As federal and state governments become more involved in wage and hour laws, employers may find themselves struggling to navigate the increasingly complex world of employee pay.

Employee pay was among the topics business leaders and human resources professionals learned about during the Employers Council’s 2019 Employment Law Update Conference May 17 at the Antlers Hotel.

In 2016, the Department of Labor proposed a rule that would have upped the weekly salary threshold for non-exempt employees from $455 to $913. That rule was suspended by a federal judge in Texas just days before its implementation.

Three years later, the DOL is seeking to change the salary level for white-collar exempt employees — examples include administratively and executively exempt employees, as well as learned professionals — to $679 per week, or an annual amount of $35,308, said Brett Johnson, an employment law services attorney with the Employers Council’s Denver office.

The DOL also wants to raise the salary threshold for highly compensated employees from $100,000 to $147,414 a year, Johnson said.

Also notable, Johnson said, is the DOL’s desire to include what many refer to as the “90/10 rule,” meaning up to 10 percent of the employee’s salary can come through bonuses, incentives or commissions.

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“If an employer wants to take advantage of this, the employer will be required to pay at least 90 percent of this employee’s salary on a weekly basis. At the end of a 52-week period… the employer would be required to issue a makeup check,” Johnson said. “That is a practice that is not provided by current rules.”

In a significant deviation from the 2016 proposed changes, the DOL does not seek to implement any automatic changes to the salary threshold, Johnson said. The 2016 proposal recommended automatically bumping up salary thresholds every three years.

“In 2019, the DOL basically promises it’s going to look at it every four years,” Johnson said. “If it decides it does want to increase the amount, it’s going to do so through a formal rulemaking process.”

KEEPING UP WITH THE TIMES

Employers who responded to the 2016 overtime regulations likely will already comply with the 2019 iteration, Johnson said. However, those who “rolled the dice” three years ago may now find themselves with some questions to answer, he said.

“As employers who responded in 2016 will tell you, there is no easy one-size-fits-all solution to this question,” Johnson said. “The decisions that you make here will not only affect a particular employee, but potentially your compensation structure as a whole.”

The simplest solution is to give exempt employees a raise that would lift them above the $35,308 threshold, but it may be more cost effective in some cases to convert that employee to non-exempt instead, Johnson said.

“We’ve got to determine what the new employee’s hourly rate is going to be, and if the individual doesn’t normally work overtime, that calculation isn’t that hard,” he said. “Just reverse engineer the salary, divide it by 52 weeks and then the hours a week they usually work.”

The analysis is further complicated when the employee does routinely work overtime, Johnson said, but it is “perfectly permissible” for employers to anticipate the number of overtime hours and account for them in the reverse-engineering calculation that determines the employee’s new hourly rate.

“When it becomes a bit of an issue is if we overestimate the number of overtime hours the individual will work,” Johnson said. “If we do that, the employee is going to see a decrease in their annual pay, and that’s going to lead to morale issues and potential retention issues as well.”

If employers do opt to transition their workers to non-exempt status, Johnson encouraged them to develop a communication strategy surrounding new workplace practices.

“They’re going to need some additional instruction on whether it’s OK to stay late and work now, or whether it’s appropriate to answer emails from home after hours,” he said.

REGULAR RATE OF PAY

Another change the DOL is proposing is one that will clarify and update the “regular rate” requirements included in the original Fair Labor Standards Act, focusing primarily on the types of compensation and benefits that employers must include in their overtime calculations.

The FLSA requires that employers pay non-exempt employees overtime at 1.5 times their regular rate for all hours worked over 40 in a work week, according to California-based law firm Littler Mendelson PC’s website. The regular rate is not just an employee’s hourly rate of pay, but rather includes “all remuneration for employment” — unless specifically excluded by section 7(e) of the FLSA, according to Littler Mendelson.

The most common exceptions to the regular rate include gifts, vacation pay, sick pay, holiday leave and discretionary bonuses — a bonus the employer retains all control over and that is not tied to a prior contract, promise or agreement, Johnson said.

Incentive pay, commission and non-discretionary bonuses — which are tied to a prior agreement — are included in the regular rate, Johnson said.

“Basically, the DOL fears that employers are too scared to offer some of these modern-day workplace conveniences out of fear of whether they have to include that in the regular rate or not,” Johnson said. “This proposed rule does not create any new categories of compensation that can be included or excluded. What it does is provide examples of what the DOL considers to be modern-day compensation and states how that should be applied through the already existing rules.”

COMPETING PROTECTED STATUSES

During the session “When Employees’ Protected Statuses Compete — Does Anyone Win?” Melanie Daly, an employment law services attorney with the Employers Council, took audience members through a hypothetical situation in which a health care practitioner refused to work with a colleague after learning she was marrying her same sex-same partner, claiming that doing so would violate his religious beliefs.

Both employees are protected in Colorado by virtue of their sexual orientation and closely held religious beliefs, Daly said. The most recent Supreme Court case dealing with conflicting civil rights — which arose when a Lakewood baker refused, on religious grounds, to make a wedding cake for the marriage of a gay couple — provides very little guidance on the issue, she said.

“The court decided to place some very narrow grounds, finding that the commission had engaged in religious bias during deliberations of the case,” Daly said. “So without the clarification that we were hoping for from the Supreme Court, this case really does still beg the question, ‘What is the framework for a case of conflicting protected rights when they occur in the workplace?’”

Daly next looked to a 1973 court finding, in which the Supreme Court ruled that an employer need not accommodate an employee’s religion if the proposed accommodation would result in anything more than a “de minimis” — minimal — cost to the employer.

“[The employee’s] proposed accommodation is to permit him to not partner with her anymore. You determine that would be disrespectful to her, but you also determine that it would violate your standards of professionalism in the workplace, because you don’t permit people to pick and choose who they’re going to partner with,” Daly said. “If you were to capitulate and give him the accommodation that he wants, you’d be giving him the tacit approval to not only be disrespectful to a colleague, but to explicitly discriminate against her and to violate your rules of professionalism.”

The objective is not to restore balance between the two employees, but rather to reaffirm the employer’s standards of professionalism, Daly said.

“You have sent a very strong message to the rest of the workplace that professionalism and respect are the highest values that you have set in your workplace, and that is something you require all of your employees to adhere to,” she said. “Change is inevitable. Conflict is inevitable. It is how we address them that distinguishes us as professionals, as our challenge is to maintain balance in our workplace at all times.”