21 Nov New Regs May Stabilize Exemptions in the FLSA
Good news, everyone, we may be seeing a little stability in the Fair Labor Standards Act world of exemptions!
Changes to the regulation (CFR 29 541) about who gets overtime (OT) and who doesn’t were on the verge of going into effect late in 2016 but were halted in the courts and newer changes should roll out this coming New Year’s Day. Never say never, but a legal challenge to this change doesn’t seem likely. Because of this, now is a great time for employers to review their situation.
A snapshot of some numbers might be useful:
$455.00 / week is the current minimum salary requirement for most exempt positions since 2004.
$617.97 / week is what inflation calculators tell us would be today’s equivalent.
$684.00 / week is what the minimum salary requirement will be on Jan. 1, 2020.
$35,568.00 is $684.00 annualized; $17.10 / hour is the equivalent hourly rate assuming a 40 hour week.
A quick review of what exemptions are all about.
Like the saying, “It takes two to tango” these exemptions from the minimum wage and overtime regulations require a two step process that some consider just as complex and seductive as the tango. (Thankfully, such people are exceedingly rare and generally not dangerous.) The U.S. Dept. of Labor Wage & Hour Division (WHD), the enforcement authority, labels these steps “Tests.”
The first is a duties test and the second a salary test. Sidenote: Employers and workers not understanding these is what keeps about half of all WHD investigators employed.
The Duties Test
When it comes to testing an exemption, the good people at WHD don’t care about job titles and don’t give much more consideration to job descriptions. All they will focus on is: What does that employee do, day in and day out? Do the workers activities fit precisely into one of the several examples in the regulations for an “Executive Exemption,” an “Administrative Exemption,” a “Professional” or “Artistic Exemption” or certain computer professionals? That’s pretty much it for the duties test. Fact Sheet #17A: Exemption for Executive, Administrative – US …
In a few years, the interpretations of what qualifies as duties befitting the test will probably be significantly expanded; but not just yet, unless you want to be the one to lead the challenges in court. (In 2017 the U.S. Supreme Court decided that automobile service writers ought to be considered exempt because the duties shouldn’t have to fit neatly into the regulations’ exact language, thus opening up the question of how any duties test should be read. Please understand, this is radically abbreviated, even in summary. For the whole story see, Encino Motorcars, LLC v. Navarro – Supreme Court of the … .)
The Salary Test
The second test, the salary test, is a matter of arithmetic. A salary means getting paid the same amount each pay period no matter what (with exceptions). THIS is the primary change of this regulatory update. The minimum salary requirement is set to increase by $229.00 / week. Of course this will have some ripple effect in some workplaces if some salaries are raised to meet the minimum and there are others with salaries already at or above the new minimum. There will be pressure in the job market to increase those. Fact Sheet: Final Rule to Update the Regulations Defining and …
Other Highlights of the Recent Change:
- Ability for employers to use non-discretionary bonuses, incentives, or commissions to satisfy up to 10% of the salary requirement, payable at least annually. A salary then could look like:
- $615.60 per week plus bonuses, commissions, or incentives, for a guaranteed minimum salary of $684.00 / week.
- One could have 52 weeks of pay at $615.60 ($32,011.20 annualized) as long as in the next paycheck there is additional pay of $3,556.80 made to bring it up to the minimum required.
- If the employee doesn’t make enough in bonuses to cover it, the employer is responsible for the balance; or if the employee is terminated before the bonus period, the employer must take care of that difference.
This may be interesting for some and heartbreaking for others as well as job insurance for WHD investigators. A lot of things can change in a year. There will surely be some court cases come from this in the next few years. In my opinion, I feel it’s a place for good old fashioned Murphy’s Law to operate for the very simple reason that this adds a layer of complexity, however thin, to an already complex system. Time will tell.
- The threshold for consideration for highly compensated employees (HCEs) will be increased from $100,000.00 annually to $107,432.00 annually.
- The salary levels for workers in U.S. territories are revised.
Last and least of the changes: DOL promises it will revisit these regulations more frequently but does not promise any results. This may be underwhelming with respect to the scheduled indexing to inflation that the 2016 proposed changes made, but it’s more than was there in the 77 years preceding them. So there’s that, but it still leaves any updating of the regs a herculean political task as always.
If you did a lot of work in preparation for the 2016 regulatory changes that never came, you’re probably in good shape, but it never hurts to look at your exempt staff periodically with these new rules in mind.
Best of luck.
Ken Frazer / Ken@eligibilitytrackingcalculators.com