Colorado Compliance Connection - March, 2024

Federal Compliance Connection

Normally, we do not get the crystal ball out, but… Preparing for the DOL’s New Overtime Rule

In early March 2024, the U.S. Department of Labor’s (DOL) proposed overtime rule, announced in August 2023, entered its last stage of review. The rule would amend the requirements that employees in certain white-collar occupations must satisfy to qualify for an overtime exemption under the Fair Labor Standards Act (FLSA).

Monitor for Updates and Legal Challenges

While employers may take steps now to prepare for the final rule, they may want to wait to implement any concrete changes before the final rule takes effect. The final rule is likely to differ somewhat from the proposed rule, so employers should carefully review the final rule once published to identify any substantive changes. Moreover, the final rule is expected to face legal challenges similar to those with respect to the 2016 overtime rule, which resulted in substantial delays and was ultimately blocked and abandoned by a new administration. Therefore, employers should watch for updates and prepare for potential uncertainty following the final rule’s publication.

Information to Monitor

The FLSA white-collar exemptions apply to individuals in executive, administrative, and some outside sales personnel and computer-related occupations. Some highly compensated employees (HCEs) may also qualify for an FLSA white-collar exemption.

To qualify for most white-collar exemptions, employees must meet the specified salary threshold, among other criteria. The DOL is proposing to increase the standard salary level from:

• $684 to $1,059 per week ($55,068 per year); and
• $107,432 to $143,988 per year for highly compensated employees (HCEs).

The rule would also enable the DOL to update the salary levels automatically every three years without having to rely on the rulemaking process.

Preparing for the New Overtime Rule Identify Affected Employees

Employers should review payroll data to identify which employees will be affected by the new overtime rule. In determining total compensation for purposes of the HCE exemption, only $55,068 of such compensation must be paid on a salary basis, and the remaining compensation may consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation. Employees who are already classified as nonexempt from overtime under the FLSA will not be affected by the new overtime rule, regardless of their compensation.

Determine Treatment of Affected Employees

Highly Compensated Employees

To qualify for a white-collar exemption for HCE, the position requires only that the employee’s primary duty must be office or nonmanual work and the employee must customarily and regularly perform at least one of the bona fide exempt duties of an EAP employee.

All Other Affected Employees

After identifying any affected employees, employers will need to take one of the following actions with respect to such employees as of the rule’s effective date:

• Raise their salaries to satisfy the salary level test for an exempt classification; or
• Reclassify the employees as nonexempt from overtime.

Employers are not required to take the same approach for all affected employees. However, it is generally considered best practice to assign the same classification to employees with the same job title and duties. Thus, employers may wish to make such determinations on a position-by-position basis rather than individually. Further, to the extent employers choose to reclassify affected employees as nonexempt, employers will need to decide whether to pay newly nonexempt employees on an hourly rather than salary basis. Nonexempt employees are typically, but not required to be, paid on an hourly basis.

Develop Internal Communications

Employers that choose to reclassify affected employees should communicate the change with employees in advance of the date such reclassification takes effect. The communications should generally include an explanation of the change in employee classification, the date such change goes into effect, a description of the organization’s timekeeping policies, meal breaks, and rest break policies, if applicable, the employees’ obligations under such policies, and a description of any changes under employer policies that differentiate between exempt and nonexempt employees (e.g., vacation policies or benefits).

Some employees could view the reclassification to nonexempt as a demotion, so employers may want to reassure employees that the change has no effect on their status and emphasize the positive aspects of reclassification, such as overtime eligibility.

Employers should also notify managers of the new requirements so that they understand their obligations with respect to newly nonexempt employees, such as reviewing and authorizing overtime. Employers may also consider notifying payroll personnel of any potential changes to employee paychecks, such as paying and calculating overtime and converting salaried employees to hourly employees. Employers may begin preparing these communications now; however, because the final rule may include different salary thresholds and other changes, employers should wait to issue communications to employees until after the final rule is published.

Audit Exempt Employees’ Job Duties

Although the proposed overtime rule does not make any changes to the duties requirements for exempt classification, you may also consider a broader audit on whether their exempt employees’ job duties and responsibilities satisfy the FLSA’s duties tests for white-collar exemptions. Employers may also wish to review existing job descriptions for exempt positions to ensure that they accurately reflect the work performed.

Penalties for HIPAA Violations Increase

Increased Penalties

Potential penalties for HIPAA violations depend on the type of violation involved. Penalties are broken down into “tiers” that reflect increasing levels of culpability. Each tier carries a minimum and maximum penalty, all of which have increased as follows:

• For violations where the covered entity or business associate did not know about the violation (and by exercising reasonable diligence, would not have known about the violation), the penalty amount is between $137 and $68,928 for each violation
• If the violation is due to reasonable cause, the penalty amount is between $1,379 and $68,928 for each violation.
• For corrected violations that are caused by willful neglect, the penalty amount is between $13,785 and $68,928 for each violation.
• For violations caused by willful neglect that are not corrected, the penalty amount is $68,928 for each violation, with an annual cap of $2,067,813.

HIPAA Enforcement

HHS’ Office for Civil Rights (OCR) is responsible for enforcing the HIPAA Privacy and Security Rules. When OCR determines that a HIPAA violation has occurred, it will often pursue a resolution agreement rather than imposing civil penalties. A resolution agreement typically requires a covered entity or business associate to take corrective action and pay a settlement amount, which is usually much less than the applicable penalty amount. However, if the covered entity or business associate does not take action to resolve the matter in a way that is satisfactory, OCR may decide to impose civil penalties.

State Compliance Update

Nothing to report so far for Colorado…

However, if the DOL New Overtime Rule moves forward as is, the federal wage threshold for exempt employees will be

$68.00 per year higher than what Colorado currently requires. While this is not a huge change, employers must be aware of the “letter of the law” and increase exempt wages by this factor.

‍

Compliance Calendar

April

4/1 – Forms 1094-B, 1095-B, 1094-C, and 1095-C Filing Deadline for Electronic Filers

4/30 – Form 941 Filing Deadline (first quarter)

4/30 – Remove OSHA Form 300A

May

Nothing for this month so far…

June

6/3 – Prescription Drug Data Collection Reporting (The Consolidated Appropriations Act, 2021) – group health plans