This year, the Department of Labor (“DOL”) is 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 employers need to be ready.
Under FLSA, “non-exempt” employees are entitled to overtime pay while “exempt” employees are not. The largest category of exempt employees is white collar workers, who generally fall within the exemption only if the following three requirements are met:
- Salary Basis: The employee is paid a predetermined, regular, fixed amount, without regard to the number of days or hours he or she works.
- Salary Threshold: The employee earns a minimum salary of $455 per week, or $23,660 per year.
- 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. An “executive” employee regularly supervises others, is primarily involved in management duties, and has the authority to hire or fire. 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.
The new DOL rule, which is anticipated in the spring or summer, increases the current salary threshold for exemption from $455 per week ($23,660 per year) to $970 a week ($50,440 a year) and will also implement automatic annual increases to the salary threshold, tied to certain economic indices.
In order 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 your 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 non-exempt status, bearing in mind that the employer bears the heavy burden of proving that an employee 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.