Future Shock: Are You Ready the new DOL Pay Raises? Jay M. Dade – Polsinelli PC
December 1, 2016 Effective date of DOL’s amendments to the Fair Labor Standards Act “white collar” exemptions Virtually every employer affected, requiring preparations now November 30 – too late Are you ready?
“Big 3” White-Collar Exemptions “Professional” – work predominately intellectual, requiring lengthy, specialized instruction in advanced science field/learning – Requires consistent exercise of professional skills & judgment – Law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy and others – Also, music, writing, acting and the graphic arts
“Big 3” White-Collar Exemptions “Executive” – work managing enterprise or department and directing work of at least 2+ employees – Significant input into, or authority to, hire, fire, advance, promote or change status of employees
“Big 3” White-Collar Exemptions “Administrative” – office or non-manual work directly related to the management/general business operations of employer/employer’s customers – Exercises discretion and independent judgment over “matters of significance” – Examples: accounting; purchasing; procurement; advertising; safety and health; human resources; employee benefits; public relations; government relations; computer network; legal and regulatory compliance
Other White-Collar Exemptions Highly compensated executive Outside sales Computer professional
Key Bottom Line Changes Minimum white collar salary level increases from $455/week (about $23,660 annually) to $913/week (about $47,476 annually) – More than 200 % increase
Total annual compensation for highly compensated employees increases from $100,000 to $134,004 – Slightly more than 34 % increase
New automatic escalator every 3 years starting January 2, 2020
Why the change? DOL found current threshold outdated Provide overtime protections to 7 percent of full-time, salaried workers – 62 percent in 1975
Current salary level ($455/week; $23,660/year) set in 2004: DOL found workers earning less than poverty line for family of four today may earn too much for automatic OT qualification
DOL’s Goals Put more money (or free time) into pockets of workers – Employers can increase salaries to new threshold, pay workers overtime or limit work to 40 hours/week
Prevent future erosion of OT protections – Automatic escalator (40th percentile of FT salaried workers in lowest-wage census region) – Estimated to be $51,168 in 2020
Who Impacted? DOL estimates 4.2 million salaried workers affected based on compensation alone – 4.1 million will become OT-eligible – 100,000 will receive salary increases to new threshold
8.9 million salaried workers currently eligible for OT solely because of job duties requirements – Will become TO-eligible because of failure to meet salary threshold; duties exam unnecessary
Employers’ Options Provide pay raise to currently exempt employee to new salaried threshold Reclassify currently exempt employee to nonexempt with no pay raise to new salaried threshold – Weigh economics of salary increase v. employee working on the clock at hourly rate plus potential overtime for all hours over 40/work week
But . . .
Employers’ Options Don’t forget the job duties tests – No changes to current job duties tests
Short-sighted to focus strictly on crunching numbers Before spending on significant salary increases, audit whether employees actually are assigned/perform job duties qualifying for the exempt job currently occupied
Employers’ Options Job titles not determinative Employers should not assume exempt originally correctly classified employee continues to be so – Avoid “We’ve always done it this way”
If position not actually exempt, paying increased salary to meet new threshold may not be best step, economically
Questions? Jay M. Dade Polsinelli PC 900 W. 48th Place, Suite 900 Kansas City, MO 64112 816.360.4196
[email protected]
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