Proposed New DOL Overtime Exemption Rules

Hopefully most of you have heard by now, the Department of Labor has proposed new overtime exemption rules for all employees. To classify an employee as exempt, they have to pass a “salary test” and a “duties test.”

Currently for the salary test, the minimum weekly salary an employee would have to earn is $455, which is $23,660 per year. The DOL’s new proposal for the minimum weekly salary be $921 per week ($47,892 annually), more than double the current amount. The proposal also stated that the increase will continue in 2016 to about $970 a week ($50,440 a year). After 2016, the salary levels have been anticipated to adjust annually based upon percentage of wages for American workers.

In regards to salaried employees, they can fall into 2 categories…Exempt, which means they are exempt from paid overtime and Non-Exempt, which means they can be paid a fix amount, but if they incur overtime they must be paid 1.5 their base hourly salary for those hours.

To classify an employee as Exempt, they must meet certain requirements depending on their job. This is called a “duties test” and for now, is essentially unchanged. Below I have listed each “job category exemption”, if an employer can answer YES to all the question in one of these groups, the person could be considered Exempt.

Is the employee’s primary duty managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise?
Does the employee customarily and regularly direct the work of at least two or more other full-time employees or their equivalent? AND
Does the employee have the authority to hire or fire other employees, or are the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or other change of status of other employees given particular weight?

Is the employee’s primary duty performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment? AND
Does the employee’s have knowledge in a field of science or learning?
Does the employee have knowledge customarily acquired by a prolonged course of specialized intellectual instruction?

Is the employee compensated on a “salary basis” at a rate of at least $455 per week? (The salary is not reduced because of changes in quality or quantity of work.) AND
Is the employee’s primary duty performance of office or non-manual work directly related to the management or general business operations of the employer or employer’s customers? AND
Does the employee’s primary duty include the exercise of discretion and independent judgment with respect to matters of significance?

For Computer Employees only…

The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;
The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below
The employee’s primary duty must consist of:
The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
A combination of the aforementioned duties, the performance of which requires the same level of skill.

For Outside Sales only

The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
The employee must be customarily and regularly engaged away from the employer’s place or places of service
The DOL has also issued loose guidelines for the term “employee’s primary duty.” An employee has to be performing exempt job duties and responsibilities for this exemption to qualify for overtime. The hard part about this exemption, is that there is not a black and white outline for what “primary duty” means in each and every single workplace. There is a proposal to establish more than 50% of their time performing exempt work will generally satisfy the primary duty requirement. Current regulations do not require the 50% rule under the FLSA.

So what can employers do? There are a few items that can be done immediately:

Identify employees that are exempt, and non-exempt
Review all job descriptions; interview employees on what they spend their time doing
Keep detailed records on classifications, job duties, and pay records
Get professional consultation and help – contact a firm like Solution Services for consultation
Repair any mistakes or problems
Understanding the direction that the DOL is looking to go, and preparing for it now will be the best way to tackle this probable change in overtime exemptions. Solution Services is up to date and knowledgeable and can help you with an audit and reclassification of your employees. Give us a call today for a free consultation.