A Thoughtful Review of the Latest Changes to the Fair Labor Standards Act (FLSA)

Having received a couple of requests for info on the new overtime regs, I decided to provide a comprehensive overview of the changes to the Fair Labor Standards Act. Basically, despite Congressional challenges, new federal overtime rules are in effect that substantially change the overtime status of millions of American workers. The “Overtime Security Rule” is a revision of the Fair Labor Standards Act (FLSA) which was implemented by the Department of Labor (DOL) on August 23^rd of this year. The revision of the FLSA represents only the third time that overtime rules have been updated since the FLSA went into effect in 1938. The last revision occurred in 1975.

How Have the Rules Changed?

The most significant changes in the 474-page revision of the FLSA are an increase in the salary cap of workers who are automatically eligible for overtime and a change in the determination of which employees are exempt from overtime pay.

Under the new rules, any employee who earns up to $23,660 per year is automatically guaranteed overtime whenever they work more than forty hours a week, regardless of their job duties. This is a substantial increase from the previous cap of $8,660 per year, and covers everyone from blue collar workers to clerical staff to managers, regardless of whether they are paid on an hourly or salary basis. The DOL estimates that this change will grant overtime protection to some 6.7 million workers nationwide.

The second change redefines which employees are considered exempt from overtime. Under the new rules, workers who make more than $23,660 per year are exempt from overtime if their duties are professional, administrative or executive. The law also generally excludes anyone who makes $100,000 per year or more from earning overtime, regardless of their duties or salary basis. Critics of the new rules estimate that this change will eliminate overtime protection for nearly 6 million workers.

Who’s Entitled to Overtime?

So how can an employer know for sure which employees should receive overtime? First, for employers who have employees covered by a collective bargaining agreement which gives them more generous rights to overtime than the new rules, the terms of the labor agreement supersede the new rules.

Second, employers should be aware of what the laws are in their particular state. In states that have different overtime provisions, employers must abide by whichever standards are more beneficial to the employee. States that have separate overtime regulations include: Alaska, Arkansas, California, Colorado, Connecticut, Hawaii, Illinois, Kentucky, Maryland, Minnesota, Montana, New Jersey, North Dakota, Oregon, Pennsylvania, Washington, West Virginia and Wisconsin. A quick trip to the web site for the DOL of the state will provide any desired information.

After taking these two factors into consideration, there are three major tests for determining overtime eligibility.

1.) How much does the employee earn? If the employee makes less than $23,660 per year ($455 a week), they are automatically entitled to overtime, regardless of their duties or salary basis.

2.) What is the employee’s salary basis? Employees who earn more than $23,660 per year and are paid on a “salary” basis are generally exempt from overtime. Salaried employees are paid a fixed salary per pay period, regardless of hours worked, as opposed to employees who are paid “by the hour”. Hourly employees are generally entitled to overtime pay.

3.) What are the employee’s duties? White collar employees who earn more than $23,660 per year are exempt from overtime if their duties are primarily managerial, administrative or professional.

“Managerial” employees are defined by the rules as those whose primary duty is the management of an enterprise (such as a department, store or subdivision), those who customarily and regularly direct the work of two or more other employees, and who have input into personal decisions such as hiring, firing, promotion, etc. (regardless of whether the employee has the sole discretion to do so). Unless otherwise guaranteed overtime by a collective bargaining agreement, employees in this category generally include: executive staff, managers, assistant managers, supervisors and team leaders.

“Administrative” employees are those whose primary duty is performing office or non-manual work directly related to the management or general business operations of the organization. Administrative employees also exercise “discretion and independent judgment”. Unless otherwise guaranteed overtime by a collective bargaining agreement, employees in this category generally include: administrative assistants, executive secretaries, school principals and vice-principals, school counselors, human resource staff, purchasing staff, public relations and quality control staff.

“Professional” employees are those who are “learned professionals” or “creative professionals”. “Learned professionals” are generally those whose jobs require advanced knowledge of science or some other field of learning which is gained through specialized intellectual instruction. “Creative professionals” are those who perform work requiring invention, imagination, originality or talent. Unless otherwise guaranteed overtime by a collective bargaining agreement, employees in the professional group include: restaurant chefs, nurses, financial service industry workers, insurance claims adjusters, teachers, lawyers, engineers, actors, musicians, dental hygienists, pharmacists, journalists and funeral directors.

The law also guarantees overtime to several groups of workers, regardless of salary or duties, including: blue collar workers (such as carpenters, craftsmen, construction workers, etc.), “first responders” (such as police officers, fire fighters, paramedics and EMTs), computer workers (such as system analysts and computer programmers), and inside sales employees.

For more information on determining which employees are exempt and non-exempt, check out the DOL’s website which includes listings by position and exemption type, exemption tests, fact sheets and frequently asked questions. The website is located at www.dol.gov/esa/regs/compliance/whd/fairpay.

What Steps Should Employers Take to Comply?

There are several steps all employers should take to ensure that their organization is in compliance with overtime rules.

1. Review your state law on overtime

2. Review the provisions of any collective bargaining agreements

3. Check the salary levels and salary status of employees

4. Revise job descriptions and clarify which employees are exempt

5. Train HR and payroll employees on the new rules

6. Consult with legal counsel as needed

Finally, before reclassifying employees as exempt under the new rules, be sure to consider the effect it will have on employee morale and retention. Employers always have the right to voluntarily pay overtime to any worker. As with any new rules, it’s only a matter of time before some of these new overtime provisions are challenged in court.

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Sick Leave and Chronic Absenteeism

I recently came across a study that caught my interest. Have you ever wondered how many of employees who call in sick are actually ill? A 2003 study by Harris Interactive found that only 36% who claim to be sick are sick. Not only is this figure disturbing, the trend is disquieting. It seems that back in 1995 45% of those taking sick leave were sick; we have lost 9 % in 8 years.

A summary of the full study is available at www.cch.com in an article titled Unscheduled Absence Survey. The actual data on the reasons given for using sick leave, as provided by Harris Interactive:

36% Sick

11% Stress

13% Entitled to their sick leave

18% Personal matters

22% Family Matters

100%

The study also viewed the data from the standpoint of companies with very good morale (12%) and good morale (44%), fair morale (34%) and poor morale (10%). As you might guess, morale did have a marked impact on absenteeism. Companies with very good/good morale had an overall absenteeism rate of 1.8% compared with 2.1% for companies with fair/poor moral. More importantly, Companies with very good/good morale saw an increase in absenteeism of 34% compared to 15%.

There was one other thought-provoking piece of information in the study. It seems that there are a growing number of employees who have decided that they would rather be sick at work than to stay home (presenteeism). Suffering at work, for these employees, is better than suffering at home and you get to save your sick leave for more important things. Obviously, from the employer’s perspective, this can be more of a problem then absenteeism.

There are a number of different responses that one might take to this information. One response is to view it in the context of data, as reported in e-zine #6, that employees are on average working 199 more hours per year than they were thirty years ago. In that case, the use of sick leave to reduce stress or deal with personal/family matters may seem quite reasonable.

Another way of looking at the problem is to find in the data support to beef up your absenteeism policy. The implementation and regular enforcement of a no-fault absenteeism program may very well be justified and cost-effective. Details on how to implement such a program were provided in e-zine #3 and I will be happy to resend that e-zine if you did not receive it or have misplaced it. However, 96% of companies responding to the survey indicated that they had a discipline policy related to absenteeism. This fact makes me wonder both as to the consistent application of the policy and/or the overall effectiveness of formal discipline as an approach to address the problem.

Finally, the survey clearly provides support for modifying the employer’s approach to the larger issue of structuring the program by which employees take time off from work. The old approach is to make a distinction between time off that is an earned benefit (vacation and holidays) with time off that is protected in the form of an insurance policy – only those who need it should use it (funeral leave, sick leave, personal leave, jury duty). The survey mentions that more and more employers are changing to a single paid time off program (PTO) by combining all of the above. This seems fully justified since so many employees do not make a distinction between the two. Moreover, a PTO program is so much easier to administer.

Given the significance of the absenteeism issue, I have decided to devote the next e-zine to laying out the issues and approaches to a PTO program. So, stay tuned, there is some good stuff to come.

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The Limits of Conflict Management Training

Interpersonal conflict resolution is often an area that clients want to discuss. Generally, the topic is approached because of a specific work team that is going through a highly conflictive stage. Many times the issue is presented to me through a question like, “Do you think we can improve the situation by providing interpersonal conflict management skills training?”

I have a very strong belief in the value and importance of providing training within an organization. For example, I have found that providing skills training in conflict management to new supervisors can have substantial payoffs to the organization. However, there are many situations where I do not believe that training is the answer to the problem. Using training in an attempt to reduce the conflictiveness of a work team is one of those areas.

Yes, it is often true that individual team members can benefit from the conflict management training. I am very well aware of programs that I think have value for the individual. For example, it is reasonably easy to structure a training program around the book Getting Together by Fisher and Brown. I still use this book in one of my graduate level courses and have always found it to be a very helpful guide on successful strategies and tactics for dealing with conflict and conflictive situations. The essence of the book is to teach the skill of “unconditionally constructive behavior.” The views that are set out in the book have nothing to do with being nice but rather focus on the important life lesson that conditioning your constructiveness on the behavior of another is to your detriment. Why let someone else decide whether you will act constructively or destructively?

Now I believe that there is value in providing training on unconditional constructive behavior for members of a highly conflictive work team, but the impact of this training on team alignment and cohesiveness will probably be small. The fact is that improving individual behavior does not generally bring around a re-orientation of the team as a whole. That issue needs to be confronted directly in a process that is different than simply providing a training program. I have had the opportunity in the last couple of years to witness a number of teams that have successfully gone through significant, positive realignment. There are four basic elements in the work that I do to bring about this alignment. These elements are outlined as follows:

• The vast majority of employees in a work group that is conflictive would prefer to be on a different track. The stress that the conflict creates on their personal lives and the negative impact on performance is the motivator for change. When provided a viable method for improving the work environment, employees will usually make this choice particularly when given the opportunity to make the choice as a group.

• The most effective approach is to have the group focus on creating what it wants. A far less productive approach is to have the group focus on what it wants to get rid of. This latter approach frequently generates ill will and finger pointing behavior. The basic concept is to facilitate a process that will help create a positive, affirming culture.

• A team culture is grown, not imposed. Since it is grown the group must learn to develop processes for nurturing the desired culture. Without these processes, the affirming culture can easily die. My approach to the group begins by taking it through an activity designed to clarify what is wanted. The second step is to help the group design the program by which it will bring about the desired culture.

• The final step is to build team commitment to what has been designed. The central message of this element is that our actions will speak louder than or words – how original. We need the commitment from every team member to honor what we have agreed to.

The bottom line is that all too often having individual team members grow in their personal skills does not address the needs of the team to grow as a team. Good training is helpful for the development of personal skills. However, a facilitated process, which may incorporate some training, is the only program that I have seen move a whole team forward. If a work group has relationship problems, then those problems need to be addressed as a team.

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Spotlight on Integrity

I recently received an informational request, asking whether I could provide a one-day training program on the topic of Integrity. Frankly, I was somewhat surprised with this request. For one thing, I have never heard of a full-day training program on a topic like integrity. There are many programs on the general topic of ethics, but to single out one element seemed unusual.

The more I thought about it, however, the more I found myself intrigued by this request. I began to realize that while I have not presented a full-day training program on the topic of integrity, that subject is woven throughout many of the training programs that I do conduct. For example, a program that I frequently conduct deals with the topic of supervision and the effective use of “power.” A basic premise of that course is that power used with integrity builds relationships, while power used without integrity destroys relationships. Likewise, much of the work I do in dispute resolution/prevention emphasizes that integrity, or the lack of integrity, is at the heart of our ability to deal effectively with problems.

As a result of my reflection, I submitted an outline for a training program that was based on two primary premises. First, my sense is that we do not directly seek integrity. Rather it is a fundamental element in the emergence of the desired outcome. Wile integrity for its own sake is quite obviously significant, it is the impact on organizational life that is the justification for creating a training program on the topic. Second, preaching on the topic of integrity will have almost a zero impact on an audience. On the other hand, a group of participants can learn from good examples and stories. More importantly, interactive dialogue will have to be the cornerstone for the design of the training program. After all, I doubt seriously that any of us can hold ourselves up as the model for integrity (let he who is without sin cast the first stone).

With the above two points in mind, I provided the organization the following outline for a training program:

1. Integrity: The gateway to a positive workplace culture.

2. Integrity: The gateway to powerful relationships.

3. Integrity: The gateway to constructive collaboration.

4. Integrity: The gateway to personal happiness.

As part of the work that I do with different organizations, I regularly critique the response to an EEOC complaint. Many of you have been there and know of what I speak. A question that is always asked on the initial EEOC complaint is whether the organization wishes to mediate the problem. I have a standard response. If the complainant has been honest in his or her statement of the complaint, then there is room for mediation. If the complainant has been substantially dishonest in his or her statement, the only thing to mediate is honesty. Mediation doesn’t handle the topic of honesty very effectively.

What I overwhelmingly have found is that complainants often take the position that he or she was a model employee and that the employer, for reasons of age, gender or race, has chosen to mistreat this model employee.

My recommendation not to mediate a case that has a high level of dishonesty in it is predicated on my experience as both an arbitrator and a mediator. As a mediator, I cannot and do not choose to address the subject of integrity. The mediator is not him or herself a part of the substantive discussions. Therefore, it would be difficult for the mediator to bring up the issue of honesty. As an arbitrator, I routinely make a judgment about the integrity of individuals who have testified. The judgment, at times, is extremely harsh. To put it bluntly, the award simply states, “you lied, you lose.”

Returning to the EEOC complaint, an EEOC hearing officer does have the same ability to make an evaluation as to who is “correct” as to their position on the point of dispute. This ruling does involve making a judgment about the integrity of the person’s position. If the complainant has been dishonest, the hearing officer can so rule. If the organization has been dishonest, the hearing officer can also so rule.

I would like to close on a positive note. I am very much looking forward to the opportunity to conduct a one-day training program on the topic of Integrity. It will be a unique, new challenge and I believe it will be a great addition to the body of work that I have been developing related to building a positive culture in an organization.

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Vacation Usage (or Lack Thereof)

A graduate student in one of my Public Administration classes recently wrote a paper on the use of vacation time in the United States. It turns out that employees in this country annually turn back some $21 billion of unused vacation time. This represents 1.8 days of returned vacation per employee nationally. Here are some figures with regard to average annual vacation usage to think about: U.S. – 13, Japan – 25, South Korea – 25, Canada – 26, Great Britain – 28, Brazil – 34, Germany – 35, France – 37 and Italy – 42.

What ought to be of concern to an employer about these statistics is that an average score is probably not very significant. For example, to say that 1.8 days of vacation are returned by each employee in the country is not very revealing because the data is undoubtedly bi-modally distributed. As most every HR or Employee Services Director can attest, there are a group of employees who take every possible day off just as soon as they can. These employees never accumulate any vacation, personal leave days or sick leave. Whenever a day of sick leave goes on the book, they immediately get sick and use the day. Vacation and other paid days off are treated similarly.

On the other hand, there is that group of employees who are never sick and are almost forced by their employer to take vacation time. It is this second group of employees that give back vacation days and they probably average 6-7 days per year. While you are thinking about this, let me add a new statistic. I keep running into what appears to be a reasonably well known fact. Americans today are working 199 more hours per year than 30 years ago. Tying this back to vacation usage, while wages have gone up substantially over that 30 year period, both the amount of vacation time available for employees and the amount of vacation used has remained constant.

A substantial amount of my current work focuses on creating highly energized employees with the ultimate goal of creating a high performing organization. Last November I brought to your attention the book, The Power of Full Engagement (Jim Loehr & Tony Schwartz). One of the strong points that they make in their book is that peak performance is not a continuous activity. Rather, peak performance needs a recovery period before one can move on to the next peak performance. In this context, vacation usage is absolutely essential.

With all of the above points in mind, I would like to offer the following three observations:

1. Having employees give back vacation time is not a good thing.

2. Long vacations (4, 5, 6 weeks) are not as useful for peak performance as more frequent, short vacations.

3. Effective supervision requires that the supervisor monitor time-off. Employees who never take time off should be a concern just like those employees who never accumulate an extra day of available paid time off.

One last thought – meal and rest breaks also impact recovery time. I was recently working with a client who had a group of clerical employees that all wanted to work through their lunchtime (1/2 hour). In other words, these employees wanted to pull out a sack lunch or go to the local deli and pick up a sandwich, and eat it at their desk while they continued to work – paid time of course. Beyond the fact that a clerical employee is not nearly as efficient when they are eating, a practice of working through your lunch hour ignores the importance of recovery. No wonder we all feel stressed out in this country when we can’t even take a half hour to put work aside and eat lunch.

Just to remind you, lunch period is unpaid only if it is completely duty free including being free of on-call responsibilities. Obviously if the employees are working a position where they have no choice but to be on duty for their full shift, then they ought be receiving compensation for the meal time and recovery will be a separate issue. By the way, you are completely within your legal rights to require employees to take a half hour or an hour lunch period. Scheduling the work day is a management prerogative.

As for me, I’ve decided to move to France where I can get a two hour duty-free lunch break and a glass of wine.

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