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On Aug. 23, a new federal rule governing overtime exemption for white-collar workers took effect amid dire predictions from Democrats and organized labor that up to 6 million Americans would lose their overtime pay. Not only did this massive reclassification of workers fail to materialize, but some administrative employees newly qualified for overtime even told The Associated Press they resented their loss of hard-won professional status and benefits. It’s no secret that federal overtime collective actions brought by employees have doubled since 1997 and now outnumber discrimination class actions. The Southern District of Florida is a hotbed of federal overtime litigation and home to as many as 20 percent of the entire U.S. caseload. This explosion in costly overtime litigation may be at least partially explained by the provision for an award of reasonable attorney fees and court costs to successful plaintiffs. While that provision still exists in the revised overtime rule, the U.S. Department of Labor had hoped to clarify or remove some of the most confusing language that has made so many employers easy marks for the plaintiff bar. Unfortunately, few employers or employer counsel expect the rash of federal overtime litigation to subside anytime soon as a result of modifications to the overtime section of the Federal Labor Standards Act put into effect in August. On the positive side, neither will these revisions, themselves, provide myriad new causes of action for federal overtime suits. REVISED SALARY LEVEL TEST The FLSA overtime exemptions apply to five categories of white-collar workers — executive, administrative, professional, outside sales and computer. Exemption from overtime for workers in each category is governed by three components: a salary level test, a salary basis test and a duties test. Only the salary level test and the salary basis test have undergone significant change in the new rule. For the first time, the minimum weekly compensation level for all white-collar employee exemptions is set at a uniform level. In addition, the weekly earnings cap used to qualify an exempt employee has been lifted to $455 a week from $155, an amount that had been unchanged for nearly 30 years. This uniform minimum salary level applies to exempt employees in Puerto Rico, the Virgin Islands and American Samoa as well as the U.S. mainland. At the other end of the salary scale, workers earning $100,000 per year are automatically considered exempt if they “customarily and regularly” perform any one or more of the exempt duties of an executive, administrative or professional employee. SAFE HARBORS The salary basis rule is that white-collar employees who receive a predetermined amount that is not subject to reduction because of variations in the quality or quantity of their work are exempt from overtime. That rule is unchanged. The new salary basis test also carves out an additional safe harbor to the “no pay docking” provision. Employers now are permitted to impose unpaid disciplinary suspensions on exempt employees of one or more full days pursuant to workplace conduct rules that are in writing and applicable to all employees. They may also dock partial days for Family and Medical Leave Act absences and full-day absences for personal reasons, sickness or disability without impairing the salary basis for an employee’s exemption from overtime. New safe harbor and “window of correction” provisions also state that overtime exemption can only be removed from employees in the case of an “actual practice” of improper salary deductions. “Actual practice” is determined by the number of improper deductions over a span of time in relation to the number of occurrences of the event that led to the deduction. Any employer that has a “clearly communicated policy that prohibits improper pay deductions and includes a complaint mechanism, reimburses employees for improper deductions and makes a good faith commitment to comply with its policy in the future” will not lose the exemption for any employees subject to improper deductions unless the employer willfully violates the policy after receiving employee complaints. Deductions considered isolated or inadvertent may be cured by immediate reimbursement. REVISED DUTIES TEST Changes in the FLSA duties tests involve the elimination of the “long and short form” tests for administrative, professional and executive exemptions and the application of a “primary duty” standard that makes the test more practical and straightforward. In short, any exempt work meeting the specs for the white-collar category under which the employee falls may be aggregated to reach the overall “primary duty” threshold for exemption under that category. One important change to the executive duties test is the requirement that the exempt employee must have the authority to hire or fire or provide recommendations on hiring, firing and promotion of subordinates that are given particular weight. REVIEW DUTIES, POLICIES Many action steps for employers are inherent in the overtime rule changes mentioned above, such as immediately ensuring that all exempt employees earn at least $455 per week, even if they are part-time workers. Employers should also review the job duties of all current exempt executive employees to assess whether they have the necessary hire/fire authority — if the executive’s recommendations in that area are given “particular weight.” In addition, employers should review all written disciplinary and Family and Medical Leave Act policies to make sure their pay-docking features comply with those in the new overtime rules. Company policy prohibiting improper deductions from an exempt employee’s salary should be clearly communicated and include a complaint mechanism for those who feel their pay has been improperly docked. Finally, employers should continue to monitor legislative developments in this area. There is an effort in Congress to reinstate most, if not all, of the old rules or deny funding for much of the Labor Department’s enforcement of its final rule on overtime pay. Mark Zelek and Anne Marie Estevez are Miami-based partners in the international labor and employment practice of Morgan Lewis & Bockius.

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