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UPDATE: On May 18, 2016, the Department of Labor issued the long-anticipated final overtime rule.  The rule includes an exempt employee minimum salary threshold of $47,476 ($913 per week) — less than the proposed rule’s $50,440 but slightly more than double the old threshold of $23,660. The new rules will allow non-discretionary bonuses, incentive payments and commissions to count for up to 10% of the minimum salary, provided these amounts are paid at least quarterly. The rule includes an increase every three years in the minimum salary for exempt employees, beginning January 1, 2020. The effective date of the rules is December 1, 2016. We will update this as we digest the new rule.

 

April 22, 2016
The Department of Labor (DOL) is expected to issue final regulations this summer revising the salary threshold for determining whether an employee is exempt from overtime pay. The regulations will become effective shortly thereafter. The new law is expected to increase the current exempt employee minimum salary threshold from $23,660 ($455/week) to $50,400 (about $970/week). In addition, the primary duty expectations are expected to be revised to require exempt employees to spend more than 50 percent of the employee’s time on tasks deemed exempt. The new law is expected to impact millions of employees, especially in the food service and retail trades, as fewer employees will qualify for exempt status. Under federal law, non-exempt workers are eligible for overtime pay at one and a half times their normal hourly rate for any hours worked in excess of 40 per week. Because the DOL final regulations will go into effect soon after the final rule is announced, employers need to begin their internal analysis of their exempt positions and identify options to minimize any negative impact on employee relations, direct payroll costs, indirect administrative costs, and general operations.

What actions should employers take now?

  • Analyze Salary Levels of Current Exempt Workforce. Employers should examine the exempt classifications of the current workforce as well as the salary levels for each exempt employee to determine whether any currently-exempt employees receive an annual salary less than $50,400.
  • Review Primary Duties of Each Exempt Position. Employers also need to review existing job descriptions to determine if they accurately describe the work performed by each exempt employee. An exempt executive, administrative or professional employee must satisfy each of the following three tests to be considered exempt: 1) the required minimum salary level test (currently $455/week), 2) the salary basis test whereby an exempt employee receives the required salary for any work week in which the employee performs any work, and 3) the primary duties test for the applicable classification. If exempt employees must actually perform exempt duties more than 50% of the time, it may be necessary for employers to reassign job responsibilities and revise job descriptions to demonstrate that an individual’s primary duty involves actually performing exempt duties more than 50% of the time. It is not sufficient to simply revise the job descriptions but rather employers must ensure that exempt employees actually perform the listed exempt duties more than 50% of the time.
  • Consider Available Options. Because of the complexity of wage and hour laws, employers are advised to conduct the classification analysis under the guidance of an experienced wage and hour attorney. Such discussions may include an analysis of salary changes; reclassification of positions; changes to total compensation and benefits programs; work schedule changes; evaluating new pay rates for newly non-exempt employee such that the employee’s total compensation is approximately the same as what the employee was paid on a salary basis; as well as training new non-exempt employees on proper timekeeping methods, complying with meal/rest break requirements restrictions, overtime rules, travel time, and other compensable time issues, as well as helping the workforce adjust to different position classifications. This is especially important since many exempt employees may view the change in status as a demotion.

In summary, we encourage employers to be proactive and review their exempt positions even before the specifics of the proposed regulations are announced. Additionally, now is the time to update job descriptions with an eye towards accurately summarizing the duties and responsibilities of a position. Employees need to plan for not only the potential increase in labor costs but also the anticipated costs of additional recordkeeping, payroll administration, employee relations, increased claims and litigation, scheduling complications, expanded training, and other human resource considerations. Increased claims and litigation are expected since more employees are likely to question their classification status especially given the nationwide publicity generated by the exempt status changes.

This article was authored by Attorney Stacey DeKalb. For more information about this subject, contact Stacey DeKalb at 612-336-9310 or stacey@lommen.com. You should consult legal counsel before making any attempt to apply the law or any information offered above to your own specific situation. Factual differences may result in substantial differences in the application of employment laws and each state has its own laws.