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FLSA Update

Frequently Asked Questions (FAQ)

Today, the U.S. Department of Labor (DOL) published its changes to the Fair Labor Standards Act (FLSA) white collar exemptions. The new rules become effective December 1, 2016. Employees considered “exempt” are exempt from minimum wage and/or overtime requirements under the law. The converse is also true—employees considered non-exempt must be paid at or above minimum wage ($7.25/hour) and/or overtime (1½ x their "regular rate" for all hours over 40 in one workweek). In recent weeks, we have fielded a growing volume of calls, emails, and other inquiries regarding the FLSA changes. From those questions, we have compiled the following list of Frequently Asked Questions.

Q: What are white collar exemptions?

A: There are several exemptions, including the Executive, Administrative, and Professional exemptions. Exemptions are not based on job titles or job descriptions, but actual job duties. For most exemptions, employees must also be salaried above a designated salary number. Additionally, the employee must perform duties classified as exempt. Depending on which exemption applies, the employee may be exempt from minimum wage and/or overtime requirements. Non-exempt employees qualify for minimum wage and/or overtime.

Questions?

Call 414-446-8800, or email us at adam@goldsteinsc.com for more information or to schedule a consultation.

Q: What changed?

A: Somewhat surprisingly, the duties tests have not been altered at all. The most significant change is to the salary threshold, increasing from $455/week ($23,660/year) to $913/week ($47,476/year). This change brings the salary threshold back into the mix, as it had been so low that it was, for all intents and purposes, disregarded for years. The new salary number allows employers to include additional sources of compensation—e.g., bonuses, commissions, etc. — up to 10% of the total compensation number. The new rule also includes an automatic adjustment every three years based on Census data.

Q: When will the changes take effect?

A: The changes were announced Wednesday, May 18, 2016 and take effect Thursday, December 1, 2016.

Q: What do I do?

A: Identify employees who will be affected by these rule changes—in particular, those currently categorized as exempt but whose salaries fall below the new threshold ($913/week). Other considerations:

  1. Are your currently exempt employees just below, or well below, the new salary threshold?
  2. Are your currently exempt employees actually working overtime?
  3. Alternatives include: changing the employee classification(s) to non-exempt and paying them for overtime worked; explicitly prohibiting overtime (without prior written approval); or increasing compensation to meet the new salary threshold.

Q: What about the duties test?

No changes here. Duties tests are often overlooked, vary based on the applicable exemption, and are independent of job titles and job descriptions. In other words, do not be too quick to assume (from job title or job description) that the duties test is met. There are volumes written on the various duties tests. DOL opinion letters offer guidance here too.

Q: How do I make changes?

Messaging is an important part of implementing any classification changes. Some employees may perceive a change in their employment classification (from exempt to non-exempt, or salaried to hourly) as a demotion. Be sure to address all concerns appropriately—including authorization for future overtime worked.

Q: What about state law?

State law is not identical to federal law, and employers must comply with both state and federal law. In other words, compliance with one is not a defense for non-compliance with the other. With respect to the salary threshold, the new federal law is more stringent.

Q: Can these changes be repealed by Congress or the new President?

These are rule changes, not legislation. One pending piece of legislation (S. 2707/H.R. 4773) seeks to do just that. Stay tuned.

Q: As exempt employees (or most of them) must be salaried, must non-exempt employees be paid hourly?

No, you can have non-exempt salaried employees. If such an employee works overtime, however, overtime compensation must be calculated by first breaking his/her salary down to an hourly rate.

Q: What about recordkeeping?

State and federal law require that employers keep time records for most, if not all, employees. The state and federal Departments of Labor ultimately decide wage and hour issues. If you have no time records, you run the risk that the DOL may take the employee’s word for it when it comes to the hours he/she claims to have worked.

Q: What is the penalty for non-compliance?

Exposure is large and multiple. In recent years, minimum wage and overtime claims have been filed against political officials (Governor Scott Walker), professional sports teams (Milwaukee Bucks), major corporations (Haliburton), and smaller establishments (Wisconsin night club). For some businesses, the entire business model is in jeopardy.

Common Mistakes

  1. Employers often assume that all salaried employees are exempt. This is incorrect, as employees must also meet the salary threshold requirements (now $913/week) and perform exempt job duties.
  2. Employers often assume that employees with certain job titles—those with terms such as “executive” or “administrator” in the title—are exempt because of similarly named exemptions. Job titles and job descriptions do not determine exempt status. To meet the exemption requirements, employees must perform exempt job duties, regardless of job title or job description.