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Legal Issues
Apr 1, 2016

Changes To The Administrative Exemption From Overtime Are Coming This Summer

Sponsored Content provided by Geoffrey Losee - Partner, Rountree Losee LLP

I am excited to bring this issue to the attention of the readers of Insights. In particular, because this article represents the hard work and insight (pun intended) of the newest attorney to join Rountree Losee LLP: Anna Richardson Smith. She is joining us in an “of counsel” status, and is a recent transplant from Norfolk, Virginia, where she concentrated her practice as an employment law litigator and risk management counsellor. Richardson Smith is a member of the Virginia Bar; while her North Carolina license is pending, she is practicing with Rountree Losee pursuant to North Carolina Rule of Professional Conduct 5.5(c)(2)(F).

Now on to an important question … Do you have employees who are exempt from the overtime and minimum wage standards of the Fair Labor Standards Act (FLSA) because of their administrative duties? If so, this summer will bring to them the most significant change in federal pay law in more than a decade. 
 
The Department of Labor announced in February that it will publish its final rule on a new minimum salary for administratively exempt employees this July. This rule will raise the minimum salary for this exemption substantially and result in many employees losing their eligibility for the exemption. 
 
What is the Administrative Exemption?
 
The FLSA assures most employees a minimum wage and overtime pay. A minority of employees are exempt only if they receive a threshold salary and have qualifying "white-collar" duties. The administrative white-collar exemption requires that an employee perform non-manual duties relating to the management or business operations of the employer or its customers, and be paid at least $455 a week. The upcoming rule change will almost double this pay threshold to $970 a week.
 
How to Prepare for the Rule Change
 
After the rule is published, employers will have 60 days to comply. Employers should begin developing a compliance plan that is best suited to their workplace. One option is simply to increase administrative employee salaries to the new threshold.
 
Another option is to consider whether an employee qualifies as exempt under a different white-collar duties test. As one example, supervisory employees who manage two full-time employees may qualify for the executive exemption.  
 
Employees who will move to non-exempt status should be trained on timekeeping and overtime policies, as well as any differences in benefit programs associated with their new status. Perhaps most importantly, employers should be mindful that not all exempt employees will be excited to move to non-exempt status. Many exempt employees value their flexible schedules and may feel they are being demoted. Employers may help by emphasizing the employee's value and potential to earn more through overtime.
 
The Silver Lining
 
The Department of Labor has worked for years to effect this upcoming salary change. It plans to audit employer compliance aggressively. While compliance may create new costs, the change in the law also creates a natural opportunity to self-audit pay practices and achieve larger personnel goals. Now is a perfect time to analyze workloads and implement strategies to reduce overtime liability, such as changing job descriptions and work schedules. 
 
More fundamentally, the change in the law is a reminder to review pay practices and change them as necessary. The Department of Labor finds that many employers are very confident about their exempt classifications, as well as their overtime calculations, but their habits are frequently incorrect. The upcoming rule change is a timely moment to roll out other pay-practice revisions and stay ahead of a government audit.
 
Geoff Losee can be reached by visiting www.rountreelosee.com, by email at [email protected] or by calling (910) 763-3404. Rountree Losee LLP has provided a full range of legal services to individuals, families and businesses in North Carolina for over 110 years. As well-recognized leaders in each of the areas in which they practice, the attorneys of Rountree Losee provide clients a wealth of knowledge and experience. In their commitment to provide the highest quality legal service, they handle a wide range of legal issues with creativity, sensitivity and foresight. 
 

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