With the recently-announced rule change from the Department of Labor (DOL) updating the minimum salary requirement for employees to be classified as exempt, now is a great time to take a look at some tips for ensuring that no missteps are taken that might jeopardize that exemption.
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As you’re likely well aware by now, the new DOL rule states that, as of December 1, 2016, exempt employees must be paid at least $47,476 per year to qualify for their exemption—an increase from the current level of $23,660.
But what cannot get lost in this message is the fact that the annual pay level is not the only requirement for an employee to be considered exempt. The exempt employee must be paid on a salaried basis, must meet or exceed the minimum salary level, and also must meet the duties test of the exemption they’re qualified for. All components are important, and missing out on any of them can risk losing the employee’s exempt status—thus opening the employer up for penalties and back pay owed for unpaid overtime for the period the employee was misclassified (subject to statute of limitations).
Tips to Not Lose an Employee Exemption
Employers are currently grappling with how to meet the new rule while still minimizing costs. Some will opt to simply raise exempt employee salaries to meet or exceed the threshold if they’re currently below the new amount. Others will opt to reclassify employees as nonexempt and start paying overtime as needed. These are the two main ways to handle it, although they’re certainly not the only options. But no matter how you, as an employer, opt to handle this rule change, it does not negate the other aspects of maintaining an employee’s exempt status. Here are some tips to ensure that the status is not jeopardized even after the new salary threshold has been met.
- Be careful with pay deductions. Since exempt employees must be paid on a salaried basis, their pay normally should not fluctuate in relation to hours worked or output produced. As such, employers need to be careful not to make improper deductions that would jeopardize the salary basis. For example, it would not meet the regulations to deduct pay from an exempt employee for coming in late to work—even though an hourly employee would get paid less in that scenario. Salary also cannot be reduced for poor performance—the salary paid is meant to be irrespective of output.
- Remember that exempt employees still must be paid when there isn’t enough work to be done in a given workweek. If an exempt employee is willing and able to work, but there’s no work to be done on a given day, the employee still must be paid his or her normal salary.
- Don’t assume that every salaried employee is automatically exempt. The employee still must meet the duties test to be exempt, even if he or she is paid on a salary basis, and that salary is above the minimum threshold.
- Don’t assume that just because someone’s title says “manager” or “supervisor” he or she will automatically meet the duties test. While many managerial roles will indeed qualify, employers should assess every role to ensure that it meets the duties test to ensure it qualifies for the exemption. Employers can get caught by making too many assumptions without verification. This same tip applies to other job titles that sound as though they may qualify. When determining exempt status, don’t just go by title; instead, be sure to assess the actual job requirements. Don’t just go by the job description either—it may no longer match the true daily duties of that role.
Have you encountered these pitfalls and nearly lost an exemption or misclassified an employee?
*This article does not constitute legal advice. Always consult legal counsel with specific questions.