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It is time to revisit your FLSA qualifications

March 23, 2015

Article courtesy of SBAM Approved Partner ASE

Many HR professionals have been anxiously awaiting the new proposed regulations to redefine exempt and nonexempt work classifications under the Fair Labor Standards Act (FLSA). 

Why are these regulations being pushed by the White House?  There were a number of reasons, but a strong one came in early 2014 with a well-publicized series of “strikes” of fast food restaurants pushing for fair wages, especially so-called “supervisors” who were making the minimum per week to qualify for exemption and maybe did about 5% “exempt” work. But they were legally classified as exempt, and so many of them would work long hours at mostly non-exempt work and get no overtime pay.  “Salary theft” became the slogan of this new and different labor “movement.”

As a result, a year ago (March 13, 2014) President Obama signed a Presidential Memorandum directing the Secretary of Labor to “restore the common sense principles” related to overtime, and directed the Department of Labor to review the exempt/nonexempt definitions and update them if necessary.

In May 2014 the DOL announced a target date of November 2014 for publishing the proposed rule.  The DOL also engaged in a series of “listening sessions” to engage the employer and employee community.   The November timeframe came and went.  The DOL then stated that the new target was end of February 2015. 

As of this date, no regulations have been submitted to the Office of Management and Budget (OMB) for review and publication.

So what changes are expected?  The proposed regulations are expected to change the Salary Test and Primary Duty Test. 

The current Salary Test is $455 per week or $23,660 per year. Pundits believe that the new weekly salary required will be between $800 and $1200 per week or $41,600 and $62,400 per year. In effect, the new weekly salary test should alleviate the issues of the exempt supervisors at fast food restaurants. If their salaries are lower than that they will either have to be raised or the employee made non-exempt.  Yet, other employers who have legitimate supervisors making less than the weekly wage will have to decide whether to raise wages or pay overtime.

However, the administration took care to also review the issue of The Duties Test. With respect to the Executive exemption, pundits expect new limits on, or elimination of, the ability of managers to engage in management and non-exempt work concurrently, or the re-introduction of the requirement that an administrative employee’s work be related to management “policies.”  The issue of the fast food “supervisors” is that they may do only 5% exempt work and still be considered exempt. If a 51% requirement is made, or something substantially more than 5%, supervisors or even “managers” may be reclassified as non-exempt and have to be paid overtime. 

The Professional grouping may see a changed definition as well.  Currently, the “advanced knowledge” must be in a field of science or learning, and must be customarily acquired by a prolonged course of specialized intellectual instruction. It must be knowledge that cannot be attained at the high school level. The “primary duty” is generally that the principal and most important part of the job be pursuing the profession. Finally, the employee’s duties include work requiring consistent exercise of discretion and judgment.  

A possible change could be a new, stricter interpretation of the term “advanced knowledge,” in that a degree or prolonged course of instruction would be required only, and that years of experience and ad hoc training in the field will not relevant in this determination (a view that many conservative practitioners already take). But in the Detroit area, with its lack of qualified engineers, many employers are developing paths for long-time engineering technicians to grow into entry-level exempt engineering roles. The problem with a stricter definition of “advanced knowledge” is that it would still keep these new engineers
non-exempt, defeating part of the reason for this approach of not paying overtime.

As for the Administrative exemption, we could see a requirement that certain positions 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.

So what should HR do now?  Since the proposed regulations are not out yet, and we do not know when they will finally come out, it would be good to review all current exempt job titles and requirements. First determine if they are misclassified under the present definitions, and second, identify those titles that may be need to change if the proposed regulations change as outlined above.

Preventive medicine does work. FLSA lawsuits are the fastest growing and most commonly filed suits these days. These new regulations will only increase the frequency and speed on filings.

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