One of the most common questions we get as employment attorneys is: “Is an employee in [insert job title] exempt or do I have to pay overtime?” Alternatively, sometimes we get asked, “If I pay an employee a salary, doesn’t that make that employee exempt?”
As you have may have experienced firsthand, our initial (and understandably frustrating) answer is often: “It depends.”
See, under the Fair Labor Standards Act (FLSA), all employees are entitled to overtime for hours worked over 40 in a workweek unless they fall within a specific exemption under the FLSA. Courts and the U.S. Department of Labor (DOL) are quick to point out that an employee’s job title alone is insufficient to justify an exemption. Instead, the employer must consider the employee’s specific job duties and responsibilities AND also the way in which he/she is paid to determine if he or she is truly exempt. In other words, to be exempt, an employee must perform certain exempt duties AND typically must be paid on a “salary basis,” which means that he/she must be paid a minimum salary that is not subject to reduction based on the quality or quantity of work performed (except in certain permitted instances).
Analyzing the specific duties of employees can lead to confusion and disagreements, even between courts. For example, the U.S. Court of Appeals for the Ninth Circuit (the federal appellate court over several Western states, including California) recently held that service advisors are not exempt under the FLSA’s exemption for automobile dealership “salesman, partsman, and mechanics.” This decision directly contradicts previous decisions by U.S. Courts of Appeals for the Fourth and Fifth Circuits, both of which came to the opposite conclusion, holding that service advisors are essentially “salesmen” for purposes of the automobile dealership exemption. The U.S. Courts of Appeals for the Second Circuit, which includes New York State, has not yet considered the issue, which leaves New York automobile dealers in a precarious position.
Additionally, at the direction of President Obama, the U.S. Department of Labor (DOL) recently proposed new regulations that would, among other things, more than double the minimum salary that an employer must pay to most of its exempt “white collar” employees. Currently, exempt executive, administrative, and professional employees must be paid a minimum weekly salary of at least $455 per week (NOTE: under NY law, the minimum salary is $656.25 per week for administrative and executive employees employed in New York State). Under the proposed regulations, this minimum weekly salary will be increased in 2016 to $970 per week ($50,440 annually) ‒ the 40th percentile of earnings for all full-time salaried workers throughout the United States. In addition, the DOL proposed adjusting this minimum salary requirement every year in order to keep pace with the 40th percentile threshold. According to the DOL, this proposed change to the Federal FLSA regulations will make approximately 21.4 million employees who are currently treated as exempt eligible for overtime pay in 2016 (unless employers raise their salaries to the new minimum). How many of those employees will be yours?
Given the already complicated exemption requirements, the prospect of these new regulations (a 60-day comment period will be winding up soon), and the fact that misclassifying employees can result in significant damages, we strongly recommend that employers take the time to reexamine the status of their exempt employees and prepare for the upcoming changes.