June 2016 HR Newsletter
After a long wait, we now know the new salary threshold for the white collar exemptions and their effective date. In this month’s Advisor Newsletter, we’ll be continuing our coverage of the FLSA changes.
Featured Article: Final FLSA White Collar Exemption Rule Announced
The minimum salary requirement applies to all white collar workers who are classified as exempt executive or administrative employees, and to many who are classified as exempt professional employees. As anticipated, the duties tests for the White Collar Exemptions have not changed.
Under the new rules, this salary threshold will increase every three years. It will be set at the 40th percentile of weekly earnings among full-time salaried (not necessarily exempt) employees in the country’s lowest income region – currently the South. It is expected that the next change, which will be effective January 1, 2020, will increase the minimum salary to approximately $51,168.
The new rule also increases the minimum salary threshold for the Highly Compensated Employee (HCE) exemption from $100,000 per year to $134,004 per year. This exemption can be used when an employee carries out a limited number of executive, administrative, or professional duties, but is very well-compensated. The new rule sets the HCE threshold at the 90th percentile of all full-time salaried workers nationally. This number will also increase every three years, and is expected to rise to approximately $147,524 on January 1, 2020.
Some state laws create different minimum salary levels. When state laws differ from the FLSA, an employer must comply with the standard most beneficial to employees. Come December 1, the federal minimum salary level will be higher than any state-mandated minimum, and therefore must be followed.
In preparation for the new rule, we have created the following materials, all of which can be found in our HR Support Center:
- FLSA Changes: Decision Making Guide
- FLSA Changes: Implementation Guide
- 2 Minute HR trainings on the new rule, the executive, administrative, and professional exemptions, the highly compensated employee exemption, the outside sales exemption, and the salaried non-exempt classification
- A memo requesting that employees track their hours for planning purposes
- A letter to employees regarding their classification change
- A guide to calculating overtime for non-exempt employees who receive non-discretionary bonuses or commissions
What Are the FLSA White Collar Exemptions?
With all the talk about the new white collar overtime exemptions, you may be wondering what these exemptions are and whether they apply to your organization. In a nutshell, they pertain to whether certain employees must be paid overtime rates for hours worked over 40 in a week. While most employees must be paid at least minimum wage and time-and-a-half for overtime, some employees can be classified as exempt from these requirements. The most common way to classify employees as exempt is with one of the “white collar exemptions.”
Among these, the most commonly used white collar exemptions are the executive, administrative, and professional exemptions. These may be applied when the position/employee passes three tests:
- They perform non-manual work and their primary duties are executive, administrative, or professional.
- They make a minimum salary of $455 per week, which equals $23,660 per year ($913 per week and $47,476 per year beginning December 1).
- They are paid on a salary basis, meaning they receive the same pay each week regardless of number of hours worked, or the quantity or quality of their work.
Some employees whose duties qualify them for the professional exemption – bona fide teachers and practicing doctor and lawyers – do not have to be paid a minimum salary, or on a salary basis; they only have to pass the duties test. However, some states don’t allow this exception to the salary rules (e.g. California), so employers should double check state law before taking any liberties with these types of employees.
Another way employees can be exempt is if they qualify as a highly compensated employee (HCE). This exemption may be applied if the employee passes three different tests:
- They perform non-manual work, and customarily and regularly perform at least one or more executive, administrative, or professional duties.
- They receive total compensation of at least $100,000 per year ($134,004 beginning December 1).
- They make at least $455 per week, every week, on salary basis ($913 beginning December 1).
When would you want to use the HCE exemption? Consider a CEO’s executive assistant making $125,000 per year. His primary duties include typing dictated letters, making travel arrangements, placing phone calls, and party planning—none of which are exempt duties. But he also manages two full-time administrative assistants; this responsibility doesn’t take up much of his time, but it is something that he does regularly. Based on his job duties as a whole, he doesn’t pass the test to be properly classified as an executive, but since he makes over $100,000 per year and performs at least one executive duty on a regular basis, he can be properly classified as exempt as an HCE.
Keep in mind that classifying an employee as exempt is a benefit to the employer. You are never required to classify an employee as exempt, and you may always pay them on an hourly basis, regardless of duties or pay. You’ll just have to pay an overtime premium for hours worked over 40 in a week.
Did You Know?
Although child labor has been around for ages and was integral to the survival of farms before mechanization, it became a serious problem in the United States during the Industrial Revolution. Children as young as four were working long hours in hard and dangerous jobs, and spending little to no time in school as a result. Kids who didn’t know their ABCs were being paid less than adults for full-time jobs (often more than 40 hours per week) in factories and coal mines. Children were often considered preferable to adults because they were easier to control and could fit in tight spaces. In 1910, a stunning 18.4% of the American workforce was under 15. The Great Depression put the brakes on child labor to a degree, since Americans on the whole wanted all available jobs to go to adults. But it took the Fair Labor Standards Act (FLSA) of 1938 to really change the landscape of the workforce. Since the passage of the FLSA, and many state laws that go even further to restrict child labor, the number of hours minors work per day and per week is heavily regulated, their wages are allowed to be only marginally lower, if at all, and children are prohibited from working with dangerous equipment or in particular positions.
HR Tip of the Month:
In the face of the FLSA changes – or any major change in your organization – be transparent, communicate, and listen. These three practices could mean the difference between growth and deterioration. When big changes are imminent, buy-in is essential. Here’s how you get it:
Transparency: Let employees know what you’re doing, when you’re doing it, how you’re doing it, and most importantly why you’re doing it.
Communication: When possible, communicate with your employees in person and as soon as possible. Think about how you want to deliver a message before you’re in the spotlight. Your means of communication, the exact words you use, and your body language will often have a greater impact on how your message is received than the actual content of the message.
Active listening: Employees who feel like they’re been invited to participate in a decision are more likely to support it, even if it wasn’t their own idea that won out. But active listening is essential. Once you’ve invited employees to speak up, make sure you’re actually paying attention to what they have to say. You may be surprised by what you learn!
June 14: Flag Day
June 19: Father’s Day
June 20: Summer Solstice
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