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​New DOL Overtime Rules – Don’t Panic!
By Simone Putnam, Partner, Raffa Managed Human Resources

help with new overtime rules.jpgEveryone has likely heard by now that the Department of Labor (DOL) recently issued new regulations on the highly anticipated update to the overtime regulations of the Fair Labor Standards Act (FLSA). 

In 2014, President Obama directed the Secretary of Labor to update the overtime regulations. Since then, we HR professionals have eagerly awaited the release of the revised regulations. There was speculation over the past year that the new minimum salary that employees must be paid to pass the “salary basis test” for exemption under overtime rules would be in excess of $50,000 per year. The final regulations set this minimum salary at $47,476 per year. While this minimum salary is under the speculated $50,000 per year, it is just over double the previous amount of $23,660. While doubling the amount of the previous minimum salary level to pass the white collar exemption for overtime pay may seem outrageous, this amount had not increased over the past several years to keep pace with inflation. The new minimum salary threshold was determined by setting the salary threshold at the 40th percentile of full-time salaried workers in the lowest income Census region of the United States (currently the South). In addition, the revised regulations allow for increases every three years to maintain the 40th percentile level of full-time salaried workers in the lowest income region of the country.

So, is this a good thing? It depends on who you ask. While I was in agreement that the regulations needed to be overhauled, as an HR professional, I had hoped that the revised regulations would include revisions to the “duties test” which provides guidance to employers on evaluating positions to determine if the responsibilities of each position qualify for exempt status. Although both the salary basis test and the “highly compensated employee” threshold (increase from $100,000 per year to $134,004 per year) were addressed with the new regulations, the “duties test” remains unchanged. Why am I concerned about this? The “duties test” is vague. While there is specific language that tells you what to look for when applying the “duties test,” the determination is subjective. 

For example, under the Administrative Duties Test, the determining criteria are: 
  1. ​Does the employee’s primary duty consist of office or non-manual work directly related to the management or general business operations of the organization, and 
  2. Does the employee customarily and regularly exercise discretion and independent judgment on matters of significance?  
How do we ensure that what one organization defines as responsibilities being related to the management or general business operations is the same as another organization’s determination, or more importantly, the DOL’s determination? Similarly, how do we ensure that all organizations and the DOL are in agreement of what responsibilities fit the description of relating to matters of significance? Further, what if 50% of an employee’s time is spent on non-exempt activities and 50% of an employee’s time is spent on exempt activities? While I am thankful that the DOL has issued new regulations for the FLSA, I don’t believe that the new regulations are helping organizations better interpret how to classify positions using the “duties test” (specifically for the Administrative Exemption Test).  

When we work with organizations to review their classification of positions, we find that most of the positions they classify as exempt are identified as exempt under the Administrative Exemption. We find it concerning that the language for this exemption is vague. As such, our general guidance is to err on the side of being conservative and lean toward classifying positions as non-exempt if there is any question that the exempt justification might be borderline defensible with the DOL.

So what are employers supposed to do? Don’t panic is our first response. The DOL has given employers six months to comply with the new regulations. This is a reasonable time period (in our opinion) for organizations to make informed decisions about what the right course of action is for their organizations to be in compliance with the new regulations. 

What are the decisions that need to be made? First and foremost, we recommend that employers re-evaluate each position currently classified as exempt to ensure it is properly classified. Regardless of the salary basis test, all positions classified as exempt must meet the “duties test.” You may find after re-evaluating your positions that some positions you previously classified as exempt under the “duties test” are more accurately classified as non-exempt. After determining which positions qualify for exempt status according to the “duties test,” then apply the salary basis test. If you determine that a position that qualifies for exempt status under the “duties test” does not qualify under the salary basis test, then you have a decision to make. You either change the position to be non-exempt or you increase the salary for the position to make the position exempt under the new DOL regulations. There are many considerations for determining which approach you will take to maintain compliance under the Fair Labor Standards Act as no one approach is right for every organization.  

We believe that with the roll out of the new regulations, we will see an increase in DOL audits.  We believe this will happen because there is greater focus now on ensuring accurate classifications and also because employees are now more aware of this topic. We believe that more and more employees will start to question their classifications and may alert the DOL that they do not feel that they are classified appropriately. Our recommendation to all organizations is that they start now on developing a process to re-evaluate every position classification as exempt in their organization so that they are prepared for any changes that will be necessary to be in effect December 1, 2016. Any change to position classifications will need to have a well thought out communication plan to go with it and any training required for proper time reporting if employees’ status is changing from exempt to non-exempt. We also recommend that you document the process you follow, so in the event of a DOL audit, you can demonstrate due diligence in ensuring positions are properly classified. If you don’t feel you have the talent within your organization to evaluate position classifications, there are many HR consultants and employment attorneys who will be able to provide support to you. 

Please contact me if you need support to be sure your organizations remains in compliance with the new regulations.