Employers with salaried employees will need to audit their current payroll practices this year. Historically, certain salaried employees could work more than 40 hours a week for employers and would be exempt from receiving overtime pay (time-and-a-half). In May, the U.S. Department of Labor issued a final rule regarding overtime regulations for standard salary employees and highly compensated employees, commonly known as “white collar” employees (e.g. bona fide executive, administrative, professional, outside sales, and computer employees). Employers will need to evaluate which employees may fall into this category and be prepared to comply with the new rule.
The Fair Labor Standards Act provides for minimum wage for all hours worked during the workweek and for overtime pay (time-and-a-half) for hours worked in excess of 40. Certain exempt white collar employees may be paid an annual salary, provided they perform certain duties and their salary meets a specific threshold. There are two categories of white collar employees: standard and highly compensated. A white collar highly compensated employee’s primary duties include performing office work or non-manual work, and customarily and regularly performing at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee. A standard white collar employee must satisfy all of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee, plus meet the salary threshold to remain exempt. The new rule raises the salary threshold for white collar employees.
The rule change. Employees who qualify as exempt white collar employees must still be paid overtime unless their salary is above the new threshold.
| Current Regulation | New Regulation (As of 12/1/2016) |
| Standard Salary =
$455 week/$23,660 annually | Standard Salary =
$913 week/$47,476 annually |
| Highly Compensated Employee = $100,000 | Highly Compensated Employee = $134,004 |
| Quarterly, non-discretionary bonuses, incentive payments, and commissions are allowed as part of the threshold, up to 10% of the standard salary level. | |
| The threshold will automatically update every three years. |
Not a simple raise. Complying with the new rule will have several challenges for employees and employers. Employers cannot simply designate an employee as “exempt” by giving him or her a $50,000 salary; the employee must still perform specific duties within the white collar job to qualify for the exemption. Also, most white collar salaried employees do not keep track of the hours worked each week, adding this administrative task will burden both the employee and employer. White collar employees routinely work outside of normal business hours, including responding to emails or taking phone calls (“off-the-clock” time). These salaried employees enjoy the flexibility of not having to punch a clock, knowing if they come in late after a dental appointment or leave early on a Friday to beat cabin traffic, they can log-on and work on a Sunday evening to catch up. Employers benefit from an active, engaged, and productive employee. For employees with salaries below the threshold, employers may have to change the company’s practices and culture around off-the-clock time. Employers will also have to be aware of fluctuating work weeks and overlapping duties and how that will impact its evaluation.
What to do next? Not all employers have to comply with the Fair Labor Standards Act, depending on their annual gross volume of sales or business done. Nor are all white collar employees eligible; their job duties have to meet certain criteria. Over the next few months, employers will want to audit their employee classifications and determine what hours their white collar workforce is working, the salaries they are receiving, what duties they are performing, and ultimately, decide if the company wants to raise certain salaries or limit time worked, including limiting or eliminating off-the-clock time, or some combination of the same. Ultimately, the white collar workforce is a vital role in our economy and both employers and employees will want to continue to work to maintain that. The final rule will become effective on December 1, 2016. Feel free to contact FMJ to assist in your company audit and to ensure that your company is ready for the change.
Fafinski Mark & Johnson’s HR & Employment and Litigation groups can be reached at 952.995.9500.