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Sponsored by Kaufman & Canoles
The Wage Hour Division of the U.S. Department of Labor recently raised the dollar-amount salary thresholds required for “white collar exemptions” to the overtime requirements of the federal Fair Labor Standards Act. The exemptions apply to administrative, professional, and executive personnel. The Kaufman & Canoles credit union team has been carefully following the changes.
What Does the new Rule do?
The rule is effective December 1, 2016, and implements two critical changes to the “white collar” exemptions from overtime.
First, the minimum weekly salary required to be paid to an employee to qualify for an exemption has been raised to $913 per week, which works out to $47,476 for a full year. Workers who are paid less than $913 per week are not eligible for exemptions from overtime, no matter what their duties are. To claim an administrative, professional or executive exemption, the worker must meet the duties test and the new weekly salary test.
Second, the minimum compensation required to qualify as a highly compensated employee has been increased to $132,004 annually. A highly-compensated employee is an exempt employee so long as the employee meets a shorter, more minimalist “duties test.”
Equally important to understand is what the new rule does not do. The rule does not change the “duties tests” – those duties that must be performed for an employee to be considered an exempt professional employee, or an exempt highly-compensated employee. The rule does not change what a salary means: weekly compensation generally not subject to reduction based on the quantity or quality of work. Moreover, the new rule relates only to the “professional exemptions” or “white-collar” exemptions. The rule does not change the way overtime exemptions are determined for other exempt employees.
Why Should Credit Unions Care?
Thousands of currently-exempt credit union employees will no longer be exempt from overtime requirements.
We believe that most of the “highly compensated employees” who need to meet only the minimal duties test – and for whom the minimum annual compensation has been raised from $100,000 to at least $134,004 per year – likely will remain exempt. These employees likely will be paid enough to meet the new salary number or, if not, will meet the full “duties test”.
However, we believe that there is a large contingent of employees who meet the full “duties test” for a white collar exemption but who are paid between the current salary requirement of $23,660 and the new salary requirement of $47,476. As of December 1, these employees no longer will be exempt from overtime.
What Should Credit Unions Do Now?
For those credit unions that need to address currently-exempt white collar employees making less than $47,476 per year, December 1 is close.
There are a variety of options to keep white collar exempt employees exempt under the new rule. For those administrative, executive, and professional employees who meet the full “duties” test and already make $48,000 or more (or whose salaries are quite close and can reasonably be given a raise to the new level), no action is needed. For the rest – the majority of employees affected by the new rule, the following alternatives should be considered:
- Treat the newly non-exempt employee as a salaried employee eligible for overtime;
- Convert the newly non-exempt employee to an hourly employee eligible for overtime – which also requires record-keeping adjustments and, in our experience, often generates resistance from former “white collar exempt” employees who perceive they are being demoted or devalued;
- Treat the newly non-exempt employee as a salaried employee subject to the “fluctuating work-week” rule, under which the employee makes at least their salary in weeks where they work less than 40 hours, and makes half-time for weeks in which they work more than 40 hours;
- Prohibit overtime work entirely for newly non-exempt employees – and enforce the rule.
The implementation of the new rule at the end of this year presents an excellent opportunity for credit unions to perform a FLSA self-audit, to ensure that the credit union’s designation of an employee as exempt under the white collar exemptions is fully-consistent with the duties tests established by the DOL’s Wage Hour Division.
John M. Bredehoft is a member of Kaufman & Canoles’ credit union team and labor and employment team. His practice emphasizes litigation and litigation-avoidance strategies and he regularly counsels credit unions on discrimination and harassment matters, executive contracts, trade secret and computer crime cases, and advice and litigation on covenants restricting post-employment competition. John can be reached at jmbredehoft@kaufcan.com or 757.624.3225.
The K&C credit union team serves as general counsel to credit unions, large and small, regularly advising clients on consumer compliance issues, NCUA requirements, and the rules governing credit union service organizations. For more information about our team visit www.kaufcan.com
