In 2014, President Obama directed the Secretary of Labor to update the overtime requirements for “white-collar” employees. In May, 2015, the Department of Labor (DOL) generated (what can only be described as) aggressive changes to the criteria which allows employees to be exempt from overtime.
Initially scheduled to begin January, 2016, the more serious proposed changes include the following:
1. Increasing the minimum annual salary threshold by more than 46%. Under the proposed changes, the minimum would first increase from $455 per week (or $23,600) per year to $921 per week ($47,892.00 per year). This DOL would publish notices throughout 2016 adjusting this minimum amount to $970 per week ($50,440 per year).
2. The minimum compensation for Highly Compensated Employees (HCE), typically executive-level staff members, from its current level ($100,000.00) to $122,148.00 per year with annual adjustments for the minimum salary thresholds.
As with the current requirements (see below), there will be no exceptions for non-profits or small businesses; everyone will have to comply.
Although the new standards have employers running the gambit from either living in denial that it will ever happen to a mad scramble to make adjustments early, many organizations are already in violation of the current regulations.
FLSA individual and class-action lawsuits, particularly from employees who claim they were “misclassified” as exempt when they should have been paid overtime, are on the rise; so much so that some EPLI (Employer Practices Liability Insurance) policies will no longer cover the price of defense against such claims and definitely will not pay for the penalties associated with the lawsuits. And since most employers do not require salaried employees to clock in and out, if an employee alleges they worked overtime they will likely win the complaint or lawsuit causing employers to shell out hundreds, and sometimes hundreds of thousands of dollars in overtime payment.
FLSA lawsuits are not like an EEO claim where you can negotiate the penalties based on per-determined factors and circumstances. If an employer is found to be in violation, employees will be compensated the amount they should have been paid under the regulations (both current and terminated employees).
Now for the good news – the “reprieve.” The commenting period for the proposed changes generated more than 150,000 comments (I would LOVE to read some of these comments); so the new laws have been delayed until mid-to-late July, 2016. I promise you, this date is flexible and should not halt any initiatives you have started…if you have not started moving toward compliance, now is the time you need to start.
Remember that while the laws are changing, you are still required to follow guidelines – regardless of size or industry. Employers should not take the advice of the “larger” organizations and the way they choose to conduct business. I would be a very wealthy woman if I received a dollar for every time I heard the statement, “…but it must be okay because that is the way that (insert any company name) did it when I was working for them.” Many of the organizations referenced in these conversations have faced financially devastating consequences for misclassifying employees.
The current requirements are listed below…when you look upon this information, think about every person you have classified as a salaried-exempt employee and ask yourself, “how much would I owe them if they win a claim against me for two years of back-pay for overtime?” Then consider giving me a call – my rates are much, MUCH less expensive than paying fines and penalties.
CURRENT (BASIC) TESTING RULES TO LEGALLY CLASSIFY EMPLOYEES AS EXEMPT FROM OVERTIME:
Salary Level Test: Employees who are paid less than $23,600 per year ($455 per week) are NON-EXEMPT. Employees who earn more than $100,000 per year are typically exempt.
Salary Basis Test: Generally, an employee is paid on a salary basis if said employee has a “guaranteed minimum” amount of money the employee can count on receiving for any work week in which any work is performed. This amount need not be the entire compensation received, but there must be some amount of pay the employee can count on receiving in any work week in which s/he performs any work.
An employee who meets the salary level tests and also the salary basis tests is exempt only if s/he also performs exempt job duties. These FLSA exemptions are limited to employees who perform relatively high-level work. Whether the duties of a particular job qualify as exempt depends on what they are. Job titles or position descriptions usefulness in this determination. Secretarial duties are typically not exempt from overtime even if the employee is called an administrative assistant; likewise, a person titled “CEO” should be non-exempt if the job tasks are that of a receptionist. It is the job tasks that need to be evaluated (along with how the job tasks fit into the operations) to make a determination of compliance.
There are three typical categories of exempt job duties, called “executive,” “professional,” and “administrative.”
BASIC Executive Job Duties (must meet all three requirements):
1. Regularly supervises two or more employees, AND
2. Has management as the primary duty of the position, AND
3. Has some genuine input into the job status or other employees (such as hiring, firing, promoting, etc.)
Remember that “supervision” must include primary supervisory duties related to the career paths of employees as a primary duty. If your executive-exempt employee is not considered “in-charge,” then they will likely not meet the exemption requirements.
BASIC Professional Job Duties:
Typically considered “learned professions” such as lawyers, doctors, architects, clergy (those who perform work requiring “advanced knowledge.” As with other exemptions, simply having a degree or professional certification is not enough; it is definitely not enough to have a degree in basket-weaving when they work as an engineer.
Professionally exempt employees must have a relevant education that surpasses high-school in fields that are distinguished from mechanical arts or skilled trades.
BASIC Administrative Job Duties (DOES NOT include Computer Professionals):
The definition provides that exempt administrative job duties are:
1. Office or no-nmanual work, which is
2. Directly related to management or general business operations of the employer or the employer’s customers, AND
3. A primary component of which involves the exercise of independent judgment and discretion about
4. Matters of significance.
Most bookkeepers, accounting staff, payroll clerks, secretaries, administrative assistants, drafting and/or AutoCAD operators and general clerical support staff members are NOT legally permitted to be classified as exempt from overtime.
When considering whether or not your administrative personnel meets the appropriate criteria, ask whether the person has the authority to formulate, interpret, and/or change company policies; how major the employee’s assignments are in relation to the business and/or enterprise (does the employee buy fleet vehicles or paperclips)? Routinely ordering office supplies, completing forms, preparing routine reports and/or help desk type functions are NOT strong enough to make an employee exempt; however, some executive-level assistants who run the life of their superiors may meet the duties.
The road to compliance is rarely easy and it is sometimes difficult to know where to start. Ask Linda HR Consulting Services can help you navigate the minutia of this (and many more) compliance issue. Call me today to schedule your no-obligation consult at 210.846.4900.