Ask the Experts: The DOL's Proposed Exemption Changes

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Ask the Experts: The DOL's Proposed Exemption Changes

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These questions and answers are excerpts from our webinar on 8/6/15, “The New Exemption Regulations.. Coming Soon to Your Workplace!” which was presented by Chuck McDonald and Steve Pockrass of Ogletree Deakins. You can watch the entire webinar these questions and answers came from HERE. Q: “Could non-discretionary compensation include employer contributions to retirement or employer contributions towards health insurance?” Steve: ”The DOL has said that in calculating the salary, it is not inclined to include any type of fringe benefits, such as retirement contributions, value of health insurance, all of those other things that add a lot of costs to what you pay to your employees, both exempt or non-exempt, but especially if you have a good fringe benefit package for your salaried, exempt employees, they are not planning to allow you to count any of that toward the minimum compensation level.” Q: “Would they continue to use the 40th percentile going forward? In other words, next year, the 40th percentile might be $60,000.” Steve: “That’s exactly the question they’re asking us to comment on; Should they use the 40th percentile going forward? Or should they [DOL] adjust it every year based upon the CPIU. If they set it at the 40th percentile now, how should the annual increases be measured, what methodology…. should they be annual increases? Or should they be increased at some other variation, and how much notice do you get for those increases? Q: “How does this affect Professional Employees, specifically in K-12 public educationand teaching contracts?” Chuck: “Assuming that people are classified as a professional, exempt teacher; these changes really wouldn’t impact them, because teachers, lawyers and physicians are exempt from the salary requirement under the FLSA, so this should not impact teachers.” Q: “Would employees have to not only meet the salary test as well as the duties test? We can't just raise the salary and call them exempt.” Steve: “That’s correct. No matter what happens with the new regulations, they’ll still have to meet the salary requirements and the duties requirements under the new regulations.” Q: “We currently pay our janitor a set salary & withhold taxes as opposed to contract labor. Can this be considered a non-exempt salaried individual?” Steve: “The answer to that, unless that janitor has some sort of administrative or managerial responsibilities, for example: is the head of a department and is truly performing exempt work. The fact that you’re simply paying him a salary does not make him exempt. He’s got to be meeting both the job duty and minimum salary requirements.  So if you’re paying a janitor a salary, and you’re covered by the Fair Labor Standards act, then you’re not meeting the proper requirements. If the janitor is working overtime, then you should be paying overtime on top of the salary to the janitor. That’s the requirement and because the janitor would be non-exempt, you need to keep appropriate records of the hours worked and the other requirements for a non-exempt employee. Q: “Is there anything on the horizon regarding other exemptions such as that for agriculture?” Chuck: “Not that we know right now, and with everything going on knowing that the minimum wage is going to be the next hot topic and an election year coming up,  I would be surprised to see anything in any other area of any other industry.” Q: “What are the chances these changes are going through? Chuck: “I think it’s clear they’re going through, they’re going to get passed.“ Q: What should we comment on?” [Regarding comments on the new regulations. Find out how to comment on the proposed regulations HERE] Chuck: “That depends on your industry and your particular business. I think you need to be realistic with your comments and send comment sthat have a chance to have an impact.  The things I would concentrate on are: Does there need to be an automatic increase every year, or should it be every 2 years or 3 years? If you’re going to use the 40th percentile, does it all have to go in one jump next summer, or should we taper it in over a 6 month or 12 month period? Another is the Primary Duties Test: I don’t think people understand how significant a 50% rule test, would be; it would basically wipe out any kind of Asst. Manager, it would wipe out a lot of people in that administrative exemption. If you have a 50% test, basically you have to exempt duties 50% of the time, and currently under the current primary duties test, it’s just that has to be your primary duty. I think indicating and writing comments that if the salaries going up as high as they’re proposing, the primary duties test should stay the same is definitely something that employers want to happen. The worst thing that could happen is to have the salary go up to 50,00, get doubled, and also have a percent, such as 50% or even 25% test in the primary duty,  is just going to make it that much harder and is probably going tosubstantially increase the amount of litigation we’d see. Q: "What about nurses, social workers & chaplains in a hospice?” Steve: “Nurses and social workers don’t fall under that special rule. There are special overtime rules with regard to nurses in certain facilities known as the ‘8 and 80 rules’. But in terms of whether a nurse or a social worker is going to fall within one of the executive, administrative, professional exemptions for overtime, they’re going to actually have to meet one of the 3 exemptions, meet the job duties test, and mee the minimum salary requirements in order to qualify for an exemption. Q: “Are elected/appointed officials covered?” Chuck:  “I didn’t see anything in the proposed regs that specifically addressed that, to my knowledge. Steve: “I did not either and I think that raises some serious concerns in terms of how this is going to impact public employers. Again, the job duties requirements will be the same for public employers, just as they are now they’ll be the same under the new regs, if there’s no changes in the job duties test. But then the whole minimum salary requirement could raise some serious problems and concerns for public employers. That’s certainly something employers could write comments on and raise concerns about.” Q: “So if you have a salaried sales rep who works as inside & outside sales that also receives commission it has not yet been determined how the commission will effect the base salary?” Chuck: “The answer to that’s going to depend. If they’re doing inside and outside sales work, that could be a close call, because the department of labor takes the position that inside sales work is never going to be exempt. If they’ve got administrative functions, but they also do some outside sales, there are opportunities depending on how you pay them, to have a an argument that they meet the outside sales exemption but if they don’t, a fallback argument is the admin exemption, however, the only way to make that argument today is if you pay them a guaranteed salary that meets the 455. And then you can pay them commissions on top of that and then you have a fallback argument on top of that administrative exemption. When the salary amount increases, and if it goes to $50,000, let’s say, if you don’t pay a guaranteed salary $50,000 plus commissions you will lose the opportunity to have the administrative exemption as a fallback argument, which means if they don’t meet the primary duties test as an outside sales employee, then that’s a non-exempt position.” Q: “50% of our employees are outside sales and meet the primary duties test for the exemption. If there is no change to the primary duty test, will we still have to pay them a minimum of $50k?” Chuck: “Outside Sales currently does not have a salary basis test and there is no indications in these regs that they’re going to change that. So if they’re truly performing outside sales, you can pay them straight commissions, draw commissions, however you want. But they’ve got to meet the outside sales primary duties test.” Q: “Inside sales are never exempt, in other words?” Steve: “As a general matter, that’s correct. There are all sorts of special rules in certain industries that may result in overtime exemptions where you didn’t necessarily know about one.” Q: “I work with Automotive industry (Sales and Service) in florida i understand commission employees are exempt from overtime; will this still be the case? So this rulling would apply to our office staff?” Steve: “That would be a separate rule that would apply. So in the issue of inside sales, the one area where we sometimes see an exemption that sometimes is inside sales in retail establishments. There’s a special rule for people who are commissioned salespeople in a retail establishment where they receive more than half of their income comes from commissions and their rate of pay is always more than 1 and a 1/2 times the minimum wage, when they work over 40 hours. So there are some special rules out there for certain industries that I think it is important to look at before we say that something is absolutely one way or absolutely the other.” You can watch the entire webinar these questions and answers came from HERE. You can also find out more about our Wages and Hours Guide HERE. It focuses in depth on what to pay and how to classify different types of employees.