The Department of Labor (DOL) published its proposed rule to revise the overtime exemption for so called “White Collar” positions. These include executive, administrative, professional, outside sales and computer positions that will be required to earn $679 per week or $35,308 annualized and meet the duties and salary to be exempt from overtime. More than a million workers will be affected by this ruling. Public comment is invited at www.regulations.gov by May 21. The rule will take effect after publication of the Final Rule.
Most companies lived through the recent history of the DOL’s Final Rule that was to be implemented in December 2016. The minimum salary threshold was to increase to $913 per week or $47,476 annualized. This change would have affected 4.2 million workers and had companies analyzing how to best compensate these employees. Ten days before the implementation date, District Court Judge Amos Mazzant blocked the rule from taking effect; agreeing with 21 states and concerned business groups that the DOL had overstepped its authority. It was argued that the government is not authorized to give employees a raise and the Fair Labor Standard Act (FLSA) had never before included an automatic update to the minimum salary threshold.
The 2016 proposal included an adjustment every three years to represent the 40th percentile of earnings in the lowest-wage census area of the country for full-time salaried workers. The new proposal includes a review every four years, with no automatic adjustments. Clearly the DOL needs a reminder. The FLSA took effect in 1938 when the annual salary threshold was $1,560 in 1940 it increased to $2600 for exempt administrative and professional employees. There were other adjustments in 1949, 1958, 1963, 1970, 1975 where it stayed until 2004. The 2004 salary threshold of $23,660 is still in effect.
This time the DOL established the 20th percentile of weekly earnings of full-time salaried workers compared to the 40th percentile used in 2016. The DOL used the same formula as used in 2016 for Highly Compensated Employees (HCE), the 90th percentile. Total annual compensation requirement for HCE will move from $100,000 to $147,414. When employees meet the HCE threshold, there’s a more relaxed requirement about what type of work is performed.
Those who are paid on a salaried basis (paid the same amount every week worked) and meet the salary threshold must also meet the duties test. The executive exemption manages at least a department or subdivision of the enterprise, manages at least 80 hours of employees per week and has authority over work conditions. The administrative exemption performs non-manual work related to general business operations and must include exercise of discretion and independent judgment with matters of significance. The professional exemption must perform work requiring advanced knowledge in the field of science or learning generally learned through prolonged specialize study. Computer exemptions apply to employees who determine what hardware, software and systems to use; design, create or modify programs related to computer systems or programs or machine operations.
If you lived through the 2016 rule change, this one should be easy. Assess the impact on your workforce and determine whether to change employee status to non-exempt. The best outcome is the opportunity to ensure all exempt employees meet their duties test.
Nora T. Akins, of Strategic Management provides management training and refines human resource systems to help employers build respectful workplaces. Reach Nora at 219 873-1735 or firstname.lastname@example.org