August 23, 2016 – Colleen Niese - Insights

Is Your Organization Ready For The New Exemption Rule?

Unless you’ve been fortunate enough to take a year long hiatus from the corporate world, you’re likely aware of the upcoming FLSA (Fair Labor Standards Act) changes that affect Exempt vs. Non Exempt classifications going live this coming December 1st.

Essentially this past May, the DOL (Department of Labor), the organization responsible for FLSA announced the Final Rule regarding changes to identifying employees as being either exempt (i.e., not eligible for overtime) or non exempt (eligible for overtime).

Okay!  Now stay with me, because these changes could very well affect how a company is currently paying particular employee levels.  The bottom line is the DOL has changed the first of three “tests” employers are to use to properly categorize job titles, specifically the Salary Test.  Currently, if an employee is paid less than $23,600 a year, he/she is likely non exempt.  That base salary will increase to $47,476. So!  If you have employees making less than the $47k and change the remaining two “tests” (salary basis and job duties) become quite important to complete.  If you think that’s complicated, it becomes a bit murkier, given the duties test has multiple categories, however the most common used in the corporate environment are: executive, professional and administrative.

What to do if you potentially have employees who are mis-categorized?  We’ve been recommending to our clients that if they haven’t already done so, to seek outside counsel to conduct an evaluation for those job titles that may be affected.  For nominal spend, the attorney will provide a report that shows the results of completing the above described tests, the potential impact and as importantly, what a company can do now to remediate.

This type of confidential audit will also help avoid some of the common pitfalls we’ve already seen (and have strongly encouraged a change in direction when we do come across):

  • Give everyone a raise. Or change everyone to non exempt and take away their overtime.  While it may be the simple route, it may not be the accurate one.  Giving everyone a raise can become expensive and unintentionally cause pay equity issues.  Taking away overtime can hurt operations and negatively impact productivity and morale.  Alongside this, the company may still not be in compliance.
  • Relying solely on job descriptions and job titles. It’s not uncommon for employers to hand out job titles as a form of promotion, however the employee’s job doesn’t change.  According to the DOL, actual duties and tasks completed are much more important factors to consider when making the status determination.
  • Setting the exempt/non exempt status based on a current employee’s performance, which literally has nothing to do with the FLSA Final Rule.

Here’s the fact sheet the DOL posted when the Final Rule was announced:

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