In the current, highly politicized climate filled with all sorts of information, it can be hard to discern what you actually need to know. It can be harder still to know what you need to do about it all. Beyond the opinions of many lies the core of the issues, the truth of the matter, and what is actually required of you – the employer. Here are the main questions: What did the “Final Ruling” actually change? What Does This Mean for Employers? As of November 22, 2016 “Do I even need to worry about this?” The answer to these questions will hopefully keep you informed on the current standings of the law, keep you compliant with the current regulations, and keep your mind at ease.
What Did The “Final Ruling” Actually Change?
On May 18th, 2016, President Obama announced the Department of Labor’s Final Rule that updated the previously existing regulations regarding what has long been known as the “White-Collar Exemption.” In essence, the “White Collar exemption” means that employees can be considered exempt from being paid overtime IF they meet certain criteria.
What Makes An Employee Exempt?
Before getting into what changed, one must look at what has always been. There are three (3) criteria that an employee must meet before being considered exempt from overtime.
- Salary Level – How much you pay an employee each period. This amount must be at least what is defined by the Department of Labor as the minimum salary eligible for exemption. (More on this later – spoiler: this is what changed so keep reading).
- Salary Basis – The employee is paid the same Salary Level each pay period. The employee must receive the full salary for any week in which work is performed, regardless of days or hours worked. (There are some exceptions, but it is important to note that if the employee’s pay is deducted for any reason outside of those exceptions, they are no longer salary exempt).
- Job Duties – The employee’s PRIMARY job duties must fall under the description of:
a. Executive (management of at least two people, hire/fire rights, etc.).
b. Administrative (office manager, HR manager, not just a secretary, etc.), or
c. Professional (doctor, lawyer, accountant, job that requires post-secondary education, etc.).
The only change that has been made to the requirements for the “White-Collar Exemption” is the Salary Level. Prior to this recent announcement, the salary level required for an employee to be exempt was $455 per week. As of December 1, 2016 the salary level required for an employee to be considered exempt is $913 per week. This does not mean that an employer is required to pay a person a salary of $913 per week; it simply means that a person who is paid a salary of less than $913 is due overtime for every hour of overtime worked over 40 worked in a particular week.
What Does This Mean for Employers?
This change to the minimum salary required to maintain an overtime exemption is a great deal to absorb so quickly. Due to the more than doubled salary level, it is important for employers to take steps to make any necessary changes to their payroll. Due to this drastic increase to the Salary Level, a Texas Judge ruled in favor of an injunction, halting the immediate implementation of this new rule. Though the December 1 deadline has been delayed, pending a decision from the 5th Circuit Court of Appeals, the decision does not preclude the possibility of a later implementation.
IF you have already make provisions to absorb this Final Rule, it is advisable to seek counsel before you make any changes to those the newly adopted adjustments. This is particularly true if you have made changes (positive or negative) to employee wages. There is no final decision on this and there may yet not be one for months to come. In the mean time, here are a few things to consider:
Until a final decision from the 5th Circuit Court of Appeals is published:
- Keep the status quo and wait for the final decision, either from the courts, the Labor Department, or the incoming Presidential Administration.
- Revert any changes in anticipation of this rule.
*PLEASE seek advice from either an accountant or attorney before doing this to hedge against any liabilities you may open yourself up to by doing this.
If the Final Rule Stands, there are several different ways for employers to handle these changes.
- Review payroll and determine if current Salaried-Exempt employees are truly exempt from overtime. If they are, ensure that their salary level meets the new requirements to maintain that exemption. If they are not, pay them for any overtime worked.
- If a salaried-exempt employee does not meet the new required Salary Level, determine how to address the employee’s salary:
a. Increase their salary to $47, 476 per year, $913 per week.
b. Keep salary at current level and pay overtime for any hours over 40 worked.
c. Keep salary at current level and restrict the employee to no more than 40 hours per week.
d. Reduce the base salary for the employee and pay employee overtime to compensate for the reduction of base salary.
One important note is that for any employee that is not or does not remain Salaried-Exempt, it is IMPERATIVE that the employer maintains accurate time records. This can be hand written sheets, an electronic system, or even a cloud-based time recording system. Whatever the choice, the employer must maintain these records. The law does not stipulate how an employer keeps these records, merely that the employer does so.
If you have any questions, please let us know and we would be glad to assist you.