New overtime rules from the U.S. Department of Labor will affect millions of workers, including self-storage managers and the companies that employ them. The May 16 final ruling focused on one significant issue: What’s the minimum salary required for exemption for overtime wages?
Before the change in regulation, that minimum was $23,660 annually, or $455 per week. Effective Dec. 1, the new minimum will be $47,476 annually, or $913 per week. This change basically doubled the salary threshold for employees to reach exempt status. Now, those making less than $47,476 annually will be entitled to time and a half for every hour they work beyond a regular 40-hour work week.
Even if an employee meets this threshold level for salary, it doesn’t mean he’s suddenly exempt. By the nature of his work and the fact that he generally manages the property but not other staff members, a self-storage manager won’t meet the executive or administrative criteria required to become exempt. Therefore, regardless of salary, it’s likely that a typical facility manager who makes the requisite salary will remain non-exempt and entitled to overtime. Let’s explore what this means for self-storage owners and their staff.
As a result of this regulatory revision, certain self-storage operations will likely need to change the way they do business. For example, many operators will shift into a world of compliance, having employees “punch” a timeclock to verify regular and overtime hours. Others may impose restrictions on employees to limit overtime work or the number of hours that can be worked altogether. Some may hire more employees to avoid overtime obligations for current staff, and others may change or remove bonus plans based on the need to budget instead for overtime costs.
As always, it’s important for owners to prepare a clear and well-drafted employment agreement to address:
- The expected number of hours to be worked
- What constitutes permission to perform overtime work
- How the employee’s salary is calculated if he’s non-exempt (perhaps written as X regular hours times standard wage plus X overtime hours times overtime wage)
Some owners will also need to address the issues that apply when an employee is living on the premises. The value of an apartment can’t be used to reach the exempt-compensation threshold. This can only be reached through monetary compensation.
Although the value of an apartment can’t be used to meet the minimum salary threshold for an exempt employee, it can be considered as “wages” for a non-exempt employee to meet minimum wage. However, if the apartment value is used to pay wages for non-exempt employees, then the value of the apartment must also be considered in calculating the employee’s overtime rate.
For resident managers, the operator must also include the language of 29 CFR § 785.23, which addresses the number of hours the employee works when living on the property. This language addresses the fact that overtime can’t be earned simply because the manager lives on the premises. Here’s an example:
§ 785.23 - Employees residing on employer's premises or working at home: An employee who resides on his employer's premises on a permanent basis or for extended periods of time is not considered as working all the time he is on the premises. Ordinarily, he may engage in normal private pursuits and thus have enough time for eating, sleeping, entertaining, and other periods of complete freedom from all duties when he may leave the premises for purposes of his own. It is, of course, difficult to determine the exact hours worked under these circumstances and any reasonable agreement of the parties which takes into consideration all of the pertinent facts will be accepted.
This residence issue in self-storage was dealt with specifically in the case of Garofolo v. Donald B. Heslep Assoc. Inc. in which the U.S. Court of Appeals for the Fourth Circuit held that a husband and wife employed as resident managers of a self-storage facility weren’t entitled to overtime. The Court found that based on the language of the employment agreement, which required the managers to certify on a monthly basis that 40 hours was a “reasonable estimate” of the time needed to complete their duties, their claim that they worked overtime because they lived on the property wasn’t founded. This code regulation has been cited in other cases as well, including Skelly Oil Co. v. Jackson (Oklahoma Superior Court, 1944) and Thompson v. Loring Oil Co. (Western District of Louisiana, 1943).
The bottom line, which was the impetus for the change in the first place, is to strengthen overtime protections for salaried workers already entitled to overtime and provide greater clarity for workers and employers regarding overtime work. The new regulation is estimated to affect more than 4.2 million workers throughout the country. At the end of the day, the change will undoubtedly have a significant impact in the self-storage industry due to the classification of managers as “non-exempt” employees.
Scott Zucker is a partner in the law firm Weissmann Zucker Euster Morochnik P.C. in Atlanta, where he specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. He’s a speaker at industry events, author of “Legal Topics in Self Storage: A Sourcebook for Owners and Managers,” and a partner in the Self Storage Legal Network, a subscription-based legal service for storage owners and managers. To reach him, call 404.364.4626; e-mail [email protected]; visit www.wzlegal.com.