Even though cannabis remains illegal under federal law, the federal government still has an interest in the wages, hours and working conditions of all cannabis industry employees. The following news impacts cannabis employers.
By Noah A. Frank
On May 18, 2016, the U.S. Department of Labor issued a long awaited rule on salary requirements under the Fair Labor Standards Act. The FLSA applies to certain businesses engaged in interstate commerce (so called “enterprise coverage,” which likely does not include cannabis businesses at this time), and also to individuals who are “permitted or suffer to work” – nearly every employee, subject to certain exemptions. Indeed, under the DOL standards, many workers are misclassified as “independent contractors” (the topic of an entirely different article).
The new rule, effective Dec. 1, 2016, focuses on the salary and compensation levels for Executive, Administrative, and Professional employees, also known as EAP employees, to be exempt from the overtime requirements of the FLSA. This will directly impact managers of dispensaries and other retail operations, trim supervisors and other workers not subject to limited exemptions. Among other things, the rule:
- Sets the standard salary level at $913 per week – $47,476 annually;
- Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to $134,00; and
- Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels using the above percentiles.
While the rule changed the minimum salary required for EAP employees, it’s critical to note that the rule did not change the Duties Tests for qualifying employees as EAP exempt. Employers may now also include nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the new standard salary level.
In light of the final rule, cannabis employers MUST analyze the following, before the DOL comes knocking:
- How many of your current employees are affected by this final rule?
- Is a salary increase for those who do not currently meet the salary requirement a plausible financial decision to the required increases?
- Are there job positions that should now be reclassified as non-exempt and the employees will now be entitled to overtime if they work over 40 hours?
- Review your handbooks and policies regarding exempt and non-exempt status.
- Tighten up your policies regarding working overtime and analyze the possibility of limiting the number of overtime hours worked for non-exempt employees.
- Review and update policies and practices concerning “off the clock” time and ensure that there are proper controls regarding all hours actually worked by non-exempt employees.
- Review benefits applicable to exempt and non-exempt employees and how a change in status may impact the benefits to your employees.
But, cannabis Employers have OPTIONS regarding the new rule, such as:
- Increasing salary for an otherwise exempt employee to continue to meet the exemption;
- Keep the salary the same and pay the required overtime payments based on the employee’s regular rate of pay when the employee works over 40 hours, but you must track all hours worked;
- Reduce the employee’s salary or change the employee’s pay to a lower hourly rate so the total earnings do not change after overtime is paid;
- Eliminate the employee working any overtime hours; or
- Some combination of the above options including possible Reductions in Force.
Legal counsel will be able to assist employers in navigating these business changes.