Given the recent Department of Labor announcement of the new minimum required salary, we thought it would be a good idea to review how an employee may be considered salaried or “exempt” from overtime compensation.
Minimum Salary
Effective December 1, the minimum salary anyone can be paid is $913 per week or $47,476 per year. As you can expect, this will cause some employers to take a serious look at their salaried individuals on the lower pay scale.
The simplest solution is to move these people to hourly (overtime eligible) status to keep them at the same pay rate. This follows the intent of the ruling, as the government believes that employers are classifying people improperly or making them supervisors to avoid overtime costs.
What Categories of Employees are Exempt from Overtime?
The Department of Labor has several fact sheets on what exempts an employee from overtime. Here are summaries of the relevant sections from the DOL.
Executive Exemption
The employee’s primary duty must be managing the enterprise or managing a customarily recognized department or subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalents. The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations for the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.
Outside Sales Exemption
The employee’s primary duty must be making sales or obtaining orders or contracts for services or using facilities for which the client or customer will pay a consideration. The employee must be customarily and regularly engaged away from the employer’s place or places of business. It is important to note that inside sales cannot be considered exempt.
Professional Exemption
The employee’s primary duty must be performing work requiring advanced knowledge, defined as work predominantly intellectual in character and requiring the regular exercise of discretion and judgment. The advanced knowledge must be in a field of science or learning, and a prolonged course of specialized intellectual instruction must customarily acquire the advanced knowledge. This is the category for doctors, lawyers, and other professionals.
Computer Exemption
The employee must be a computer systems analyst, programmer, software engineer, or another similarly skilled worker in the computer field performing the duties described below. The employee’s primary responsibility must consist of the following:
1) the application of systems analysis techniques and procedures. This includes consulting with users to determine hardware, software, or system functional specifications;
2) the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs. This includes prototypes, based on and related to user or system design specifications;
3) the design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or
4) a combination of the aforementioned duties, which requires the same level of skills.
It is important to note that this does not apply to all Information Technology employees. Basic Help Desk-type employees or Network Administrators would not be exempt from overtime.
Administrative Exemption
The employee’s primary duty must be performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty includes the exercise of discretion and independent judgment concerning matters of significance.
This is the most confusing and possibly the most misinterpreted exemption. Employers will typically argue that most employees exercise discretion on matters of significance. This is where you have to look hard at senior employees who do not supervise people. This is especially true in back office staff positions.
Next Steps
Before December 1, employers should review their job classifications and make the appropriate changes. This includes the corresponding job descriptions. We perform these reviews for our customers. If you would like assistance, contact us.
