I own a small manufacturing company. Our facility is divided into several departments and I employ “Department Managers” to oversee production in those departments. These managers also supervise several employees each. The manager’s work hours vary from week to week; some weeks they will work less than 40 hours while other weeks they may work in excess of 50 hours. Because their hours vary so much, I find it easier to simply pay the managers a fixed salary each week. They currently earn $45,000 a year. I also like paying them a fixed salary because I don’t have to worry about paying them overtime. My human resources manager recently went to a seminar on wage and hour law. When she got back to the office, she told me something about a new rule that would change the way that I am paying my managers (she didn’t take very good notes and that’s all that she could remember). Has there been some change to the law that I am missing?
Change is Not Good
Yes, indeed, the times are changing when it comes to exemptions from the overtime laws. Before we get to that, a brief refresher on the rules for the exemptions for paying overtime might be helpful.
The Law: The Fair Labor Standards Act (FLSA) contains many exemptions from the obligation to pay overtime. The most well-known and commonly used are the so-called “white collar” exemptions for executive, administrative and professional employees. Generally, in order to qualify for a white collar exemption, an employee must: 1) perform duties which fit the FLSA’s test for the exemption (the “duties test”); and 2) be paid at least $455 per week on a salary basis (the “salary basis test”). An employee’s duties are a critical factor in determining exempt status – – merely paying an employee a salary and giving the employee an exempt-sounding job title are not enough to justify application of an exemption. In terms of the salary basis test, this test is met if an employee is paid a pre-determined amount per week which is not subject to reduction regardless of the quality or quantity of the work. Further, the employee must receive her full salary for any week that she performs work without regard to the number of hours worked.
Thus, in order for your managers to be exempt from overtime they must first meet the FLSA’s definition of a “manager” (i.e., the duties test). Your managers likely meet this test because they oversee distinct departments of your business and direct two or more employees. The problem that you likely will face is with the salary basis test.
The Law: Sometime this year (nobody knows exactly when) the Department of Labor (DOL) is going to implement a rule that changes the minimum threshold for the salary basis test. Currently, that minimum threshold is $455 per week or $23,660 per year. The DOL’s rule likely will raise the minimum threshold to $50,440 per year.
As you can see, when this rule goes into effect your managers, who are being paid $45,000 per year, will not meet the new $50,440 per year minimum. Stated simply, your managers will not meet the salary basis test. Stated even more simply, they will not be exempt from the payment of overtime. If misery truly does love company, appreciate that you will not be alone: the new DOL rule is estimated to make approximately five million additional employees eligible for overtime. This obviously is a big change.
I know that you hate change, but this one is coming soon. You might as well get ready for it.
The “Dear Atty.” column is aimed at answering employers’ legal questions that surround issues in human resources. Attorney Pete Albrecht of Albrecht Backer Labor & Employment Law, S.C. welcomes you to submit questions here for future editions of “Dear Atty.”
If you would like additional information about this topic, please contact Pete Albrecht. He is the president and a shareholder at Albrecht Backer Labor and Employment Law. Pete has represented employers for over 28 years and his law office is located in Madison, Wisconsin.