April 18th, 2016 | Comments Off on New Department of Labor Regulations Will Take Effect This Summer

NEW DOL EXEMPTION REGULATIONS WILL TAKE EFFECT THIS SUMMER

Unless Congress succeeds in blocking them (a highly unlikely event) the U.S. Department of Labor (“DOL”) will be making making some significant changes to the regulations governing which executive, administrative, and professional employees (white collar workers) are exempt from the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime pay protections—and both public and private employers need to be ready.

Under the FLSA, “non-exempt” employees are entitled to overtime pay once they have worked 40 hours in a regular 7 day pay period (or the maximum hours in a law enforcement or public safety role for those agencies that take advantage of the other than the 7 day pay period). “Exempt” employees are not entitled to overtime pay. The largest category of exempt employees is known as the “white collar” workers. “White collar” workers generally fall within the exemption only if they meet all of the following three requirements:

  1. Salary Basis: The employee is paid a predetermined, regular, fixed amount, without regard to the number of days or hours he or she works or the amount of work he or she produces.
  2. Salary Threshold: The employee earns a minimum salary of $455 per week, or $23,660 per year.
  3. Duties: The employee’s duties involve certain tasks, authority, or training.

With respect to the third requirement (duties), the regulations provide some specific guidance. “Professional” employees generally include those in the learned professions (lawyers, doctors, teachers, architects, etc.). An “executive” employee heads up a recognized unit or sub unit of an enterprise, regularly supervises at least two other full time employees or 3 or more part time employees whose combined hours total at least 89 each week. In addition the executive must be primarily involved in management duties, and have the authority to hire or fire or to effectively recommend such action. Finally, the “administrative” exemption includes employees who exercise independent judgment, and whose primary duty involves office or non-manual work that is directly related to management or business operations. These functional or “duties” tests have not changed.

What the new DOL rule has changed is that it has increased the current salary threshold necessary for claiming the exemption from $455 per week ($23,660 per year) to $970 a week ($50,440 a year). It also will implement automatic annual increases to the salary threshold, tied to certain economic indices.

To remain compliant with the regulations and avoid potential litigation, employers must identify those employees whose status may be affected by the anticipated salary threshold revisions. Now is the time to conduct an internal wage and hour audit to assess your employees’ FLSA classifications. This assessment should become an annual practice.

When evaluating employees’ status, keep in mind that not every employee who receives a salary is automatically exempt—they must also perform exempt duties. You should assess an employee’s day-to-day duties in order to determine whether or not those duties fall within the parameters of the regulations. You may find that a few employees fall into the gray area between exempt and non-exempt status. In such cases, it is prudent to err on the side of paying them as if they have non-exempt status. Bear in mind that the employer always must carry the heavy burden of proving that an employee to whom the employer does not pay overtime clearly falls within the terms of an exemption. With careful review and early preparation, your company can be equipped to act when these sweeping changes to the law go into effect.

Please call Michael A. Caldwell if you have any questions about implementing the new Regulations or conducting a wage-hour audit for your operations.