By Peter L. Ebb

THE SALARY ISSUE.

The new regulations maintain the current definition of a salary basis of payment (a fixed amount not subject to reduction or increase based on quality or quantity of work performed). The regulations also generally continue the current rules concerning the deductions from salary that are permitted, and the deductions from salary that destroy a salary-basis of payment. But the regulations broaden the scope of permissible deductions in a number of respects. These include partial-day deductions for suspensions for infractions of major safety rules (previously, only full-day suspensions were permitted).

Also permitted for the first time are deductions for disciplinary suspensions for one or more full days for infractions of workplace conduct rules (even ones not involving safety issues), pursuant to a written policy applicable to all employees (under the old rules, nonsafety-related suspensions had to be meted out in full week increments to exempt employees, or not at all). The new rules provide a "safe harbor" to protect employers against loss of exemption on account of impermissible reductions in salary pay, if the employer has a clearly communicated policy prohibiting improper deductions, reimburses employees for any improper deductions, and makes a good-faith effort to comply in the future after an improper deduction has occurred.

The new rules also confirm several practices for salaried employees which previously had been viewed with some suspicion: deductions from accrued leave balances for partial day absences will not destroy the salary basis of payment, nor will requiring employees to record or track hours, or to work a specific schedule. Likewise, providing extra compensation, in addition to a guaranteed minimum salary, will not remove exempt status. The minimum salary necessary to support exempt status is increased from $250 under the old regulations to $455 per week under the new rules.

WHAT EMPLOYERS SHOULD DO.

In light of the new regulations, each employer should take the following steps:

• Review the classifications of all exempt and nonexempt employees. If every employee in your business is treated as exempt, or if an overwhelming majority of them are, this may be a red flag; just because your employees act very professionally, that does not mean they are all "professionals" under the regulations.

• Revise or adjust formal job designations as appropriate - job descriptions that include as a duty "provides routine maintenance for mimeograph machine" probably needed to be revised anyway. This is a good time to do it.

• Adjust compensation of lower-paid employees, if necessary and advisable, to bring them within the scope of the revised exemptions. Just make sure that the size of a salary increase is not more than what you would have paid in overtime premium pay to begin with).

• Adjust compensation of higher-paid employees, if necessary and advisable, to come within the scope of the new exemption for highly compensated employees. Again, do so only if it makes economic sense.

• Consider the adoption of written workplace conduct rules applicable to all employees, in order to be able to suspend exempt employees for nonsafety-related workplace misconduct.

• Consider adopting a policy concerning improper deductions from the salary of exempt employees.

• Talk to your attorney for specific guidance particular to your organization, especially before changing a formerly "nonexempt" position to exempt status. And remember that state law can provide greater protections than does the federal code. For example, workers providing certain home-based "companionship" services have long been treated as exempt by the U.S. Labor Dept. In Massachusetts, however, they must still must be paid the overtime premium under wage-and-hour statutes.

• And, while you're at it, examine your existing pay practices for traps for the unwary, which the new regulations leave unchanged.

The most common of these: failing to pay for covered travel time, providing "compensatory time off" instead of required overtime premium pay, failing to aggregate hours worked for two or more related employers, counting only base pay in calculating the "time and one-half" overtime premium, paying nonexempt employees with a flat rate or lump sum instead of the "time and one-half" rate, ignoring "small amounts" of overtime and other time-card inaccuracies, and failing to pay for time worked by employees who start early, stay late, or work through lunch. Each and of these continues to pose significant risks to employers, even under the new regulations.

Remember, the overtime-law changes have gone into effect. Smart businesses will be mindful of their impact and implications.

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