if they do that,” she said. “They will see push back if they do that.”

The same law that requires the labor department to put out for comment the proposed wage requirement changes also requires the department to seek public comment on changes to the duties tests, Ryan said. The comments corporations have left on the wage issue have indicated they will fight if the government tries to make changes to the duties test without seeking public comment.

“That will be the lawsuit,” she said.

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