Congress has yet to act on proposed changes to the Wage and Hour Rules regarding Exempt Employee status. However, don't be surprised if the proposed changes are enacted into law. Why are the changes likely to take place? If the changes are enacted, then how will it affect you? Without looking at all the details, let's discuss the basic answers to these two questions.

There are two key indicators that point to the likelihood of changes taking place. The first is that the rules are simply outdated. The rules are more than 50 years old and obviously, the types of jobs and necessary skills have changed over time. The need to update was a major factor in the Wage and Hour Board's decision to propose changes. Parts of the rules have been updated, but even those are long overdue for change. The last update to salary levels was in 1975!

The other factor that may push the legislation through is that the rules are simply difficult to understand. Thus, the difficulty results in errors and misclassifications of employees. As the rules now exist, there are too many subjective decisions and thus, the door has swung open wide for litigation. Litigation over the "exempt" status of employees has been prevalent in recent years. Employers were asked to test duties of employees in such categories as deciding if the employee "exercised discretion and independent judgment." Effort was made to define terms and phrases in the new legislation. Public comments were accepted for 90 days following the March 31st publication. You can visit the U.S. Department of Labor's website at www.dol.gov for complete details.

So, we agree that the rules are old and difficult to interpret. Now you ask, how will the changes really affect each employer? No longer would there be a "long" test and a "short" test. There would simply be one test with a $425 per week salary amount coupled with the analysis of duties. Under the existing rules, it is possible to make only $155 per week and not be eligible for overtime. The $425 threshold would apply to basically all categories of employees. The Department of Labor estimates that the lowest 20 percent of salaried employees would automatically qualify for overtime if these rules go into effect. The employer must be aware of these rules because if taken to court years from now and found to have not paid overtime when appropriate, the financial consequences can be severe due to penalties and interest.

Not all the rule changes favor the employee. Employers are given more leeway in disciplinary actions with exempt employees. Employers would be able to suspend an exempt employee without pay for less than a full week. In other words, under the existing rules, unpaid suspensions had to be for one or more full weeks.

The proposals also add new rules for highly compensated employees. Remember that the test is two pronged - salary level and duties test. Thus, there were highly paid employees who were eligible for overtime because they did not meet all the duties of an exempt employee. The rules would now clarify that for employees paid more than $65,000 annually, they would be ineligible for overtime if they passed even one of the test of duties for exempt employees.

The new rules also limit the emphasis of academic instruction and place more emphasis on work experience. Thus, employees can have advanced knowledge in the modern workplace that is learned through training and work experience. There are also many more categories of professional exemptions reflecting the changing work force.

One of the problem areas for quick-service restaurants has been with the duties tests for administrative employees. One of the tests was "does not devote more than 20 percent (40 percent in retail or service establishments) of time to activities that are not directly and closely related to exempt work." This put quick-service restaurants in a bind, exempting managers who actually worked the counter, kitchen or delivery - anything that was not actually a management function - for 40 percent of their schedule. The proposed duties test for administrative employees would be: o Primary duty of performing office or non-manual work directly related to the management or general business operations of the employer or the employer's customers. o Holds a "position of responsibility" with the employer, defined as either (1) performing work of substantial importance or (2) performing work requiring a high level of skill or training.

Make sure you surround yourself with advisors who keep you informed on matters such as this proposed change. Unfortunately, ignorance of the law does not excuse you from penalties or litigation.

<< Back to Table of Contents