Whether or not last week’s election results surprised you, they do portend some significant changes in the near future. I doubt you need me to tell you that Mr. Trump and Mr. Obama have differing views on, well, pretty much everything. At least it seems that way. Some of the changes coming are likely to impact employers. Perhaps one of the biggest concerns for employers before the election was the new overtime rules, set to go into effect on December 1. Click here for review. Now what? Do you still have to follow these rules? Do you still need to be concerned about overtime pay? If you’re going to ask those questions, this is the time — and place–to ask them. This is also the time and place where we will look to answer them– you guessed it– after the jump…
(image from benefitspro.com)
For a really brief recap: the new overtime rules essentially raise the minimum salary requirement before you can classify an employee as exempt from overtime pay as an Executive, Administrative, Professional and Highly Compensated Executive employees. These are known as the “white-collar exemptions”. The minimum salary requirement has been $455 a week, or $23,660 annually. Under the new overtime rules, that amount jumps to $913 a week, or $47,476 annually. For highly compensated executives (HCE’s) the threshold jumps from $100,000 annually to $134,004. There are automatic increases every three years. Those are the key components that we need to focus on today.
So, will these rules still apply? Do you still need to worry about overtime? The short answer to both questions is yes, (especially as of now) though perhaps for different reasons.
Let’s first look at the new rules. Let’s remember they go into effect December 1. Mr. Trump will not even take office until January 20, 2017. If we assume that he and the Republican controlled Congress want to roll back those rules, we should also assume that it could be a while before that would happen, if that would happen. Why if? First, there’s the minor matter of getting up to speed on, well, everything. Yes, he will at least try to do some of that before January, but let’s face it, he’ll still be new to the job. The Trump Administration will have to prioritize issues. Will this necessarily be on the short list, in light of many other pressing concerns? If so, will it necessarily be among the first? He will have many issues competing for his attention. Even if he were to decide that this issue is the very first one he wants to address, it has to go through Congress. We all know how quickly Congress moves–even one that is controlled by the same party to which the President belongs. You get the idea. For now, you need to assume that you have to understand and comply with the salary thresholds in these new rules.
There is more, however. Many employers make the mistake of focusing only on whether someone is salaried or hourly, whether they earn a fixed or variable salary/wage and whether that amount meets the minimum–and they neglect to look at the exemption categories and job functions. While these new rules have caused a sizable ripple in the employment world, they: a) apply only to the executive, administrative, professional and highly compensated executive categories; and b) do NOT change the job function criteria. So what does that mean for you?
The good news is that if you have employees that meet exemption criteria under other categories, these rules would not apply to how you have classified those employees, and they do not raise those minimum salary thresholds.
The news-you-don’t-want-to-hear but that I have to tell you (“bad new” just sounds so negative) is that even for those “white-collar” exemptions where you do make sure to meet the minimum salary requirements in order to avoid paying overtime, you might still miss the mark. Wait. What? Why? Let’s take an example. Your company manufactures widgets. You have previously classified Michael the Manager as an exempt executive. He was earning a salary of $850.00 a week. You have just given him a raise to $913 a week. While you have called Michael a manager, Michael is really more of a “lead man”. Workers come to him with questions and you look to him to make sure everyone is working up to speed and doing what they’re supposed to do. Michael does not actually direct their work beyond that and he has no authority to hire or fire or even make recommendations as to hiring and firing, which are criteria that must be met for Michael to fall within this exemption category. He also takes his orders from a manager above him, has no discretion to set policies and his job also does not require the exercise of any significant amount of independent judgment or discretion. These are requirements for meeting the Administrative Exemption category. Michael’s job, therefore, is probably not exempt from overtime requirements. (Click here, here , here and here to review the more common exemption categories and their “duties tests”.) In other words: even if you follow the new salary rules for those exemption criteria, if those employees primary job functions do not meet the “duties” tests, they will still not be exempt — and you could still end up owing overtime pay to those employees if they work more than 40 hours in any given week.
So yes, by all means pay attention to the FLSA’s salary requirements, including the new ones–but don’t ignore the job functions tests!
Join The EmpLAWyerologist next week, where I reserve the right to post about other employment laws that may be impacted by a Trump presidency, because– well, why not? See you then!
Disclaimer: Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
Are you a N.J. employer/business owner? Join the new LinkedIn group, New Jersey Business Litigation Forum, run by my friend and colleague, Gene Killian. Click here for more info.
Click here if you’ve missed my previous webinars on Criminal Background Checks in the Hiring Process.
Before choosing an attorney, you should give this matter careful thought.
The selection of an attorney is an important decision.
If you find this communication to be
inaccurate or misleading, you may report it to the Committee on Attorney Advertising
Hughes Justice Complex, CN 037, Trenton, NJ