New rule changes for employers are expected to become law in 2016 – big changes.
At the time of this writing, the new overtime regulations haven’t been ratified, but we have a good idea of what to expect and what it means for you. The U.S. Department of Labor is contemplating raising the minimum income for exempt employees from $455 per week to $970 per week, or a total of $50,440 a year. This change could affect as many as 5 million employees across the country.
While a salary minimum plays a role in a worker’s exempt status, there are other requirements as well. According to the Department of Labor Hour and Wage Division (DOL), there are three primary categories of job duties that qualify employees to be exempt from overtime regulations stipulated in the Fair Labor Standards Act.
These categories are:
These categories — and the employee’s primary duties within them — could play a key role in how companies handle the new law. Affected employers will need to reassess employee’s duties to determine if they need to receive a pay raise, have their primary job duties shifted onto non-exempt tasks, or other options in order to avoid violating the new rules.
In order to understand how best to ensure employees are properly classified, employers must first know the duties associated with the three primary categories of exempt employees. Mistakes will be inevitable, and we expect overtime lawsuit claims to surge while businesses struggle to fall in line with the new regulations.
Exempt Executive Employees
Employees who are exempted because they perform “executive” job duties:
- Supervise at least two employees on an ongoing basis
- Have management as the primary task of their position
- Have input into hiring, promoting and firing other employees
Supervision is key in defining the duties of an exempt executive employee. It must be one of the primary duties of the employee’s job, and must be ongoing. Those who are supervised must be employees — not volunteers, interns or any other unpaid positions. The executive must also have regular supervision of at least two full-time employees, or the equivalent number of part-time employees. For most purposes, two part-time employees equate to one full-time employee.
Supervision is not the only defining duty, additionally according to the FLSA, all exempt executive employees must “manage” as their primary duty. The FLSA lists a number of individual tasks associated with managing a business.
- Interviewing, hiring and training new employees
- Scheduling, planning and apportioning of staff and work
- Managing sales records or other records of productivity
- Reviewing staff performance
- Disciplining staff
- Planning departmental budgets
- Regulatory compliance checks
- Ensuring the safety and security of all staff and customers
Determining if an employee is a true manager is not as clear-cut as meeting the supervisory duties qualification. Instead, most of these positions should be evaluated individually to ensure workers are properly classified. It is important to remember that some employees may “manage” without having the title. A team leader who is in charge of a particular shift or department may qualify for exemption, while a department manager who has no employees may not fall under the executive category.
An executive does not have to solely focus on supervising and managing, but these should be their primary duties. This means that the employee can help out with a number of other clerical or customer service duties, but if a manager is needed, it is their job to step up. This can be a slippery slope, however, so it is important to ensure employees classified as executives are not regularly scheduled to complete non-executive duties in the same way as non-exempt, hourly employees.
Exempt Professional Employees
Employees who are classified as exempt based on professional job duties typically have highly specialized skills, and often hold advanced degrees in their field. Most professionals are in academic fields, and classification can sometimes be confirmed based on the fact that their job duties require an advanced degree alone. In rare cases, some employees may have gained the skills necessary through experience and attained jobs where they perform the same duties as degree holders, but not hold an advanced degree. These employees would also be categorized as overtime exempt.
Some positions that are often classified as professional exempt include:
- Registered nurses
- Clergy members
Some people are tasked with more creative job duties that require special training or skill. These positions still require exercising discretion and judgment as a part of their job duties, and may be classified as professional exempt.
These positions include:
While exemption should still be determined on a case-by-case basis, properly classifying professionally exempt employees tends to be easier than those from the other categories. This determination still requires a close look at the employee’s duties and how they spend their time at work. Considerations to determine how professional employees should be classified include education, experience, their primary job duties, and how much their job requires them to exercise discretion and make decisions on their own.
CLICK HERE TO FIND OUT COMMON MISTAKES EMPLOYEES MAKE REGARDING OVERTIME.
Exempt Administrative Employees
While it requires a case-by-case analysis of the other categories of exempt positions, both executive and professional positions have clearly defined job duties associated with them. Administrative job duties, however, are much less clear-cut. This means that careful attention is required to ensure administrative exempt employees are assigned job duties that qualify them for this exemption.
According to the FLSA regulations, the job duties that qualify an employee as administrative exempt include:
- Clerical, office or non-manual work
- Work that is directly related to managing or operating the business
- Work that requires them to regularly use their own judgment and discretion
- Tasks that require them to make decisions about “matters of significance”
Some examples of positions which may fall under this category include:
- Human resources employees
- Benefits management staff
- Payroll and finance department employees
- Accounting employees
- Marketing and advertising department staff
- Public relations team members
- Investment relations staff
- Regulatory or compliance employees
- Network or database administrators
While many people think about secretarial work when they hear “administrative employees,” these exempt staff are not your run of the mill executive assistants. Instead, they are fairly high-level employees who play a key role in ensuring the business is running properly. They provide the support system necessary to ensure the production and operational divisions of the company can continue to function.
Ensuring the company continues to run smoothly and make money is a key component in the position of an administrative exempt employee, but they cannot be classified as exempt simply because their work is important to the company’s bottom line.
Where mistakes — and legal trouble for business owners — often comes from is when it is assumed that an employee is exempt because they perform “administrative” clerical work. Some companies give fancy titles like “administrative assistant” to staff members, but if worker is not performing exempt duties, they do not meet the exempt qualification and are eligible for overtime and other FLSA protections under the law.
When a staff member’s primary job duties consist of answering telephones, preparing reports, producing spreadsheets, making travel arrangements or other similar clerical duties, they are unlikely to qualify for exemption under the FLSA. Even having the discretion to select a vendor and order office supplies is not enough to qualify an employee as exempt. While being empowered to use discretion and judgment is key in qualifying for exemptions, the employee should have authority to make decisions that affect the company’s business significantly. Where paperclips are ordered makes little impact.
Those who perform administratively exempt job duties may be tasked with:
- Interpreting company policy
- Choosing vendors and approving large purchases
- Committing to agreements with significant financial impact
- Deviating from usual operating procedures when it benefits the company
Employers who wish to remain within the law will need to understand these exemptions and pay their employees according to the new rules. Misclassifying a single employee can cost a company thousands — if not hundreds of thousands — of dollars. When a large corporation misclassifies a number of staff members across dozens of locations, the price tag for paying back pay and overtime can easily reach into the millions. As an employment lawyer, I fight tooth and nail to recover unpaid wages lawfully due workers.
With the 2016 overtime regulation overhaul coming into effect soon, the number of employers not paying legally entitled overtime to their workers is set to surge. Companies who wish to avoid an illegal violation and resulting consequences, ought to plan ahead for this change and ensure all of their employees are properly classified when the change takes place. When so many employers even now opt for wage theft, hoping to save money denying rightful overtime wages, hoping they won’t get caught — you can bet all too many companies will find themselves in violation foolishly settlements rather than do the right thing by their workforce by the due date. This can be a time consuming and costly process, get started as soon as possible employers – or you might just be seeing me in court.