DOL Shakeup: New Salary Thresholds for the White Collar Exemptions

Posted on May 23, 2016 in Uncategorized

Employers should prepare for a dramatic change in overtime law.  On December 1, 2016, an employer can utilize the so-called “white-collar” exemption only if it pays an employee a guaranteed weekly salary of $913 ($47,476 annually). This constitutes one of the more dramatic changes in overtime law in many years because the old rule set the salary threshold at a mere $455/week ($23,660 annually).  The old threshold was below the poverty level for a family of 4; the new threshold is game changing for an estimated 4.2 million American workers,  370,000 in Texas alone according to the DOL.

This newsletter provides thoughts on how employers should prepare for the change.

• Remember the Duties Test

One comon misconception in employment law is that paying an employee a guaranteed salary in and of itself makes the person exempt from the Fair Labor Standards Act overtime requirement. Paying a guaranteed salary is only one-half of the test.  The employee must also perform duties that meet one of the “white-collar” exemptions: (a) professional (e.g, a lawyer, doctor, or accountant) ; (b) executive (e.g., a CEO, manager of a department of two or more people); or (c) administrative (e.g., Office Manager, Director of Safety).  The duties test can be found on the DOL website (https://www.dol.gov/whd/overtime/fs17a_overview.htm), and we can help walk you through it iif needed.

As companies examine how to implement the new salary threshold, they should also assess whether their presumed non-exempt workers truly meet the duties test. If not, the new salary threshold is irrelevant and the employee must be paid overtime for all hours worked over 40 in a workweek.

• The new rule does not mandate pay raises

Clients are already calling concerned that the DOL has effectively instituted a pay raise. Not so.  The DOL does not set compensation standards.  That is left to employers.

For the same reason, when converting an employee from salary to hourly, an employer is not required to use the employee’s last salary as the basis for calculating an hourly rate. An employer can use empirical data to calculate an hourly rate that allows employees to make what they made on salary by working the overtime expected of them when they were paid on a salary-basis.  The important part of these conversions is in communicating effectively with the workforce that the change is not intended to decrease their pay.

Similarly, even though someone could be exempt if paid on a salary-basis, it does not mean they have to be paid on a salary-basis. For example, a lawyer (working as a lawyer) can be paid on an hourly basis even if they could be deemed exempt if paid the minimum threshold salary.

• Avoid creativity

There is no room for original thought or creative design when trying to comply with the FLSA. If an accountant or other service professional suggest otherwise, you should run to your lawyer for a second opinion.  Do not look for easy outs or complicative payment schemes.  They will fail.

Employers must utilize the next six months to implement any needed changes. Let us know if we can be of assistance.