The Department of Labor (DOL) has had a busy summer. On June 30, the DOL issued proposed rules that would increase the minimum guaranteed weekly salary of those individuals classified as “exempt” under the Fair Labor Standard Act’s (FLSA) “white collar” exemptions. Following this, the DOL issued an Administrative Interpretation Letter on July 15 which more clearly defines their interpretation of an employee versus independent contractor.
Increase in Salary – Currently, one of the criteria that an individual has to meet in order to pass one of the FLSA’s “white collar” tests for exemption is that they have to be paid a guaranteed minimum salary of $455 per week ($23,660 per year). The recently proposed rule more than doubles that to an anticipated $970 ($50,440 per year) in 2016.
The proposed regulations would also increase the annual compensation rate required to maintain the “highly compensated employee” exemption to approximately $123,000.
The proposed rules also call for adjusting these rates annually to ensure the rate does not become outdated because of inflation. The DOL is seeking comments on the methodology they should use to make these annual adjustments.
Primary Duty Test – Although the DOL is not currently anticipating changing the duties requirement for each of the white collar exemptions, they are soliciting feedback and are considering requiring that the person spend more than 50% of his time actually performing exempt work. Many employers have individuals who are considered “working supervisors”. Generally, these individuals meet the criteria for exemption because of duties performed, but they are also assigned non-exempt tasks to perform such as filling in to run a cash register when a store is busy, working on the line to cook chicken in a fast food restaurant or operating a piece of machinery in order for a production schedule to remain on time.
Employers are encouraged to submit comments to the DOL regarding these proposed changes by September 4, 2015.
Employers preparation for the new rules – Although final rules are not expected to be issued until early 2016, companies need to begin the process of evaluating how this will affect them and what needs to be done to comply with the new rules when they are issued.
For many employers, it will mean changing the status of their employees from exempt to non-exempt. This can create morale problems because now these individuals will be required to “punch a clock” in order to record time worked and there is a feeling of esteem and achievement that will be lost because of that.
This will create a problem if those supervisors routinely check emails and voice mails at night via their smartphones and tablets. If the employee’s status becomes non-exempt, the employee will have to track the time spent responding to emails and phone calls after hours and the company will be required to pay for that time.
Depending upon how many hours these employees regularly work, the company must decide whether to increase their pay to meet the new minimum guaranteed salary or pay them overtime. If a lot of overtime is worked by these individuals, the company may also have to evaluate whether it is more cost effective to allow the current employees to work overtime or hire another person to pick up some of the required tasks.
Independent Contractors – The Department of Labor and Internal Revenue Service (IRS) have been focusing for the past several years on the misclassification of individuals as independent contractors rather than employees. The IRS has had a very comprehensive guideline in place for many years to help employers determine whether or not an individual who is working for them is an employee or independent contractor. However, for the first time, the DOL has issued very specific guidelines in their Administrator’s Interpretation No. 2015-1 which may be downloaded from: http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.pdf.
This 15-page document outlines a comprehensive set of factors that will be used to determine if the individual is truly an independent business or an employee. Because this is now the standard that will be used by the DOL to evaluate the employment relationship, it is recommended that employers evaluate their independent contractors in light of this guidance to determine that these individuals still meet the criteria to be considered independent contractors by the Department of Labor.
Contributed by Christine Crews, SPHR, SHRM-SCP is Vice President of Human Resource Services for the Employers Association Forum, Inc. (EAF). EAF is a non-profit corporate membership-based association dedicated to serving the business and HR communities with world-class HR tools, hotlines & legal compliance, news & trends, surveys & economic data, benefits & insurance, risk management, training & consulting, and leadership & organizational development. HCCMO members receive discounted rates on all EAF classroom training at EAF’s training center in Longwood. Click here to learn more about EAF membership benefits http://eafinc.org/about-eaf/value-of-membership/.