Connecticut employers should brace themselves for challenges to the practice of paying employees on salary with no overtime.
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Connecticut employers should brace themselves for challenges to the practice of paying employees on salary with no overtime. Last month, the U.S. Department of Labor (DOL) issued proposed regulations likely to require the reclassification of some employees now paid on salary to hourly, overtime-required positions.
Under the proposed regs, the minimum annual salary for the exempt-from overtime positions (exempt) would increase from the current $23,660 to $50,440 ($970 per week). Anything less will result in the employee being entitled to overtime (i.e. non-exempt). The proposed regulations will undergo a public comment period and then be released in final form with a likely effective date of Jan. 1, 2016. The proposed regulations call for automatic increases in the salary threshold as well.
Salary and duties test
Connecticut employers should recognize that this increase in the salary level is only half the problem in determining whether a position may be exempt from receiving overtime. To be exempt, the position must pass the salary test, the subject of the proposed regs, and a duties test.
In addition, the federal law that governs the pay issue, the Fair Labor Standards Act (FLSA), requires that most employees in the United States be paid at least the federal minimum wage for all hours worked, and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. Connecticut has its own wage laws that are similar, but not identical to the federal standard.
However, the FLSA provides an exemption from both minimum wage and overtime pay for employees who are employed in one of three exemption groups: executive, administrative and professional. In addition, outside sales positions and certain computer employees may be exempt professionals under the federal law. Note, the computer exemption is not recognized under Connecticut law.
The legal standards for these so-called white-collar total exemptions are contained in current DOL regulations. Unless the position meets the salary threshold and passes the duties test, the employee must receive overtime for the hours worked beyond 40 in that workweek.
The stakes in misclassifying employees can be high. Wage and hour violations are among the most costly employment-related cases. In fiscal year 2014, the DOL's Wage and Hour Division collected $240 million in back wages for more than 270,000 workers. Among the most commonly found violations are misclassifying employees as exempt salary followed closely by classifying individuals as independent contractors rather than employees. “Working supervisors” and other mid-level salary positions are likely sources of violations and targets for reclassification.
Payless ShoeSource Inc. recently agreed to settle such a class action in New Haven federal court for just under $3 million. In that case, shoe store managers claimed that they spent more than half their time in stores alone and primarily performed non-managerial duties such as operating cash registers, cleaning, greeting customers and answering phones — activities that did not qualify them as executives under the exemption.
Employers should expect that these pay issues will intensify and enforcement will become far more vigorous with the promulgation of these proposed regs in final form, particularly amid a national debate on pay equity and minimum wage and a national presidential election about to take center stage.
And, on the horizon may be a more difficult problem as a result of a court case unfolding in Illinois: Non-exempt employees who claim that they are entitled to additional pay because they respond to emails or voicemails in their off-hours.
Connecticut employers should anticipate that some of their employees currently on salary must be transferred to the hourly ranks either because of the new salary threshold or because they have been misclassified under the current regulations. Re-examining the workforce's exempt/non-exempt and independent contractor/employee status is advisable and far better before the notice of violation arrives.
Robert D. Noonan is the founder of Middlefield boutique law firm Robert Noonan & Associates.
