In daily business, we often classify our employees as salary or hourly. Then, by extension, we treat salaried employees as not eligible for overtime -or “Exempt”- and hourly employees as eligible for overtime -or “Non-Exempt”. Unfortunately, while easy to understand, this oversimplification does not meet the test of federal and state guidelines and can easily put your company at risk. If employees are found to be misclassified, you will be liable for back wages and penalties.
There are specific guidelines about what makes a position exempt from overtime. And, as is often the case here in California, the federal and state guidelines differ. To correctly make the distinction, you must assess the actual duties of the employees in these jobs, which involves much more than just giving them an important sounding title. And there are different guidelines and minimum salaries that need to be evaluated depending on the exempt category that might apply, such as administrative, managerial, and computer professionals.
The Department of Labor is expected to implement significant changes to the federal exempt rules. The most recent date estimated for implementation is July 1, 2016. This will include an increase in the minimum salary to qualify a position as exempt. California’s current minimum salary is $41,600, and the new federal level for the “white collar exemptions” that include executive, professional and administrative employees, will require an increase to $50,440. There will then be annual updates to avoid the need for going through the rulemaking process for future increases. It is also possible that California will implement an even higher the minimum salary level, as California exempt salary requirements have always exceeded the Federal rate.
Anticipated changes to the duties tests of these exemptions appear to have been put on hold – for now. However, the DOL expressed clear concern that employers are identifying positions as exempt when the actual duties being performed do not meet the rules. The DOL is considering revisions, including specifying a minimum amount of time, for example, 50%, that must be spent doing the primary exempt duties.
Finally, just to make things even more confusing on an ongoing basis, if a position is correctly determined to be exempt, there are very specific rules as to what can and cannot be deducted from the exempt employees’ salary. If you make deductions incorrectly you can undermine the exempt status.
You should begin a review of your exempt positions immediately so you are prepared for this change. This should include:
- Identify exempt employees earning less than $50,440.
- Review their job descriptions to ensure they really are exempt based on their duties.
- Prepare to implement salary increases to ensure all exempt staff earning at least $50,440 when the new rule is implemented.
- Review all other exempt employees to identify salary changes that may need to be made based on changes to staff currently below the new threshold. This is the wage pressure changes in minimum wages or salaries create on other positions.
- Evaluate the company compensation plan and ranges, if used, to identify all other wage impacts of this change.
- Evaluate the company impact of salary increases companywide this will cause, to be prepared for adjustments in pricing or goods or services, or other financial adjustments, needed to accommodate these changes.
Sandra Dickerson, Esq. is co-CEO and HR Director of Your People Professionals, a human resource management firm based in Santa Maria. The firm specializes in California HR, including strategic planning, compensation design and review, and risk management. She can be contacted at (805) 928-5725, ext. 110 or firstname.lastname@example.org.