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The "White Collar" Exemption - Preparing for the Final Rule

Recent revisions by the Department of Labor (DOL) have left employers in a spin. Previously under the Fair Labor Standards Act (FLSA), salaried employees earning $455 per week with, generally speaking, administrative or executive positions qualified as exempt from wage and overtime protection, meaning that employers were not required to pay those employees overtime. In order to modernize this "white collar" exemption, at President Obama's urging, the DOL evaluated national wage rates and, utilizing figures from the nation's poorest region, the South, increased the minimum salary to qualify for the exemption to $913 per week, or $47,476, annually. Designed to go into effect on December 1, 2016, the Overtime Final Rule immediately prompted employers to evaluate the effect this salary increase had on their employees.

In late November 2016, a federal district judge in Texas granted a nationwide emergency preliminary injunction prohibiting the DOL from enforcing the Overtime Final Rule. The Department of Justice on behalf of the DOL has in turn appealed the injunction to the Fifth Circuit Court of Appeals, which is where the case currently sits. Despite the expedited appeal schedule, the DOL had requested extensions in large part to give "incoming leadership" time to weigh in following confirmation of President Trump's nominee Alexander Acosta as the incoming Secretary of Labor, who was sworn in on April 28, 2017. As for now, the Fifth Circuit may not hear oral argument until some point during Summer, 2017.

What does this mean for employers? Thankfully extra time to determine whether they are meeting the overtime requirements or if wage adjustments should be made. In order for the updated "white collar exemption" to apply, three requirements must be met: First, the employee must be paid by salary that is not affected by how much or how well the employee performs, as opposed to on an hourly basis, i.e. the "Salary Basis Test". Second, the employee's salary must meet the modernized minimum salary level of $913 per week, or $47,476 annually, i.e. the "Salary Level Test". Third, the employee's primary job duty must be considered executive, administrative or professional, i.e. the "Standard Duties Test". While the first two requirements are most often readily discernable, the third can be tricky, especially when it comes to situations where the managerial employee also has concurrent, non-executive duties, or whether the employee's job function qualifies as one that exercises discretion and independent judgment. It is important for the employer (and employee) to remember that the position title plays no part in determining whether the "white collar" exemption applies.

Some factors to look at when considering whether the employee meets the "Standard Duties Test" include the amount of time the employee performs exempt work, or how the employee's salary compares to the wages earned by other employees for the same kind of non-exempt work, among other things. As for the employee's primary duty, it must include exercising discretion and independent judgment regarding significant matters. Does the employee have the authority to formulate or implement management policies or operating practices? What sort of authority does the employee have to bind the employer in matters having significant financial impact? Does the employee investigate and resolve significant matters? These or a number of other factors could be determinative of whether the employee's position is one that involves discretion and independent judgment of a quality that qualifies for the "white collar" exemption.

For now, employers and employees alike wait to see whether the preliminary injunction will be upheld. In the meantime, employers should continue to evaluate their positions to ensure timely compliance with the amended regulation, and to avoid fines and penalties.

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