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FLSA exempt classification regs are one step closer to release

May 26, 2015

As reported last week in everythingpeople.™ This Week!, the Department of Labor (DOL) has released its new “Exemption” regulations to the Office of Management and Budget (OMB) for their review. The public has not yet seen the final rule but we can anticipate what the DOL will do.

First they will make a lot more employees overtime eligible.  As HR practitioners know, there are three tests for the exempt employment classification: The worker must be paid a salary; the salary must be at least $455/week ($23,660/year); and the job as performed must meet the job duties and responsibilities test(s).

The primary approach the DOL will use to make a lot more workers overtime eligible will be to raise the minimum salary a worker must earn to be exempt from overtime. It is being reported that the new weekly salary required will be between $800 and $1,200 per week ($41,600 and $62,400). The impact of this change, regardless of where it falls between those parameters, will be felt mostly by employers in service and retail industries. But if the minimum salary is increased to the high end, it is a fair assumption most employers will be impacted.

The second major change will impact the “duties” test for the Executive exemption. Tammy McCutchen, former administrator for the DOL’s Wage and Hour Division and now a private attorney, has reported on her firm’s blog that the DOL is also likely to adopt a “California-style” rule that would require an employee to spend more than 50% of his or her time performing exempt work to be classified as such. Ms. McCutchen also reported that the DOL may possibly eliminate the “concurrent duties” concept, whereby managers can be exempt if they are doing the same work as their direct reports as long as the management responsibilities remain their “primary” function.

Many employers have relied on the above rules to classify their first line supervisors and other jobs as exempt, even as they require them to perform non-exempt work when called upon at any time. As long as some exempt work was part of the job, these employees could still be legally be treated as exempt under the “concurrent duties” concept. The DOL has challenged these exempt classification determinations; but at least so far the courts have interpreted the exempt classification in favor of the employer under the current wage and hour rules.

There is also an expectation that the Professional and Administrative exemptions duties tests will be modified or changed.  For the Professional exemption, for example, the DOL may define a stricter interpretation of the term “advanced knowledge,” which would limit the employer’s ability to take highly specialized non-degreed individuals and classify them as Professional. As for the Administrative exemption, observers believe that the duties requirement will change to “must be involved in work related to management policies” as opposed to the current definition of “work directly related to management of general business operations.”  If this happens, it could dramatically limit employers’ ability to claim the Administrative exemption for certain office employees.

When the OMB completes its review, the new rules will be published in the Federal Register. At that point a comment period will ensue and any further changes will be made before the rules will be re-released in their final form. Though the rules will not likely take effect before the end of 2015 or probably the early part of 2016, employers a) with salary thresholds below at least $42,000/yr. for exempt employee classification,  and/or  b) that have “supervisors” who perform a lot of day-to-day labor in addition to their supervisory responsibilities, would be wise to review those positions and put a plan in place to either re-classify those jobs to non-exempt or adjust their salary levels and/or duties to bring those positions in line with the anticipated changes..  

ASE will schedule a Hot Button Briefing that will update members on the new regulations as soon as they are released.  Further ASE will provide information on any developments in its regularly scheduled training courses addressing Salary and Wage Administration and Wage and Hour Law. As always, the first information on important employment law developments will come out to the members everythingpeople.™ This Week! or a special e-blast.

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