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HR's stuck in a Depression-era box

Fair Labor Standards Act doesn’t fit 21st century and creates compliance headaches

HR's stuck in a Depression-era box

The Fair Labor Standards Act was passed at the height of the Great Depression to institute a minimum wage and a maximum work week, necessary economic protections for workers at that time.

The act introduced new concepts to the working world: “overtime pay,” “exempt,” “non-exempt,” and “white-collar exemptions.”

Historical straightjacket

In the intervening 80 years, most recently in 2004, attempts have been made to adjust the wage-and-hour regulations issued under the FLSA to the modern workplace. Consider:

• The federal minimum wage has crept up to its present level of $7.25, although 23 states have gone further, with minimum wage rates higher than the federal rate.

• The “salary basis” test for certain overtime exemptions now stands at $455 a week.

• There has been some tinkering with the definitions associated with the various “white-collar exemptions”—administrative, professional, executive, and outside  sales workers.

• A couple of new exemptions have been added: “computer professional” and “highly compensated employee.”

And still the act remains stubbornly out-of-step with the employment realities of the 21st century.

As a result, HR professionals must still wrestle job descriptions into outmoded exemption categories, or navigate a record-keeping obstacle course to ensure that all hours worked are appropriately paid.

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Changes on the horizon?

The change from a manufacturing economy to a service economy, and high-tech advances that transform the physical workplace—and even eliminate it in some instances—require a re-thinking of old concepts.

But don’t look to this administration for that kind of reform.

In two initiatives this year, President Obama seeks to raise the minimum wage and curtail the white-collar exemptions—more tinkering that will likely only increase the compliance burden for banks.

Minimum wage increase for certain federal contractors

On Oct. 7, the Department of Labor issued a final rule establishing a $10.10 minimum wage rate for all new federal construction or service contracts awarded after January 2015. The rule spells out four categories of federal contract coverage.

The good news: A community bank’s relationship with FDIC, or its provision of fund depository services does not come within any of these categories.

However, those community banks that maintain branches on military bases, in national parks, or in federal buildings should study the issue further.

The regulations state that the new minimum wage rate applies to agreements or licenses involving leases of federal property, space, or facilities, for the purpose of offering services to federal government personnel or the general public.

A financial institution leasing space in a federal building is cited as an example in the regulations.

Narrowing white-collar exemptions

On March 13, President Obama issued a memorandum, “Updating and Modernizing Overtime Regulations,” directing the Labor Department to consider ways to modernize and simplify overtime regulations with the goal of making more workers eligible for overtime and the minimum wage.  

From the memorandum itself and subsequent  comments by Labor Secretary Thomas Perez, it is clear that the department is considering substantially increasing the current $455 a week salary basis test—perhaps to as much as $970 a week.

In addition, the Labor Department is likely going to address the “primary duty” test for the executive, administrative, and professional exemptions. The 2004 revisions to the “primary duty” test did little to reduce the confusion about which workers should be classified as exempt from overtime pay.

Now, with the goal of reducing eligibility for the white-collar exemptions, the Labor Department may require a specific minimum percentage of work time to be devoted to purely exempt tasks. California’s wage-and-hour law may serve as a model; to qualify as exempt, managers there must spend at least 50% of their time supervising other employees.

Another area ripe for revision: the computer professional exemption. The pace of technological change has not slowed, and this exemption definition was crafted ten years ago.

Don’t hold your breath

It is now likely that a proposed rule on new overtime regulations will not appear until some point in 2015. After time for comments and for preparing the final rule, the effective date of new requirements is probably at least 12 months off.

Meanwhile, as many banks can attest, the number of wage-and-hour lawsuits continues to climb.  According to the Federal Judicial Center, for the 12-month period up to March 31, 2014, the number of such lawsuits increased to 8,126, or another 4.7% over the prior 12-month period.

This is the seventh straight year of increases in federal wage-and-hour lawsuits.

Keep calm and carry on

Wage-and-hour claims against financial institutions generally focus on a few job categories: lenders, especially mortgage lenders; brokers; private or personal bankers; and “consultant” or “advisor” type job titles.

Typically, it is alleged that the job has been misclassified as exempt, and that overtime should have been paid. As no time records have been kept, the claimant’s memory of how many hours of overtime were worked will be taken as correct, if the position is found to be non-exempt.

Some suggestions to protect your bank:

• Be clear about which exemption applies to the job in question.

• Thoroughly study all parts of the test for that particular exemption.

• Review the job description to make sure it reflects the characteristics of the exemption claimed.

• Review the job description with the incumbent and with the incumbent’s manager to make sure the description accurately reflects the job actually being performed.

• Make sure that white-collar exempt employees are paid “on a salary basis”: no partial day pay deductions.

• Repeat this wage-and-hour audit of exempt positions on a regular basis—annually or semi-annually.

Allegations of “off the clock” demands

Of secondary concern—but still a compliance nightmare—are claims by non-exempt workers that they were expected to work “off the clock.” If employees can access the bank’s computer networks from home and outside office hours, it is difficult to control  and keep track of “hours worked” for the purpose of calculating overtime pay.

Consider taking these steps:

• Adopt and enforce a policy of no overtime without prior approval.

• Monitor who has remote access to the bank’s electronic systems, and make sure that such access is absolutely necessary to the performance of the job.

• Carefully delineate whether participation in after-hours community or “volunteer” activity is sponsored by the bank, and therefore qualifies as hours worked for overtime pay purposes.

This blog post was co-authored by Steve Greene, president and co-founder of Employment Law Compliance, Inc.

Marian Exall

Marian Exall (marian.exall@gmail.com) recently retired after a long career as an employment lawyer and HR professional with more than 25 years' experience advising banks and other employers on compliance issues. She was a principal and co-founder of Employment Law Compliance, Inc. which provides HR compliance solutions to banks. For more information on this or other employment compliance topics, please call Employment Law Compliance at 866-801-6302 or go to www.employlawcompliance.com.

Now retired from blogging as well, Marian also writes fiction. Her latest novel is a mystery called A Slippery Slope. For more information and to order, go to www.marianexall.com

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