New Overtime Rule Boosts Highly Paid Employee Level Over $100K

White-collar exemptions not only ones available; but be sure to use them correctly

Allen Smith, J.D. By Allen Smith, J.D. May 18, 2016

[Editor's note: A federal district court has granted a preliminary injunction blocking the overtime rule from taking effect Dec. 1.]

Much has been made of the overtime rule’s increase in the exempt salary threshold for lower-level managerial and administrative positions. Under the old rule, employees who made less than $23,660 were eligible for overtime pay. The new rule, effective Dec. 1, 2016, increase raises the salary threshold to $47,476. (Many observers predicted the threshold would be set at $47,000; $50,440 was the figure given in the proposed rule.) 

The highly compensated employee exemption salary threshold, which was now $100,000, will now rise to $134,000 (not $122,148, as was in the proposal). The highly compensated employee exemption will be pegged at the annualized value of the 90th percentile of weekly earnings of full-time salaried workers, according to the rule. (See SHRM Online's FLSA Overtime Rule Resource Page.)

FLSA Overtime Rule Compliance

For more overtime compliance news, tips and tools, check out the SHRM resources provided below:

· FLSA Overtime Rule Resources Guide
· Compliance Checklist · Infographic
Steven Pockrass, an attorney with Ogletree Deakins in Indianapolis, spoke about the rule at the firm’s Workplace Strategies Conference in Chicago.

Pockrass discussed the highly compensated employee exemption as one example of how the white-collar exemptions aren’t the only kids on the block. While they are the most commonly used, employers sometimes forget about other Fair Labor Standards Act exemptions because the white-collar exemptions are so prevalent. In addition to highlighting overlooked exemptions, Pockrass pointed out some frequent errors employers make with the white-collar exemptions.

Other Exemptions

In addition to the highly compensated employee exemption, another frequently overlooked exemption is the computer exemption. This exemption is available for computer systems analysts, computer programmers, software engineers and other similarly skilled workers who are paid at least $455 per week on a salary basis or $27.63 an hour, Pockrass noted. It isn’t an exemption that can be applied to help desk staff, he explained. Instead, it’s an exemption for employees who develop computer systems or who troubleshoot computer issues at a higher level.

The outside sales exemption is another exemption, though it is sometimes overused, according to Pockrass. To qualify for this exemption, the employee has to regularly engage in sales outside of the workplace. A lot of employers erroneously think that if a sales employee works on commission, the worker automatically fits this exemption, he noted.

White-Collar Exemption Errors: Administrative Exemption Is Tricky

For the white-collar exemptions, the executive and professional exemptions are both relatively straightforward. In addition to satisfying the salary threshold, the executive needs to supervise at least two full-time workers and have the authority to hire and fire. The executive needs to primarily manage a department or subdivision.

The professional must meet the salary threshold as well and perform work requiring advanced knowledge in a field of science or learning, and often has an advanced degree. The advanced degree should be used in the position for the job to fit the professional exemption, Pockrass cautioned.

The administrative exemption is trickier, however. Sometimes, someone covered by the executive exemption also fits within the administrative exemption. In addition to meeting the salary threshold, an exempt administrative employee’s primary duty must be the performance of office or nonmanual work related to the management or general business operations of the employer and should include the exercise of discretion and independent judgment on matters of significance.

Beware of micromanaging employees who are classified in the administrative exemption. Micromanagement can lead to employers running “the risk of destroying the exemption,” Pockrass said.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.



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