Three questions were asked and discussed that may change who can qualify as an exempt employee.
Thomas Perez, the Secretary of the U.S. Department of Labor (DOL), conducted “listening sessions” with business groups and trade associations last year. The point of these sessions was to figure out how to tighten the rules for qualifying exempt (salaried) employees:
- What is the appropriate minimum salary level for an exempt employee? — The DOL is considering a minimum exempt salary of $50,000, with inflation index adjustments annually. However, this number is getting pushback because that’s quite high in certain parts of the country. Keep in mind that a minimum salary amount doesn’t look at the number of hours worked… it’s the minimum you must pay an exempt employee. In California, this number is currently $37,440/year ($3,120/month) and next January (2016) the minimum moves up to $41,600/year ($3,467/month).
What needs to be changed to ensure store managers and assistant managers who spend most of their time performing non-exempt level work, such as running a cash register and stocking shelves, cannot qualify for the executive exemption? — The suggestion is that qualifying for the executive exemption means the employee must be spending at least 50% of the time just supervising others and not performing non-exempt work at the same time. This type of exempt employee must also manage at least 2 full-time (40 hours/week) direct reports at all times. However, if the total hours of the direct reports drop below 80 hours in any week, the exemption is lost and the manager would then be non-exempt (hourly). Retail and restaurant participants of these sessions complained about the 50% rule and Perez has asked them for an acceptable alternative.
- How can the duties test be simplified for the administrative exemption? — The DOL is working on an objective example of the phrase “uses discretion and independent judgment.” Anyone who has tried to figure out what that means when qualifying a position as exempt understands how subjective it’s been to date. One example provided by the DOL thus far was for financial services: an exempt position using discretion and independent judgment analyzes income, assets, and other information on customers and then determines the appropriate financial products for that customer.
The DOL is also reviewing other areas of the exemptions, such as new examples of computer professionals who are NOT exempt employees. The feds are also considering using California’s standard for exempt outside sales, which means the employee must sell away from the employer’s place of business more than 50% of the time. (As a reminder, inside sales is non-exempt.)
While the plan was to implement changes in 2015, historically the DOL doesn’t move that fast. I’d expect any changes to show up next year or, at the earliest, late this year.
How confident are you with the classification of your exempt employees?
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