Employee – Exempt or Non-Exempt?

Preface

As Will Rogers stated, “Be thankful we’re not getting all the government we’re paying for.” Unfortunately, we seem to be getting more and more as the present administration winds down. The Department of Labor, Wage and Hour Division (DOL) is now proposing new rules as to who are “white collar” exempt employees not subject to timekeeping and overtime rules.

Presently, there is a three prong test to determine who may be classified as an exempt employee not generally subject to wage and hour rules. The first is the “duties test,” where the employee is paid a fixed salary based on job duties and that salary is not subject to reduction because of variations in the quality or quantity of work performed. The second prong is the amount of salary paid, which must meet a certain minimum specified amount. And the third prong is, does the employee’s job duties primarily involve executive, administrative, or professional decisions? The Fed’s are proposing to change the second prong or the “floor” on the salary requirement.

The Proposed New Rules

The proposed new rules are pretty straightforward. In order to be classified as an exempt employee, your full-time employee must make at least $921.00 per week or $47,892.00 annually. If the employee is part-time, the same criteria applies, but is just broken down by a daily rate. For example, $921.00 divided by 5 equals $184.20 per day. The employee, be he/she full-time or part-time, must also meet the other two prongs of the test. The present threshold is $455.00 per week or $23,660.00 per year. The increase is almost 100%—quite a jump. The rules have also changed for “highly compensated exempt employees,” but that subject is not discussed in this bulletin as it is doubtful that my readers would have many employees in that rarefied atmosphere.

Method In The Department’s Madness

In my opinion, as a matter of misguided social engineering, DOL wants heretofore salaried exempt employees reclassified as non-exempt employees to be subject to all of the wage and hour statutes, including, but not necessarily limited to, all timekeeping requirements, overtime payments, and breaks and meal period rules. As an employer, your choice will now be to either raise the employee’s “floor” salary or change his/her employment status. The administration’s hope is that these employees will ultimately see pay and benefit increases, whichever classification is used. The idea that you or your employees may be fully satisfied with the present arrangement is of no concern to the “command and control” philosophy of many of our politicians or bureaucrats. Good luck with that.

Prepare Now – Proposed Rules – The New Normal

Somehow, in the ever expanding morass of government regulations, proposed rules are always the final rules with, perhaps, some minor tweaks. You must evaluate all of your presently exempt employees and make a determination if they will meet the new salary “floor” or should they be reclassified as non-exempt. In some cases, raising their salary may be an option. In others, “time carding” them may be preferable. In other cases, elimination of the position may make even more economic sense. Amazingly, our betters rarely consider the last option as a consequence of their actions. Unintended consequences are often the result of their altruistic efforts to better our lives.

The Misclassification Trap

Misclassification of employees is now, and has been, a major employment litigation issue. If an employee or group of employees has been found wrongfully classified as exempt, the “aggrieved” employees could bring either class or individual civil actions claiming Labor Code violations because they should have been non-exempt hourly employees. The resulting violations “stack” and will result in multiple damages awarded, including costs and attorney’s fees—big money not usually insured.

If the employer is found to have misclassified non-exempt employees, it would be liable for the following Labor Code Violations:

• Failure to Pay All Wages (Labor Code §§ 201-203)
• Failure to Keep Accurate Payroll Records (Labor Code §§ 226 and 1174)
• Unfair Competition (Business & Professions § 17200 et seq.)
• Violation of Private Attorney General Act (Labor Code §§ 2698-2699)

The employer could also be liable for violations of the Fair Employment Housing Act (“FEHA”) (Govt. Code § 12900 et seq.), and tort claims for discrimination and/or wrongful termination. Such tort claims raise the specter of punitive damages, which will ruin any employer’s day.

Because of multiple penalties, possible FEHA, tort, and class or representative actions, it behooves all employers to fully understand these new proposed “white collar” employment rules and prepare to take prophylactic action to insure compliance when, not if, they are finalized. We will try and notify you when that occurs.

Remember, your income depends on running a profitable business and those profits depend, in part, on following the requirements of all federal and state Labor Code mandates. Being an employer in California is not for the faint of heart. Be always aware of and understand your legal duties. At least the weather is great.

This article should not be construed as legal advice and is for informational purposes only.

Copyright 2016