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The Department of Labor has changed the rules for administrator or “white collar” overtime exemptions.

In the past, an employee could be paid on a salary basis without overtime pay if they met both the salary and responsibilities tests. The minimum salary to qualify for exempt was $455 per week or $23,660 annually. Some employers, typically in the restaurant or hospitality industries, embellished employees responsibilities and titles to meet the responsibilities test. In this way, overtime pay was circumvented for employees that met this low pay threshold.

Beginning January 1, 2020 the minimum weekly salary for an exempt employee will be $684. or $ 35,568. annually. This is the first change in the minimum salary requirement since 2004. Any employees paid less than that will be entitled to overtime compensation when working hours exceed 40 per week.

The important thing to remember is that the responsibilities test still applies. Paying an annual salary in the amount set forth above does not create an overtime exemption.

What are the responsibilities exemptions?

The primary administrative or “white collar” exemptions are executive and administrative. Hourly paid workers are not impacted by this new Regulation. Determining if someone’s duties are sufficient to qualify for the executive exemption is straightforward; the primary duty of the executive must be supervision of at least two or more people that collectively work 80 or more hours per work week.

The more difficult exemption is administrative. In order for an employee to be administratively exempt, and not be eligible for overtime, the employee must exercise significant independent judgment and discretion in their work. Significantly, independent judgment is different than the use of skill. This analysis is difficult and mistakes in its application are the leading source of the Fair Labor Standards Act (FLSA) litigation. It is imperative that employers seek assistance to avoid future liability.

The DOL white collar rules change will have a major impact on the fast food industry where “assistant managers” have been treated as exempt while earning not much more than the current $23,660 threshold. Other industries will be affected, too, as the Department of Labor estimates that 1.3 million more employees will be eligible for overtime compensation as a result of this change. The challenge for employers affected by this dramatic change is to determine if the base salary of a previously exempt employee should be raised or whether the employee should be converted to hourly pay. An analysis of whether their duties fall within the administrative white collar exemptions should be done simultaneously. My practice is also to develop policies and procedures that document the fact that the exempt employees duties are consistent with the exemption.

HR RISK ADVISORS is available to help you navigate this complex area. Contact HR Risk Advisors at 954-552-5162 to ensure that your business is protected from employee claims under FLSA.