A U.S. District Court judge in Texas has issued a nationwide injunction prohibiting the US Department of Labor (“DOL”) from implementing the new federal overtime rule. The new rule impacts one of the most often used exemptions to avoid paying overtime wages under the federal Fair Labor Standards Act, known as the “white collar” exemption. Prior to the Court’s November 22, 2016 ruling, the minimum salary level required to qualify for the white collar exemption was scheduled to increase on December 1, 2016 from $455.00 per week to $913.00 per week. As a result of the Court’s ruling, there will be no increase in the salary level on December 1, 2016. The Court’s ruling is a preliminary order and not a final one. The Court indicated that the preliminary injunction is intended to preserve the status quo while the Court makes a final determination. We will all have to stay tuned for the last word on the salary level.
Although much of the focus regarding the new rule and now the Court’s decision has been on the salary level increase, the salary level requirement is only one of three requirements that an employee must meet in order to qualify for the white collar exemption. There is nothing in the new rule or the Court’s order that suggests that the other two requirements will be materially changed.
The first requirement is that the employee must be paid a predetermined amount on a regular basis, not subject to reduction based on quantity or quality of work. Subject to limited exceptions, an exempt employee must receive full salary for any week in which they perform any work.
The second requirement is that the employee be paid at least $455.00 per week – for now.
The third and possibly the most misunderstood requirement is that the primary job duty must involve the kind of work associated with exempt executive, administrative or professional employees.
The primary job duty of an executive employee whose job would qualify for the exemption is the management of two full time employees who are part of a department or subdivision of the business which has a permanent status and function. Management includes e.g. interviewing, hiring and training of employees; setting rates of pay and hours of work; directing work, reviewing employees; firing employees; handling employee grievances and complaints; planning and controlling budgets.
The primary job duty of an administrative employee whose job would qualify for the exemption must be office or non-manual work directly related to the management or general business operations of the employer or its customers and must include the exercise of discretion and independent judgment with regard to significant matters. Some examples of tasks directly related to management or general business operations are tax, finance, accounting, budgeting, audit, insurance, advertising, marketing, human resources and regulatory compliance. In order for the employee to have discretion and independent judgment the employee must have authority to make independent choices, free from immediate direction or supervision on significant matters. They should be able to waive or deviate from company policy.
There are two categories of professionals: learned professionals and creative professionals. The primary job duty of a learned professional must be work requiring advanced knowledge, predominantly intellectual work, requiring consistent exercise of judgment and discretion. The advanced knowledge is usually acquired by specialized academic degree, e.g. medicine, engineering, sciences, accounting and law. The primary job duty of the creative professional must be inventive, imaginative, original or the exercise of talent. Actors, musicians, composers are some examples of creative professionals.
The Department of Labor estimates that 730,000 employees are improperly being treated as exempt because they do not meet this “standard duties test”. Regardless of the salary level, it remains important for employers to be careful in their use of this exemption.
If you have questions or concerns about this or other employment matters you should contact an attorney.