2004, 176 pages, Paperback
SHRMStore Item #: 61.12001
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What Every Employer Needs to Know
The new regulations are effective August 23, 2004, and the Administrator of the DOL's Wage and Hour Division has stated that it will enforce these regulations vigorously after that effective date. As explained below, the final regulations clarify and update the exemptions, but likely will not result in a greater number of employees being eligible for exemption. While employers likely will find it slightly easier to classify an employee as exempt in some areas, employers now face additional hurdles in other areas, tending to make classifying employees as exempt more difficult than under the previous regulations.
Action Item: Examine Your Workforce to Ensure Compliance
In large part, the new white-collar regulations intend to codify existing case law involving many of the specific exemptions. As a result, employers must pay particular attention to compliance with the new regulations specific requirements for exempt status. DOL officials have stated repeatedly that they view the new rules as a "catalyst for compliance." This is a signal to employers to examine their workforces and classifications to ensure that they are in compliance with the regulations.
Minimum Salary Level
The minimum salary an employee can be paid to be eligible for exemption is $455 per week, or $23,660 per year (with the exception of outside sales employees, for whom there is no minimum salary level). If an employee makes less than $455 per week, he or she generally cannot be exempt even if he or she meets the duties test. If the employee makes $455 per week or more, the employee can be exempt, but only if he or she also satisfies the duties and salary basis tests.
Under the old regulations, there are two salary levels: (a) for those who make more than $250 per week (or $13,000 per year), a "short" test; and (b) for those making between $155 and $250 per week, a more stringent "long" test. These $155/$250 levels have not been changed since 1975, despite inflationary and market pressures increasing salaries. Because so few exempt employees make less than $13,000 per year, the long test has not been used in quite some time.
In its new regulations, the DOL abolished the long and short tests in favor of a standard test, and further raised the minimum salary to $455 per week. The DOL estimates that 1.3 million workers -- in retail or fast-food sectors and often in rural areas or the South -- will need to be converted from exempt to non-exempt status because of this increase in the minimum salary level.
Action Item: Review Salary Levels of All Exempt Employees
Employers should review the salary levels of all exempt employees, and either reclassify as non-exempt or raise the salaries of any that fall below the new regulatory minimum. If an employer raises salaries to preserve the use of the exemption, it also should review those positions under the duties and salary basis tests to ensure that they qualify for exemption on all three counts.
As noted above, paying an employee at least $455 per week does not, in and of itself, render the employee exempt. The employee also must be paid a salary basis and perform the duties of a bona fide exempt executive, administrative, professional, or outside sales employee.
The DOL's final rule on executive employees makes it more difficult for employers to classify employees as exempt executives. The DOL now requires that to qualify as an exempt executive, the employee must have authority to hire or fire employees, or make recommendations as to employee status changes which are given "particular weight."
Under the old short test, to be an exempt executive, the employee must:
- have as his or her primary duty the management of the enterprise or a recognized department or subdivision of the enterprise; AND
- customarily and regularly direct the work of two or more other full-time employees or their equivalent.
While disciplinary authority, especially the ability to fire or demote an employee, always has been considered a hallmark of exempt status by DOL investigators, such authority was not technically required by courts under that existing short test. Under the new test, however, the DOL has added the requirement that an exempt executive must "have the authority to hire or fire other employees, or the employee's suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change in status of other employees must be given particular weight."
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