By: Michelle Porreca, Senior HR Consultant
In 2016, the United States Department of Labor (DOL) issued new regulations regarding overtime eligibility under the Fair Labor Standards Act (FLSA), which is the federal law that establishes minimum wage, overtime pay, and recordkeeping and child labor standards. Although the pending regulations have been delayed, employers are not completely off the hook from a compliance perspective in terms of classifying employees. No matter what the final ruling is steps should be taken now to protect your organization.
Under these new regulations, which are currently on hold, all employees who earn less than $913 per week/ $47,476 per year must be paid overtime if they work more than 40 hours in a workweek, regardless of the type of work that they do. This means that even if an employee qualifies as an exempt employee based on job duties and is paid a fixed salary, he or she is not exempt from the overtime wages requirement if his or her salary is less than $47,476 per year. In essence the new rule would have increased the salary threshold for an employee to qualify as exempt from $455 per week ($23,600 per year) to $913 per week ($47,476 per year).
Current classification criteria regulates that any employee who currently makes $23,600 or less is automatically considered non-exempt from overtime eligibility – in other words, they receive overtime pay. The duties test must then be performed. Positions that are professional in scope, i.e. requiring a degree or specialized professional training or those with significant decision making authority are exempt from overtime pay requirements. These types of employees are paid a salary to do a job. Executive, Administrative, Professional and Highly-compensated positions, as defined by the regulations, typically are exempt.
The new Rule does not change the “duties tests” for qualifying as an executive, administrative, or professional employee. Still, they are worth reviewing.
- Executive: To qualify for the executive exemption, an employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise. Furthermore, the employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent. Finally, the employee must have the authority to hire or fire other employees, or the employee’s suggestions as to the hiring, firing, or any other change of status of other employees must be given particular weight.
- Administrative: The administrative employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. Furthermore, the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.
- Professional: To qualify for the professional exemption, an employee’s primary duty must be the 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. The advanced knowledge must be in a field of science or learning, and the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
In the HR assessments we conduct for small organizations, we frequently find misclassification of staff – most typically employers incorrectly classify administrative staff such as Receptionists, Administrative Assistants and office administrators as exempt because of their interpretation of what constitutes “discretion” in these roles. While responsibilities may vary across organizations for these type of positions, more likely than not we find staff in these roles are misclassified from a compliance perspective and are being improperly paid. Correction of these misclassifications requires careful and thoughtful messaging and remediation to limit organizational liability.
Employers who violate the FLSA are subject to litigation brought by employees. Liable employers can owe back pay, damages, and attorney fees to employees to whom they improperly failed to pay overtime wages. The Department of Labor (DOL) is responsible for enforcing the FLSA provisions.
For more information on this topic or to speak to one of our HR consultants about your employee classification status, please contact us at 781-235-1490.