At the end of June, President Obama and the Department of Labor announced a proposal that could make millions more workers in the United States eligible for overtime pay. Although the rule change can take effect without Congressional approval, people are still expecting it to be challenged and individuals and organizations on both sides are gearing up for a fight (learn more here, here, and here).
As I read about and contemplated the news, I was struck by three things:
- Most of the discussions in the articles I read focused on what I would call "earth-based work" - namely, the work people do when they are physically present at a location. Little to no attention was paid to the work people do remotely - specifically, the ways in which they may engage with their organizations, co-workers, bosses, clients and others using social and digital technologies.
- There was also a predominant focus on blue and pink collar workers, with virtually no discussion about white collar workers who could be affected by the changes. Given the increase in the salary threshold for overtime compensation (more on that below), many people who have previously been classified as exempt under the Fair Labor Standards Act, or FLSA, may now be covered.
- Many employers - and especially managers - have a limited understanding of the FLSA and may not be in compliance with its current requirements, let alone be prepared to meet the new standards. For those already in the gray zone in particular, things are about to get a lot more complicated.
In this article I'd like to add a digital dimension to the discussion and offer some guidance to employers about what the current and proposed FLSA requirements mean for them (as well as for managers and employees).
A Primer on the FLSA
The Fair Labor Standards Act is a US federal law originally passed in 1938. According to the Department of Labor, the law's purpose is to establish "minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments." The law has been amended numerous times since its original passage, the most recent of which was in 2007 (to reflect an increase in the federal minimum wage).
Many people are familiar with the somewhat counterintuitive and sometimes confusing terms exempt and nonexempt. These terms basically refer to whether the overtime rules in the FLSA apply to employees. If employees are classified as nonexempt, the law applies to them. If they're classified as exempt, it doesn't. Generally speaking, "nonexempt employees must receive overtime pay for hours worked over 40 per workweek at a rate not less than one and one-half times the regular rate of pay."
The criteria for determining whether an employee is exempt are complicated, but essentially a person is currently not eligible for overtime compensation if:
- His/her compensation is defined as an annual or weekly salary (versus an hourly rate);
- That salary equates to at least $23,600/year; and
- His/her job duties meet certain executive, professional, or administrative standards (e.g., manages others as a primary job duty, is a "learned professional" like a lawyer, or provides staff support on "matters of significance," like human resources).
The Proposed Changes, in a Nutshell
The rule change would raise the salary threshold to $50,440 a year (or $970 a week), which would approximate where it stood in 1975 in terms of purchasing power. The threshold would be indexed to wage growth so it would continue to increase over time.
The change would affect salaried workers currently earning between $23,600 and $50,440 a year. It would not affect hourly workers, as they are already considered non-exempt regardless of their base wages.
FLSA's Digital Implications
For most of the past eight decades since the FLSA was passed, "work" required people to be physically present in a given location. As digital technology has become more fully integrated into our personal and professional lives, however, "work" can be done virtually anywhere and at any time by almost any type of worker.
Employers have had to increasingly recognize that employee communications via channels like email, text, social intranets and even public social media channels may be considered "compensable time" unless it meets a de minimis standard. Three factors determine whether work is de minimis (source):
- The practical administrative difficulty of recording the additional time
- The aggregate amount of compensable time
- The regularity of the additional work
While no bright-line rule exists, work taking less than 10 minutes is generally considered de minimis. So, for example, the time it takes for an employee to have a quick text exchange with her supervisor about her work schedule or a deadline during off-duty hours is not considered compensable. If that employee responds to a series of emails and/or logs into an internal system to help troubleshoot a problem and/or answer work-related questions, however, then she is likely entitled to be compensated for that work.
It's important to note that employers don't "get a pass" when time worked isn't specifically recorded or an employee voluntarily engages in work and doesn't expect compensation. The law decides compensability, not managers or individual workers.
If/when the proposed new salary threshold goes into effect, things could get a lot more complicated. For example:
- Many telecommuters and other staffers who routinely work remotely and have previously been classified as exempt may now be considered non-exempt.
- Ambitious entry-level professionals in many fields who want to go above and beyond the call of duty to demonstrate their value may work remotely on nights and weekends. This time is likely to be compensable.
- Various social media and community management roles require people to work beyond the typical 9 to 5 workday to meet the digital demands of a company's customers and others. These extended hours could now be considered compensable.
- Individuals involved in Employee Advocacy and Brand Ambassador programs who engage via social media outside their normal work day may also be engaging in compensable work.
Recommendations for Employers
The first thing employers should do is consult with their HR leaders and legal counsel to determine whether their programs, policies and practices are in compliance with current FLSA requirements and to better understand the implications of the proposed rule change. They should also initiate an effort to prepare for the change to take effect as early as the first quarter of 2016. The project plan for this effort would include activities like:
- Communicating with managers, supervisors and employees about the pending change and its implications (before, during and after the impact is felt).
- Conducting an assessment to determine which positions may be reclassified as non-exempt based on the rule change, and estimating what the potential costs of reclassification (or salary adjustment) might be.
- Revising policies, programs and practices as needed to conform to FLSA rules.
- Determining whether new methods and systems are necessary to track hours worked for reclassified workers and implementing them.
- Educating supervisors and managers about FLSA requirements, emphasizing the importance of their role in maintaining compliance. It may also be necessary to provide comparable education for employees who will be reclassified as nonexempt workers when the new rules take effect.
There are likely to be many developments on this issue in the coming months, so it's important to keep monitoring the status of the proposed change. Anyone who wants to provide input to the Department of Labor can submit written comments here before September 4, 2015.