New FLSA Regulations Require Some Policy Changes

Many employers have a simple Fair Labor Standards Act policy that says little more than that the company will pay overtime in compliance with the Act. The latest FLSA regulations published by the Department of Labor which became effective on 23 August 2004 have two provisions which suggest that it may be time to modify that FLSA policy.

In the first place, the regulations provide a new safe harbor provision to employers who make improper deductions from exempt employee pay. This provision allows employers to correct isolated or inadvertent deductions without losing the exemption provided the employer does not have "an actual practice" of improper deductions. The regulations provide that an employer will be deemed not to have an actual practice if the employer (a) has a clearly communicated policy that prohibits improper deductions, (b) reimburses employees for improper deductions, and (c) makes a good faith commitment to comply in the future. The regulations go on to say that the best evidence of a clearly communicated policy is a "written policy" distributed to employees prior to the improper pay deductions. Additionally, the policy prohibiting improper pay deductions must include a complaint mechanism to allow employees to raise concerns about improper deductions.

All this suggests that employers may be wise to adopt expanded policies under the Fair Labor Standards Act. Those policies may even include a description of the deductions employers may make from an exempt employee’s pay.

The second area involving policies is a new provision in the regulations that allows employers to hand down "unpaid disciplinary suspension of one or more full days imposed in good faith for infractions of workplace conduct rules." These unpaid suspensions are allowed only if the employee is suspended "pursuant to a written policy applicable to all employees." In the past, suspensions without pay had to be made in one-week increments during a week that coincided with the Employer’s work week. These suspensions were often viewed as too harsh or too complicated to be effective. But under the new "day or more" suspension rule, unpaid suspensions may become an effective disciplinary tool. To take advantage of this new tool employers will need to review their workplace suspension policies to ensure that the policy allows for suspensions of "one or more full days," instead of a full work week, and further ensure that this policy applies to all employees.

Employers wishing to have Quarles & Brady assist them in drafting policies that are compliant with the new regulations should contact David Barton at 602-230-5526 or dbarton@quarles.com or your Quarles & Brady LLP attorney.