Mission to Grow: A Small Business Guide to Cash, Compliance, and the War for Talent

EP 127 - Mary Simmons & Brian Shenker - 5th Curcuit's Rulling of FLSA Min-Salary Rule
===

Mike Vannoy: [00:00:00] the punchline Of this episode could be, you don't have to make any change. All the change. And if you, if you fail to make the changes that were required of you, July 1st, then you're good. I think the, for the three of us, what we really want to communicate here is how should employers be behaving?

How should, because one thing is certain, nothing's going to stay the same.

Welcome to Mission to Grow, the small business guide to cash, compliance, and the war for talent. I'm your host, Mike Vannoy. Each week, we'll bring you experts in accounting, finance, human resources, benefits, employment law, and more. You'll learn ways to access capital through creative financing and tax strategies, tactical information you need to stay compliant with ever changing employment laws, and people strategies you need to win the war for talent.

Mission to Grow is sponsored by Asure. Asure helps more than 100, 000 businesses get access to capital. Stay compliant, and [00:01:00] develop the talent they need to grow. Enjoy the show!

Mike Vannoy: Hi, welcome to today's show. We got a big, big, big topic today. So, uh, uh, an East Texas court on November 15th overturned, uh, a really big department labor, uh, Department of Labor decision. We've talked a lot about on the show. I got two guests. If you're a regular watchers, you know, Mary Simmons, you know, Brian Schenker.

Uh, experts in this area. Uh, we've talked a lot about this topic, trying to prepare employers for these really, really big, super impactful rule changes. Uh, and now it's all changing yet again, going back, but some of these rules have already been implemented. Let me just kind of unpack the topic and then we're going to have a discussion.

Hoping that today's episode, we get really practical for business owners. What the heck do you do about this information? Because if you haven't acted yet, maybe there's nothing you have to do. If you are proactive in making [00:02:00] adjustments, there might be changes you have to make to actually be legal here.

So let's just unpack it. So, uh, Prior to July 1st, 2024, so the minimum salary threshold for exempt employees, that means you might think of it as salary, but in the eyes of the law, it's exempt employees, they don't get overtime. Under the Fair Labor Standards Act, FLSA was 684 a week, the equivalent of 35, 568 annually.

So, and that hadn't changed in a very, very long time. So Department of Labor, uh, published rules, so went through this whole big, long process. Uh, where after July 1st of 2024, so a few months ago, uh, that was going to 844 per week or 43, 888 annually. So a big jump from 35, 000 and change to 43, 000 and change with a further increase scheduled for January 1st that took it up to 58, [00:03:00] 656.

So big, big change from before Jan, July 1st. After July 1st and an even bigger change, here's the big news. Uh, on November 15th, the U. S. District Court of Eastern, uh, Eastern District of Texas vacated the DOL's rule, effectively reverting the minimum salary threshold back to pre July 1, 2024 levels of 35, 568 annually.

Um, Okay. So let's go to the group here. What the heck does this mean for employers? This is big sweeping change. I, I just fear so many employers don't even know about this. I think we should start with the baseline of what is the rule? What did the, what did the Texas court do? And then how, how must we react to it?

And, uh, Mary, I'll maybe start with you.

Mary Simmons: Yeah, thanks. Thanks, Mike. I mean, first of all, and [00:04:00] Brian will weigh in on this also, it is very rare that the, that it gets enacted and then they pull it back. So you have employers, Hey, listen, if they didn't know that this was out there, they're almost in better shape than the clients that we have that listened to us and made those raises in July.

Um, so. You know, I think it's, it's uber important for employers to number one, understand FLSA and the difference between exempt and non exempt. It is very often that I'm on the phone with an employer, everybody understands minimum wage for your non exempt people. Everybody understands it. They might not be up to date on all the changes because there's a lot of changes there as well because it's federal, state, and municipalities, right?

Jumping into that, that race, there's about 150 different ones. But a lot of the [00:05:00] employers don't understand that there's also a minimum salary. And what we were talking about here, of course, is your white collar exemptions. And there is other exemptions. We've talked about that on other, um, other episodes, but I think a lot of employers don't even understand the baseline and, and that's understandable.

They're running their business. This is what Brian and I do every day. Um, so it's our world, uh, and that's why I think it's valuable for us to go through this, uh, and explain that these laws exist. So if you never made the changes. You should be in good shape, but it doesn't minimize the fact that you have to go back and have a job description for every single position that is very clear and defends the exemption, be it exempt or non exempt.

Correct.

Mike Vannoy: [00:06:00] here first.

Brian Shenker: Yeah. No, so you're absolutely right, Mary. And I think breaking it down as to what we're talking about here, I think is the first step, right? So for every exemption, right, which means your employees who you can pay a salary to, and you know, you're not going to owe them overtime when they work over 40 hours in a work week.

In order for those employees to be exempt under, we're really talking the main three exemptions, the executive, executive, administrative, and professional. Exemptions. The employees need to meet a duties test, right? First, you know, each of these has a separate duties test that, you know, the employee needs to fall within.

And then as Mary said, what many employee employers forget is that there's this salary threshold or some employees, employers know about the salary threshold, but forget about the duties test. So employers need to understand that employees need to be paid on a salary basis, meaning it's a real salary.

and it's at least as high [00:07:00] as what we're talking about here. So when we get into this decision, it's really about the salary, the, the, you know, the threshold component, uh, taking over for the duties and the court had an issue, uh, for the salary, uh, component basically becoming the litmus test instead of the duties.

Uh, this may sound familiar to some people because it's, It's kind of history repeating itself in some ways in that this was what really doomed the 2016 Obama administration rule, which also attempted to dramatically increase the salary threshold. Funny enough, the same Texas court that stopped this rule stopped the Obama rule, uh, back in 2016.

Though, again, in Marriott, as you, as you mentioned earlier, employers were in a better position there because The final rule was knocked down. I believe it was just a few days before [00:08:00] it went into effect. Unlike here, where what we have to unpack today is what, you know, what to do once you, you know, came into compliance or did not and what to do next.

So, you know, it presents a different situation,

Mike Vannoy: Brian, can you maybe say a little more what you mean? So, one one hand, the punchline Of this episode could be, you don't have to make any change. All the change. And if you, if you fail to make the changes that were required of you, July 1st, then you're good. I think the, for the three of us, what we really want to communicate here is how should employers be behaving?

How should, because one thing is certain, nothing's going to stay the same. So this. decision by the East Texas court could be overturned. We don't think it probably will be, but we didn't think this was going to happen either. So, the DOL could come out with [00:09:00] new rules. Things are going to change and there are going to, there are, there are very practical things employers should be doing.

I want to spend probably most of our time talking about that. But specifically on this being overturned, I know conceptually what you mean, but can you unpack for us the difference between what the court had an issue with a salary centric requirement versus a duties centric requirement? That's going to, that's going to tee up what we are going to ask of employers in a second.

So explain more, please.

Brian Shenker: right? So what the DOL did in implanting this new rule was they increased how much someone has to earn on an annual basis or a weekly basis. to be considered exempt. And the point of that, right, the idea behind the DOL's rule was to make it so that less employees would be exempt and more employees would receive, you know, uh, you know, time and a half for overtime and get [00:10:00] hourly rates.

Uh, and so what the rule would essentially do was, uh, yeah, I think studies showed that it was going to, you know, Uh, increase, you know, to about 30 million, I believe, uh, or, uh, people who would otherwise have not been, uh, exempt would now, or rather not 3 million, uh, a little over 3 million would, would now become, uh, non exempt.

And so what the DOL said is that, uh, rather what the court responded with was that, This increase in the salary was so high that it was basically getting rid of the duties test and that the exemption test was basically going to become a salary test. the problem with this is that the statute, the FLSA, it only speaks of the duties when it talks about who's exempt.

And so courts have been okay. And you know, there was a recent, federal decision that said, you know, the court can [00:11:00] use, or the DOL can use. salary as a proxy for duties, but only up to a limit. And so here the court found the limit was far exceeded, because it would basically render the duties test meaningless.

Uh, so that, that really formed the basis of the, uh, of the court's decision. It also, and I'll mention this, After 2025, the final rule contained every several years, there would be automatic increases, you know, based on some, you know, salary indexing, uh, and the court said, well, DOL, you're not authorized to just set these, you know, salary threshold increases on autopilot, right?

So, you know, the FLSA

doesn't Yeah. that. That, that, those I never thought about until you just described it that way. Those auto increases down the road, Make it, they further cement the notion that this is all about pay, not duties, right?

[00:12:00] Right, exactly. And so, you know, that's not to, this is not to say, you know, as you suggested, a new rule, uh, could be implemented that increases, uh, the salary threshold, but, you know, the courts are, you know, stating it's got to be within reason. Now we don't know what that really is. Um, you know, and again, speaking of going forward, right, what happens next.

Uh, you know, this is all, you know, a very, the timing of this is very interesting, right? Had this decision from the Texas court come down a year ago. It would be much different. We'd likely have an administration that would follow through with an appeal and try to get this final rule back in effect. Uh, however, come the beginning of January, we have a new administration, uh, that based on, you know, what we saw in the first, uh, uh, Trump administration, we would likely see [00:13:00] them either not pursue the appeal.

Um, or, you know, even if they pursued an appeal, they might just do so, uh, to argue that they have such rulemaking authority, but then they would likely withdraw this actual rule. So, um, you know, our, you know, what we think is that the rule may be dead at this point, but that's not for certain. So I think that certainly, uh, is something that we need to consider when, you know, advising employers.

Uh, because right now, you know, we're still in a little bit of a time of uncertainty, though we do expect the rule, you know, will not come back, uh, you know, into effect.

Mike Vannoy: All right, so let's kind of split our conversation going forward here into two buckets. I think number one I want to talk about those employers who when you watch the show, Mary and Brian, and they've learned so much from you too, [00:14:00] Um, that this rule was coming in July 1st, they had some exempt employees who they had to raise pay.

They were proactive and they, and they did that. So I want to talk about what, what is the. How do we treat that? Do we claw back? Do we just change, go for it? I mean that we need to, we need to give solid advice to employers what to do with those employees that, that requirement retroactively changed. What a nightmare, the word retroactive and when it comes to following laws. And then the other half, maybe the bigger half here, if that makes sense, is Knowing things are going to change again. We just don't know what those changes are. What is the best way to organize our business, our employee classification, our HR processes, so that we're best equipped to handle change. Right.

So let's, let's focus on the first. So that, that again, the minimum salary threshold for an exempt employee, so not minimum wage. [00:15:00] But you are exempt, not overtime salary folks. It used to be 35, 568 a year. And July 1st, it went up to 43, 888 a year. So now that that's gone retroactively, those people who didn't know about the change and didn't make the change, there's nothing for them to do, right?

Brian Shenker: Right.

Mike Vannoy: But those people who did, those employers who acted good on you, acted proactively, responsibly, and followed the law. Whether you loved it or hated it, doesn't matter. You followed the law. What the heck did those folks do now?

Mary Simmons: I'll take it from the employee morale, uh, angle, um, and, and Brian maybe can give more of a legal stance here. So look, I know, you know, as I talk to employers every single day, I know this was a difficult, Let piece of legislation and costly to [00:16:00] a lot of employers. So on one half, uh, they may have increased some individuals, which they said, you know, they're exempt, uh, clearly exempt, or maybe they made the decision that what they work so much over time, you know, that it, you know, net net raising the salary.

is going to be the same for me, or they took an employee and made them non exempt. Let's take the first example where they made somebody exempt and they, they made somebody exempt. And they changed their, their, uh, increase their salary. If you take that salary back, it cannot be overstayed. I don't think you have an employee out there who would say, Oh, I see the law changed, go ahead and do that.

I think it's going to hurt employee morale significantly. At, you know, I think, [00:17:00] Any reasonable person would agree. And for those employers who say, Oh, Mary, I don't care about employee morale. Well, you should because that is directly correlated to engagement. Engagement is directly correlated to productivity, which is directly correlated to how you grow your company.

So, you know, We all need to be concerned about employee morale. That's very important for those employees that you made non exempt. Um, so you maybe didn't have to make that salary increase. Um, and you have a job description that, you know, can defend that. Well, now you, if you go to that employee, nevermind, Mike, I'm going to make you exempt again.

Well, You might've just opened yourself up to that employee going, now, wait a minute. I was going to get overtime. Now I'm not going to get overtime. What about the 10 years I worked for [00:18:00] you and never got overtime and worked 10 hours overtime all the time?

Mike Vannoy: Right.

Mary Simmons: it's going to be morale, but it also could be very costly and you might've just triggered a lawsuit.

Mike Vannoy: Well, and something we just talked about before we started the show is like, if an employee goes to chat GPT or to Google, Hmm, is this real? My boss saying, Oh, the, the, this, this changed. I thought this was the law. They, the reason they made this change the first time is because the law changed. Well, all those thousands, maybe tens of thousands of articles that were published on all these DOL rule changes. The chat GPTs of the world have read all that content, and they may or may not provide the proper context of the new rule that is five minutes old. And Google's algorithms and their bots, they've crawled to the thousands of articles. The guarantee there are thousands more articles on [00:19:00] the Dwell ruling, uh, then there is the court overturning it, you know, on November 15th.

It's very likely your employees are going to do a, uh, an AI or a search that is going to come back and make them think that the rule is still in effect. So who do they believe, right? I mean, this, this puts those employers in a very difficult position.

Mary Simmons: Yes,

Brian Shenker: Yeah, absolutely. And I think, Mary, going towards the employee relations angle, I think. It's important for employers to think about how they communicated the changes in the first place, right? But did, did the company mention the new rule or, you know, just because that's going to relate to what you say now.

Uh, so, you know, obviously it's going to be a very unpopular choice. to, you know, take someone who you raised up to the 43, 000 level to bring them back down. Uh, but if you're going to do that, certainly consider the message in relation to the previous message [00:20:00] conveyed. Um, and from just from a legal standpoint, you know, obviously, you know, legally you can, you know, decrease someone's wages.

Uh, Again, a lot of employee relations issues to go along with that. The only real issue to consider is in many states, there are notice requirements, uh, when someone's wages are changed, so you have to provide that, um, but, you know, the other issue with, you know, reducing wages now would be. What if there is an appeal, right?

What if an appeal is pursued? We're, we're, we don't anticipate it, but, you know, it could be worth, you know, waiting, you know, a, a month, two months, you know, see how this plays out in the short term, right? Before, you know, drop the wages again. Then you learn there's an appeal. Now we're waiting for, you know, that to be resolved.

So, you know, it, it is a, [00:21:00] uh, you know, not a easy decision to make. Uh, and certainly, as Mary suggested, you know, if the employer went the other way and made people, you know, non exempt, that, that's a, that's a completely different, you know, uh, beast to tackle. Um, you know, for the reasons Mary said, it's both legal and, right, people look at salary as maybe a good thing and, you know, comes with respect in the organization and going back to an hourly rate.

could be something that's, you know, looked at, you know, less favorably. So, you know, there are really, uh, a lot of employee relations pitfalls here, which kind of could be tied to legal issues if your classifications to begin with, uh, were, were not, were not good. And, you know, maybe you had some people earning salaries who should have been earning, uh, you know, over time,

Mike Vannoy: I think you're hitting on the real issue and this is going to, We're going to see a lot of this in this next [00:22:00] year or two in the courts, I believe, cause this is going to be the foundation of so many lawsuits. Um, and just so everybody understands it, I know we've talked on this show many times with the author, all three of us, but at the, you know, raising the minimum salary, And the reason I'm hearing Brian tell me if I got this wrong, uh, that the, that the East Texas court struck this down is it, including all these, uh, uh, uh, uh, increases over time is because the, the rules seem to be centered around how much people make versus what people do and what people do.

That's the duties tests that determines the classification, whether you're an exempt employee or a non exempt. period. That's the black and white eyes of the law. And we all know that the real reason, so this was perhaps money centric. I'm not going to try to pre judge or get in the heads of the, of the, of the rulemakers here.

That's what the, the East Texas court said. Uh, [00:23:00] but if the basis of moving, so, okay, I can't afford to go from 35, 000. That's too much. I'm going to reclassify you. Did I really change your job description? Did I really change the duties that are required of you every single day? Or did I probably just start calling you hourly and make you punch in and punch out now?

I think the reality is most employers probably did that. They didn't rewrite the job descriptions and rewrite the duties, which means they were either improperly classified before or they're improperly classified now in the future. God bless all you lawyers, Brian. You're going to have a field day with employers who got this classification wrong for people who are going to be eligible for all kinds of retroactive overtime, or why did you decrease my pay?

And then amongst all of it, an employer relations nightmare. Can you maybe, am I on the right path here? And then speak to the [00:24:00] employee classification issue.

Brian Shenker: Yeah, no, I think you're absolutely right there. So, I mean, look, I think, yeah, as Mary and I kind of say, as I think we all started, right, it was that employers may not always be aware of the different components of an exemption, right? That to be exempt from overtime, not only do you need to earn. This much, right, 35, 000 and change now, but you need to meet these duties.

Uh, you know, sometimes employers think, Oh, I pay them the salary, they're exempt and they don't worry about the duties. So you know, you could have these employees you've been paying salary to who worked well above 40 hours and so they were incurring, you know, overtime, uh, compensation, but never being paid for that.

So that's, that's the biggest issue. Those employees, right? And you take. one of those employees and you start paying them an hourly rate and overtime. Now that's okay, right? We can pay anyone an hourly rate and overtime. [00:25:00] Uh, but what's that going to tell that employee that, you know, maybe I should speak to an attorney.

Maybe I wasn't paid correctly back when I was getting a salary. Um, you know, that's often what, what I see in our practice, that employees go to attorneys when they, um, feel something wasn't done right because, you know, look, they'll get a free consultation. They'll talk. They might not even be going about the right thing, but the, the, the attorney will ask them the questions and figure out the claim.

So we often see that, you know, when things are not communicated well to employees, even if it was arguably legal that, you know, the employee might go to the DOL or they might go to the attorney, right? If they're not trusting what the employer does. So I think that goes to the communication aspect of this, right?

That regardless of whether, you know, any employer has skeletons in their closet, um, you know, in some, you know, potential liability, the way, you know, Mike, you and I discuss this all the time, the way [00:26:00] you communicate to your employees, you know, that that's, that's really so key because if, if they. have enough full understanding of why the company is doing what it did.

And you know, it's explained in a thorough and understandable manner. It's much less likely they're going to go to, employees will go to any outside source, right? Because they get it. They understand, you know, we're all on the same team here, but it's where, you know, you're going to decrease their wages or transfer, you know, switch them again from hourly to salary or vice versa.

Uh, That they're starting to have questions as to what is, what is my employer doing? And that's when they're likely to go outside, talk to an attorney, talk to an agency, and you're likely to get some type of claim.

Mike Vannoy: Mary. Piggyback on this if you could, because I wanna put a fine point on this. If you were an employer who had exempt employees, you may have called them salaried, but they're [00:27:00] exempt employees, and they were making be, uh, they were making below 58,658 $6, or excuse me, uh, July 1st, they were making less than $43,888. And so. Uh, you, you raise them. The only way you could have, so if they were, if they were legally and properly classified, then that would have been your only legal path. So if they're truly an exempt employee, you had no choice but to raise them, to raise their salary. If you converted them to hourly. The only legal way you could have done that is if you literally changed their job description so that their duties would have aligned with a non exempt employee eligible for overtime.

Am I saying that right?

Brian Shenker: So I think it's, it's, I think it's almost the reverse, Mike, just to clarify. So

Mike Vannoy: [00:28:00] I flipped my words. Okay.

Mary Simmons: No, No,

no, it, it makes, that's why it's so confusing for employers and that's why I'm flipping it to Brian because the DOL kind of looks at it, sorry Bri, I told you to start now I'm jumping, but the DOL looks at it like everybody should get overtime,

Brian Shenker: Right, right. So that's, that's the baseline position, right? Everyone's entitled to an hourly rate plus overtime, regardless of what you do. And then you're only entitled to get a salary if

you

Mike Vannoy: Okay. You know what? You're right. I now remember. Right. So it doesn't, it can't work the other way, but you can always take a super highly compensated person. you could have a 200 an hour attorney. and, convert them to be paid hourly, but you couldn't do it the other way around and taking, clearly somebody who doesn't pass those duties tests and say, Oh, your salary, because I want to [00:29:00] even out your income, or I want to make cashflow more predictable or whatever the, whatever the, Seemingly noble reasons might be.

Okay. I gotcha. We still, and I, and again, tell me if I have it wrong. We still have a classification and duties issue that if you're going to change that for you to be on firm ground as an employer, we still have to rely on good job descriptions that align to this classification, right?

Mary Simmons: you have to defend the exempt classification because what we, what we stated and, and when you read, um, the DOL, you know, exempt versus non exempt description, it's everybody's eligible for overtime unless. So that, that's kind of the way Brian could say it more articulately, but that's, that's the way they look [00:30:00] at it.

So that's why job descriptions and, and, you know, I say this all the time, but I'm going to repeat myself because it's that important that the job descriptions have to be looked at every day. Things that are So what changes? Well, there's a lot of people that are remote now, so what, you know, and that's a big deal because that changes your duties, right?

I might have taken the mail in every day. I can't take it in every day if I'm remote a couple of days a week or five days a week. So, You have to update your job descriptions. Um, absolutely. Um, and what I would also caution everybody, if you have those remote employees, um, I have an employer. who said, that's it.

Everybody's going to be non exempt. I can't afford that. They made a few people that were exempt, non exempt. But they're in the [00:31:00] state of Washington and Washington, like New York and like California and many other states have very strict laws. I would say Washington probably has the strictest about meal breaks and very strict, um, consequences to employers if people don't take their meal breaks.

They want everybody to take meal breaks, but they're going to be stricter on the non exempt. So now you made everybody non exempt. But you're in the state of Washington, right? So now you have a new issue. Now you have to monitor. whether that individual took a break. Because if they don't, you owe them twice the amount of time for their meal break.

How do you prove that a remote person took a meal break? I mean, so there's a lot of issues that employers need to think about when they're changing the exemptions, which they're still going to do, even though this law, you know, [00:32:00] changed for now, especially in a state like Washington, um, and, you know, New York and California who have salary thresholds that are still increasing.

And those are the states we all go, Oh, of course, New York and California and Washington state have salary thresholds, um, that are even higher than what the DOL was going to do. But it would surprise you that Alaska and Colorado do as well and a few other states. So that's why it's just uber important to, you know, pay attention, constantly get updates on what your state, um, the federal government and municipalities are doing because.

They're all changing all the time.

Brian Shenker: Yeah. And, and kind of to echo what, uh, what Mary said, I mean, so typically when we look at, uh, you know, exemption, you know, these classification, uh, claims by employees, you know, usually it's an issue with the duties. [00:33:00] Um, but now with this confusion over what the salary amount is, what the threshold is, and, you know, understanding that some states have higher thresholds, um, you know, I think that's going to be an issue, but.

Right, you know, looking at the duties, uh, you know, I think Mary probably agree there's never a bad time to, you know, audit your, uh, your classifications, um, either internally or bring someone in outside to help you with that. Uh, because, uh, again, you know, There are two reasons for this. One, you want to get it right, right?

You want to make sure that you're not paying salaries to people who are not quite meeting these duties tests and should be paid overtime. but second, you know, engaging, an outside party like Asure or Jackson Lewis, to look at your classifications. If you ever get sued, there is a good faith [00:34:00] defense that can, you know, mitigate some of the, the damages or liability.

and one of the requirements, under federal law is that the employer looked, you know, attempted to comply, and how do you show that? You know, engaging outside parties, engaging experts in the field. even if you get it wrong, the fact that an employer, you know, took those steps, that and conducted audits, you know, we'll go a long way, and help them.

So, uh, you know, this is probably a good time, not just to look at, you know, the, you know, how you're going to treat the wages, but make sure your classifications are correct based on the duties.

Mike Vannoy: Just get, let's, let's just create a practical punch list for, for folks. So you're an employer. Okay. Maybe my head is spinning about what this rule change meant for me, didn't mean for me. Maybe I acted on it. Maybe I didn't. If you did, regrettably, you're in a very difficult situation that you probably can't unwind.[00:35:00]

Um, but what, what are, we've talked job descriptions. We've talked, uh, exempts, non exempt classification. We, we talked employee handbooks. What, what, what are, what are the practical next steps that employers should be making to make sure that they're, they're not flatfooted. The next time a change comes 'cause change is coming.

Mary Simmons: Yeah, I mean, I think Brian's right. you know, we always recommend doing an FLSA audit every year. And don't forget, audit, usually, the term means that somebody from the outside is coming in. Because, you know, If you knew you were doing something wrong, you wouldn't have done it. So to audit your own work doesn't make any sense.

so we always recommend that that is done every year. That part of that is going to be looking at the job descriptions. So I think this is a little unusual situation in that you're going to look [00:36:00] at individuals. But remember that anything when we're dealing with in the HR world, you need to be consistent. So, I know, I know that doesn't make a lot of sense, but you're going to look at Mike and Brian and Mary. And do that FLSA audit. And if we're all in the same position, but yet our job, you know, we were given different job descriptions or we're being paid significantly different. That's a red flag because there's no consistency.

But then when I look at each individual, if there is a small nuance. Right? And this is where it gets tricky, right? And I go back to my job description. You have to have consistency, right? So you have to make sure that just because Mike has a master's degree in philosophy, but he's the [00:37:00] marketing, you know, director and so is Brian and Mary.

That philosophy major doesn't really matter. So that's, that's not going to be significant. This is where, uh, again, an expert from the outside, like Brian said, is uber important because you have to look at what an incumbent is doing when you do an FLSA audit and you review your job descriptions, but it can't be the unilateral driver to what the responsibilities are on the job description.

It needs to be driven by the company needs, um, and, uh, and what the incumbent is doing, but those specializations, you know, probably are outliers. So I hope that makes sense,

Mike Vannoy: it, it, does. I want, uh, I want to, uh, un unpack what are the top, I dunno, 2, 3, 4 things that, uh, that are in an FLSA audit. So first thing you talked about [00:38:00] was job descriptions. You made the point of how consistency is important. I'll, I'll, I'll put. That in the eyes of the auditor, um, what, what else is looked at besides just job descriptions in an FLSA audit?

Mary Simmons: Well, we're going to do a pay, we're going to ask for a payroll run. And, uh, while I'm at it, obviously I'm going to look for pay equity. We're not talking about pay equity today, but obviously it's very important. So we'd be remiss not to look at pay equity. So when I do that payroll run, um, if they have, uh, you know, uh, EEO information on each individual, I'm going to look for that.

Um, if they have, you know, hire date so that I can get, uh, how long they've been with the organization, I want to get that. Um, so, and, and obviously salary and how they're being paid and the position. So. That payroll run is really going to drive where I see [00:39:00] inconsistencies, and then I'm going to do a deeper dive.

That deeper dive is always going to include looking at job descriptions, but I might also need to look at the resume. Of some of the individuals, because if I notice that Mary and Brian make, make, you know, significantly different amount of money, but we were both hired in the same year. I do need to take a deeper dive and find out why.

Because I'm looking at pay equity and inconsistencies, which is always a red flag. And I'll, I'll turn it to Brian because he's, he's going to have some additional deeper dive.

Brian Shenker: Yeah, I think one thing that I often find to be needed is that, you know, I'll look at a, uh, a job description and I still don't understand exactly what the person does. And so, you know, sometimes we'll need to speak to a supervisor, someone at the company who can kind of explain [00:40:00] what, what is this person doing?

And, you know, I, I try to use those as, you know, learning lessons for, for a company, because if someone can't come in off the street and read your job description and understand what that person is really doing, you need probably need to go back and address it because these should be, you know, straightforward, uh, things.

Um, um, And again, they need to reflect what the employees actually are doing. Uh, so as Mary said, there might be issues in the credentials of people that can dictate, uh, you know, the exempt or non exempt status, uh, but you know, the first place the DOL or plaintiff's attorney will go, uh, in a case regarding, you know, an exemption is to the job description.

So, we really want to make sure. Those are regularly updated. If there's any, you know, change to the position, right, right now, if a company changed the exemption, right, went from making a position exempt to non exempt, right, make sure that's [00:41:00] updated, you know, on the job description. Um, along with any duties that may or may not have changed, right?

So this is a good opportunity to go back, uh, and update those job descriptions and, you know, not do it in a silo. Talk to people, uh, on the floor to find out what's really going on. Uh, cause often I find. That's, you know, the biggest disconnect between, you know, HR thinks, uh, you know, a position is doing versus, you know, if you talk to their supervisor, you know, what they're really spending most of their time doing.

Mike Vannoy: Mary, were you going to add to that?

Mary Simmons: No, I, I agree. I mean, you have to ask, you do have to ask the incumbent what they're doing. You do have to ask the manager and then you might need to go a level up. And it's really interesting. And I think it's like Brian said, it's a good exercise because sometimes we will go, now, wait a minute, you know, It does seem like Mike's the lead here, right?

So he is making more [00:42:00] money because he's the team lead. You know, maybe we shouldn't be such a flat organization. This is a, it's a great time when you look at those job descriptions to maybe change your organizational chart, right? You know, it's going to leapfrog you into maybe some succession planning, et cetera, but a lot comes out of those job descriptions besides just, you know, defending our exemptions.

A lot of times they'll go, you know, we do need a lead position and, and Mike said, and that's why he's making more money. He really is doing a lot more than, you know, Brian and Mary.

Mike Vannoy: All right. So it's, I'm trying to wear the hat of an entrepreneur here and maybe I have five, 10, 15, maybe I have 20 employees. You start getting over 25 employees. You start to, you start to have the infrastructure, maybe an office manager. You get to 50 [00:43:00] employees, you've got an HR manager. You've got somebody who is a payroll administrator.

You get more specialized roles, but you're a small business owner, 10, 15 employees. You're, you're, you're the payroll manager. You're the HR manager. You're the founder. You're the, uh, uh, probably product or service expert. Um, This has got to be super overwhelming. And I think our advice is clear. I don't want to, I don't want to be a mince words here.

You need the advice of a third party, whether that's a NHR service provider, like a shore or an attorney like Brian. Um, let's also just be real world and know that, you know, if I, if I hire a building inspector to come to my home and I think I have a beautiful home, they're going to find a million things wrong with.

That if I tried to fix everything on their list, the check would bounce. And so there's, there's a little bit of a, I think for entrepreneurs throwing their arms up in the air, it's like, okay, everything you just made said made sense. I get it. This is just too much. I screw it. [00:44:00] I'm just going to white knuckle it, treat my people the best I can and hope they don't sue me.

And I think it really kind of gets about that practical. What is our practical advice for those entrepreneurs about how to navigate these waters? When they don't have a lot of resources in, including not just in house expertise, but money to pay for outside expertise.

Brian Shenker: It's a tough question, right?

Mary Simmons: Yeah. Yeah. But being an entrepreneur is

Brian Shenker: yeah, no, certainly. I think certainly from, from my perspective, from the legal perspective, um, yeah, I see these wage and hour issues as too significant. To just say all substantially comply. Uh, because you know, decisions are riddled, uh, with uh, issues that employers had where you know, they complied mostly but they missed one thing and [00:45:00] that can still be a big issue when it comes to wage and hour laws.

So I, I do agree that it's hard to do this on your own, right? Even if even employers that have their own internal HR department, that may not even be sufficient to, you know, ensure wage and hour compliance. So I think number one, employers should understand that, you know, just as anything business related, you're going to go to the vendor, the business, you know, uh, the company that is an expert in whatever it is you need that, you know, employment comply, employment law compliance, especially wage and hour compliance.

It's very important to go to, you know, and find the resources. Obviously, all of us are resources. Um, it's, it's almost impossible to go at it alone, as you said. And, you know, we haven't really been discussing. The state law parts of it, right? Mary mentioned before, you know, the over a hundred, you know, jurisdictions and such, right?

You could be an employer [00:46:00] in with one facility in one location, and you might still be dealing with federal, state, and city or local laws. Um, you know, so understanding, you know, how those interplay. Again, it's often more than just, you know, reading an article online is going to tell you. So, um, I, I almost see it as that employers cannot afford not to look into this stuff and become compliant, uh, because, you know, Mike, you and I have gone, uh, gone through some of the judgments, you know, that, that come down and in wage and hour area with the class and collective actions, you know, You have all these exempt employees and you were paying them all the wrong, uh, you know, salary.

That could be a class, right? Because it's the same violation for all these people. Um, so that's what we want, you know, our clients and employers to avoid. And so, You know, it might be, you know, sometimes, you know, [00:47:00] this is a little more than, you know, an ounce of preventative, uh, you know, measures. It may be a lot, but in the end, it'll be worth it.

Mike Vannoy: And I'm not sure it is more than an ounce. I know it's overwhelming. That's why I really want to acknowledge this, but Mary, I have my thoughts, but I want to share what your suggestion is for, for employers.

Mary Simmons: I think if they wanted to keep, you know, the cost down, I think Brian's right. I, I certainly would look at your local Department of Labor and Federal Department of Labor on a consistent basis. There's other free resources like our website. You know, so we have information up there all the time. So does Jackson Lewis.

So minimally, I think an employer, the information is out there, right? So, you know, if you said to yourself, I'm going to spend 15 minutes a week researching, I think, you know, it's better than nothing. And. That's only 15 minutes and I'm talking about free resources. [00:48:00] The exempt, um, guidance for the, uh, white collar exemptions and all the other exemptions are very clear cut from the Department of Labor and they're a page, page and a half.

They're pretty clear. So, minimally, I would download those, keep them, you know, on your desk, um, and, and. You know, give that food for thought. Absolutely. But, you know, there is free resources. It's taking that information and then applying it to your organization. That's where it gets a little confusing. And then you add in state and municipal law.

Mike Vannoy: Yeah, and guys, both of you, I appreciate because this is what both of you do for a living. And, uh, I know the recommendation is to use services like yours. Uh, I'll do my very best on this show to just educate and try to help employers and not sales pitch here. [00:49:00] I think this is really becoming more and more black and white every day.

Um, forever, you would, you may do your own bookkeeping. But you would never file your own taxes. You probably use a CPA to do that. So some businesses as they're starting up outsource all the bookkeeping tax preparation, a lot of them do their own bookkeeping and they keep their QuickBooks and do whatever, but then they still give it to a CPA because they don't know the tax law.

I, I, A decade ago, you know, there's a federal minimum wage, maybe a little more than a decade, but not much. There's a federal minimum wage. Now there's 150 plus. Uh, the leave laws and paid leave types and exemption this, not exempt that, uh, duties test. How the hell is it? Entrepreneur trying to grow a landscaping business going to know off the top of their head what the duties tests are for a, for a salary exemption.

I mean, that's crazy, right? I think my guidance to the [00:50:00] entrepreneurs is. Acknowledge this is the new world. In the same way you hire a CPA to do your taxes 'cause you're not a tax expert, you have to budget in something here. And it doesn't have to be an on staff, uh, attorney, emails, counsel. This could be a once a year maybe, maybe it is to your attorney.

Hey, once a year I need to spend X dollars for you to look at my job descriptions, look at my handbook. Uh, and look at, um, analyze my payroll for a month to make sure that all those things line up or it's an ongoing service that Barry provides. I just think you can't, if you're an employer, you can't not budget part of this in and make that part of your cost of goods and you're going to have to build it and when you price your services, uh, the risk is just too high.

And I think, I think this is, become way more complex than the average entrepreneur [00:51:00] could ever possibly hope to keep up with. Um, I think we, you know, Brian, you mentioned it. We, we, we see more and more, uh, courts. We see more and more administrative agencies giving big fines and rewarding, uh, uh, uh, employees, uh, the, the, the burden is so high in employers now.

Man, you just have to make this part of running your business and this, and just acknowledge that maybe you can't keep up. Hopefully shows like this and content like this helps you become aware of the big themes, but then Prepares you to then act on it. So probably about as sales pitchy as I've ever been on this show.

But, but I think, I think the call to action is really clear. I just can't imagine the average entrepreneur knowing how to act on all of these things. Awareness. Great. That's the purpose of the show. Um, maybe Mary, uh, uh, maybe I'll give you the last word [00:52:00] here. Um, and I'll maybe bring it back down to earth.

I'll get off my soapbox. Um, this minimum salary threshold changed. Now it's changed back again. What's your closing argument for what employers should be doing and thinking about how to react to the, to the East Texas courts, strike down of this DOL rule.

Mary Simmons: Yeah. So again, if, if you didn't make any changes, uh, you know, you're, you're, you're, You should be in good shape. That, that's what I want to say. So I, I don't want the employers who didn't make the change, um, to say, oh, lucky me. I didn't know about it. So I didn't make the change. And now, you know, and, and thinking about should I change it back?

Uh, that's not the case because they do need. to look at their job descriptions or make an attempt to make a job description. Again, you can look at the DOL, uh, duties tests. They're very clear. [00:53:00] Uh, you can pull it right off the internet or you can utilize an expert. If you made those changes, you, I think you first want to think about employee morale, because if that employee, uh, got an increase and you now take it away and they.

Leave, right? We all know retention is very expensive. Now you have presumably a trained person who you, you know, valued and they left and that costs you two and a half that person's salary. So think about that before you take back or change what you already put into motion. If you feel compelled to make that change back, the communication is key, right?

When we do management training, we always say, You, you, you lose your authority and the trust with an employee when you say, Brian, I'm putting you on warning notice because somebody told me I had to do it. Right? So you need to finesse your communication to [00:54:00] that employee. Talk to that employee directly, right under, let them understand the why I did give you this increase.

It's Brian this year, instead of making. You know, a million dollars, we only made 500. I really can't afford it now. You do deserve it, but we are going to move your salary back. You, you just have to talk to that person like an individual. If you feel compelled to do it, um, you really need to, um, consider the consequences of doing it.

So, um, two different paths there, um, but both I am gonna, I am gonna say you really need to look at your job descriptions and make sure they're airtight.

Mike Vannoy: Brian, you got a better one, better closing here than that. That was pretty

Brian Shenker: No, nothing better than Mary's closing. That's exactly what I would say. I think, uh, we've addressed the legal considerations, but there's certainly a lot of, a whole lot, a whole lot of employee relations that, uh, Mary discussed that go [00:55:00] into, uh, you know, these next steps for the employers.

Mike Vannoy: All right, guys, really, really important topic. Uh, this thing has taken so many turns. We, we, when we, when this, when this. Preliminary rule was first published with a DOL. It's been over a year ago. We started talking about this. I think we all thought it was going to come sooner than it actually did. And then when it actually did, now we have, uh, it was an incremental step change and now we have a retroactive component.

This thing has been a crazy ride. Um, it just screams for having a, having a well run HR organization, no matter how big or small your company, because The smallest of firms have to follow the Fair Labor Standards Act. This isn't a, this isn't a big company thing. This is, uh, uh, just the cost of doing business in today's world.

So, uh, I learned a ton. You corrected me on a few things, Mary and Brian. So I, I do appreciate this. It's complex stuff. So thanks for joining me today.

Mary Simmons: My [00:56:00] pleasure.

Brian Shenker: Thank you.

Mike Vannoy: And thanks for everybody else, uh, and allowing us to be part of your mission to grow until next week.

That's it for this episode of Mission to Grow. Thanks for joining us today. For show notes and more episodes, visit us at missiontogrow. com. If you found this content valuable, I invite you to share it with a friend and subscribe to the show. If you really want to help, I'd love it if you left a five star review on Apple Podcasts, YouTube, or wherever you listen.

Mission to Grow is sponsored by Asure. Asure helps more than 100, 000 businesses get access to capital, stay compliant, and develop the talent they need to grow. To learn more about how Asure can help your business grow, visit AsureSoftware. com. Until next time.