Regulatory Watch

A Salary Threshold Working Over Time

The U.S. government may raise the minimum salary threshold on paying overtime to white collar workers.
By: | December 14, 2016 • 4 min read

New U.S. Department of Labor rules may require employers to pay overtime to salaried workers earning less than $47,476 a year, effectively doubling the current overtime annual salary threshold of $23,660.

A group of 21 states and more than 50 business groups that filed suit against the DOL won a preliminary injunction in late November that halted the rule from taking effect on Dec. 1. The election of Donald Trump to the presidency and his promise to roll back regulations add more uncertainty as to whether this new rule will be revoked or revised in 2017.


The Department of Labor estimates as many as 4.2 million U.S. workers would be affected by the change. By some estimates, as many as 70 percent of companies are in violation of the rules.

It’s important to conduct an audit of your workforce and bring all employees to compliance if they are not already, said Catherine K. Ruckelshaus, general counsel at the National Employment Law Project.

With many existing state rules already much higher than the federal threshold, companies often find they are already in compliance, which is much more cost-effective than defending a wage and hour claim.

Chris Williams, employment practices liability product manager, Travelers

Chris Williams, employment practices liability product manager, Travelers

But with so many companies still at risk of being noncompliant, they must review for problems, said Chris Williams, an employment practices liability product manager at Travelers.

“If you haven’t fixed it … [and you are sued], you paint yourself in an even worse light in a courtroom,” said Lisa Doherty, co-founder and CEO of Business Risk Partners, a specialty insurance underwriter and program administrator.

Wal-Mart Stores was most likely aiming for broad-based compliance ahead of the deadline when it recently raised all salaries for its entry-level managers to just above the threshold at $48,500 from $45,000 annually, according to Reuters.

A Change Long Overdue

The FLSA was enacted in 1938 and established the 40-hour work week salary threshold, which entitled workers to time-and-a-half their regular hourly wage for any overtime.

White collar workers making more than the threshold and meeting certain “duties tests” were exempt from receiving overtime pay if they worked more than 40 hours in a week. The current threshold of $455 a week or $23,660 annually, has been in place since 2004.

“A mid-level manager with a labor budget and no compliance training regarding overtime rules is a loaded weapon you have pointed at the business because you have given that manager an incentive with no context.” — Noel P. Tripp, principal, Jackson Lewis P.C.

The currently postponed new rule more than doubles the minimum to $913 per week, or $47,476 annually, and will automatically increase every three years based on wage growth Employers with exempt salaried workers within this range generally face three options.

One: Raise the annual pay to above $47,476 to maintain the exempt status. This option works best for employees paid a salary close to the new level, such as those Wal-Mart managers.

Two: Reclassify salaried employees as hourly and pay time and a half when they exceed 40 hours in a week. This approach works best when there are only occasional spikes that require overtime for which employers can plan for and budget.

Three: Strictly limit employees’ time to 40 hours and hire additional workers. That’s not always a welcome path if it triggers a new record-keeping system to track hours. It can be difficult to get workers to change their behavior to start recording when they arrive at work and leave.

Establishing a 40-hour week was meant to encourage employers to hire more people rather than pay overtime, but often adding staff is not in the labor budget.

“A mid-level manager with a labor budget and no compliance training regarding overtime rules is a loaded weapon you have pointed at the business because you have given that manager an incentive with no context,” said Noel P. Tripp, a principal at Jackson Lewis P.C., who represents employers in wage and hour cases.

What’s at Stake? Legal Cases Are Growing

There were 8,000 FSLA wage and hour claims filed last year, making it the single fastest growing type of employment litigation, Doherty said.

One reason for that claims volume is that there are a variety of ways a company can violate the rules.

There’s straight-out failure to pay overtime when a worker is entitled to it. There’s “donning and doffing” claims when an employer doesn’t include the time to put on protective gear as part of the work day. DuPont and Tyson were both targets of class action lawsuits citing donning and doffing.


“It has been the law for many decades; if you don’t keep track of it there’s a presumption against you,” said attorney Thomas More Marrone, who is representing employees against DuPont.

Some newly emerging FLSA cases involve the time employees spend on computers or checking email at home, Williams said. Often, he said, it’s not until a claim is filed that employers — who bear the burden of proof in most cases — realize they haven’t maintained the appropriate records to defend the business.

It’s important that companies talk to a broker about coverage for some of that exposure, Williams said.

A coverage endorsement attached to employment practices liability insurance (EPLI) policy forms may cover the cost of defending claims alleging that an employer failed to pay overtime to a nonexempt employee. &

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Focus: Cyber

Expanding Cyber BI

Cyber business interruption insurance is a thriving market, but growth carries the threat of a mega-loss. 
By: | March 5, 2018 • 7 min read

Lingering hopes that large-scale cyber attack might be a once-in-a-lifetime event were dashed last year. The four-day WannaCry ransomware strike in May across 150 countries targeted more than 300,000 computers running Microsoft Windows. A month later, NotPetya hit multinationals ranging from Danish shipping firm Maersk to pharmaceutical giant Merck.


Maersk’s chairman, Jim Hagemann Snabe, revealed at this year’s Davos summit that NotPetya shut down most of the group’s network. While it was replacing 45,000 PCs and 4,000 servers, freight transactions had to be completed manually. The combined cost of business interruption and rebuilding the system was up to $300 million.

Merck’s CFO Robert Davis told investors that its NotPetya bill included $135 million in lost sales plus $175 million in additional costs. Fellow victims FedEx and French construction group Saint Gobain reported similar financial hits from lost business and clean-up costs.

The fast-expanding world of cryptocurrencies is also increasingly targeted. Echoes of the 2014 hack that triggered the collapse of Bitcoin exchange Mt. Gox emerged this January when Japanese cryptocurrency exchange Coincheck pledged to repay customers $500 million stolen by hackers in a cyber heist.

The size and scope of last summer’s attacks accelerated discussions on both sides of the Atlantic, between risk managers and brokers seeking more comprehensive cyber business interruption insurance products.

It also recently persuaded Pool Re, the UK’s terrorism reinsurance pool set up 25 years ago after bomb attacks in London’s financial quarter, to announce that from April its cover will extend to include material damage and direct BI resulting from acts of terrorism using a cyber trigger.

“The threat from a cyber attack is evident, and businesses have become increasingly concerned about the extensive repercussions these types of attacks could have on them,” said Pool Re’s chief, Julian Enoizi. “This was a clear gap in our coverage which left businesses potentially exposed.”

Shifting Focus

Development of cyber BI insurance to date reveals something of a transatlantic divide, said Hans Allnutt, head of cyber and data risk at international law firm DAC Beachcroft. The first U.S. mainstream cyber insurance products were a response to California’s data security and breach notification legislation in 2003.

Jimaan Sané, technology underwriter, Beazley

Of more recent vintage, Europe’s first cyber policies’ wordings initially reflected U.S. wordings, with the focus on data breaches. “So underwriters had to innovate and push hard on other areas of cyber cover, particularly BI and cyber crimes such as ransomware demands and distributed denial of service attacks,” said Allnut.

“Europe now has regulation coming up this May in the form of the General Data Protection Regulation across the EU, so the focus has essentially come full circle.”

Cyber insurance policies also provide a degree of cover for BI resulting from one of three main triggers, said Jimaan Sané, technology underwriter for specialist insurer Beazley. “First is the malicious-type trigger, where the system goes down or an outage results directly from a hack.

“Second is any incident involving negligence — the so-called ‘fat finger’ — where human or operational error causes a loss or there has been failure to upgrade or maintain the system. Third is any broader unplanned outage that hits either the company or anyone on which it relies, such as a service provider.”

The importance of cyber BI covering negligent acts in addition to phishing and social engineering attacks was underlined by last May’s IT meltdown suffered by airline BA.

This was triggered by a technician who switched off and then reconnected the power supply to BA’s data center, physically damaging servers and distribution panels.

Compensating delayed passengers cost the company around $80 million, although the bill fell short of the $461 million operational error loss suffered by Knight Capital in 2012, which pushed it close to bankruptcy and decimated its share price.

Mistaken Assumption

Awareness of potentially huge BI losses resulting from cyber attack was heightened by well-publicized hacks suffered by retailers such as Target and Home Depot in late 2013 and 2014, said Matt Kletzli, SVP and head of management liability at Victor O. Schinnerer & Company.


However, the incidents didn’t initially alarm smaller, less high-profile businesses, which assumed they wouldn’t be similarly targeted.

“But perpetrators employing bots and ransomware set out to expose any firms with weaknesses in their system,” he added.

“Suddenly, smaller firms found that even when they weren’t themselves targeted, many of those around them had fallen victim to attacks. Awareness started to lift, as the focus moved from large, headline-grabbing attacks to more everyday incidents.”

Publications such as the Director’s Handbook of Cyber-Risk Oversight, issued by the National Association of Corporate Directors and the Internet Security Alliance fixed the issue firmly on boardroom agendas.

“What’s possibly of greater concern is the sheer number of different businesses that can be affected by a single cyber attack and the cost of getting them up and running again quickly.” — Jimaan Sané, technology underwriter, Beazley

Reformed ex-hackers were recruited to offer board members their insights into the most vulnerable points across the company’s systems — in much the same way as forger-turned-security-expert Frank Abagnale Jr., subject of the Spielberg biopic “Catch Me If You Can.”

There also has been an increasing focus on systemic risk related to cyber attacks. Allnutt cites “Business Blackout,” a July 2015 study by Lloyd’s of London and the Cambridge University’s Centre for Risk Studies.

This detailed analysis of what could result from a major cyber attack on America’s power grid predicted a cost to the U.S. economy of hundreds of billions and claims to the insurance industry totalling upwards of $21.4 billion.

Lloyd’s described the scenario as both “technologically possible” and “improbable.” Three years on, however, it appears less fanciful.

In January, the head of the UK’s National Cyber Security Centre, Ciaran Martin, said the UK had been fortunate in so far averting a ‘category one’ attack. A C1 would shut down the financial services sector on which the country relies heavily and other vital infrastructure. It was a case of “when, not if” such an assault would be launched, he warned.

AI: Friend or Foe?

Despite daunting potential financial losses, pioneers of cyber BI insurance such as Beazley, Zurich, AIG and Chubb now see new competitors in the market. Capacity is growing steadily, said Allnutt.

“Not only is cyber insurance a new product, it also offers a new source of premium revenue so there is considerable appetite for taking it on,” he added. “However, whilst most insurers are comfortable with the liability aspects of cyber risk; not all insurers are covering loss of income.”

Matt Kletzli, SVP and head of management liability, Victor O. Schinnerer & Company

Kletzli added that available products include several well-written, broad cyber coverages that take into account all types of potential cyber attack and don’t attempt to limit cover by applying a narrow definition of BI loss.

“It’s a rapidly-evolving coverage — and needs to be — in order to keep up with changing circumstances,” he said.

The good news, according to a Fitch report, is that the cyber loss ratio has been reduced to 45 percent as more companies buy cover and the market continues to expand, bringing down the size of the average loss.

“The bad news is that at cyber events, talk is regularly turning to ‘what will be the Hurricane Katrina-type event’ for the cyber market?” said Kletzli.

“What’s worse is that with hurricane losses, underwriters know which regions are most at risk, whereas cyber is a global risk and insurers potentially face huge aggregation.”


Nor is the advent of robotics and artificial intelligence (AI) necessarily cause for optimism. As Allnutt noted, while AI can potentially be used to decode malware, by the same token sophisticated criminals can employ it to develop new malware and escalate the ‘computer versus computer’ battle.

“The trend towards greater automation of business means that we can expect more incidents involving loss of income,” said Sané. “What’s possibly of greater concern is the sheer number of different businesses that can be affected by a single cyber attack and the cost of getting them up and running again quickly.

“We’re likely to see a growing number of attacks where the aim is to cause disruption, rather than demand a ransom.

“The paradox of cyber BI is that the more sophisticated your organization and the more it embraces automation, the bigger the potential impact when an outage does occur. Those old-fashioned businesses still reliant on traditional processes generally aren’t affected as much and incur smaller losses.” &

Graham Buck is editor of He can be reached at