Outside Sales . . . and that’s the end!

The last exemption we are going to discuss is for Outside Sales Employees. And this one is going to be short too. An Outside Salesperson is an employee whose primary duty is:

(a) The term ‘employee employed in the capacity of outside salesman’ in section 13(a)(1) of the Act shall mean any employee:

(1) Whose primary duty is:

(i) making sales within the meaning of section 3(k) of the Act, or

(ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and

(2) Who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.

(b) The term ‘primary duty’ is defined at §541.700. In determining the primary duty of an outside sales employee, work performed incidental to and in conjunction with the employee’s own outside sales or solicitations, including incidental deliveries and collections, shall be regarded as exempt outside sales work. Other work that furthers the employee’s sales efforts also shall be regarded as exempt work including, for example, writing sales reports, updating or revising the employee’s sales or display catalogue, planning itineraries and attending sales conferences.

29 CFR §541.500.

So, what does an outside salesperson do to get the exemption? Well to start with they have to “make sales or obtain orders.”

Sales within the meaning of section 3(k) of the Act include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property. Section 3(k) of the Act states that ‘sale’ or ‘sell’ includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.

29 CFR §541.50.

But not just tangible property:

. . . ‘services’ extends the outside sales exemption to employees who sell or take orders for a service, which may be performed for the customer by someone other than the person taking the order. Id.

Wow, outside sales people have to make sales. That’s a shock. Usually no problem there. But where people get caught up and make mistakes is with the word “outside.” Outside means that the sales person is making sales at “the customer’s place of business.”

Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Thus, any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not in any formal sense the owner or tenant of the property.

29 CFR §541.502.

So if you have a salesperson who works from a home office and does not call on customers to make sales or solicit orders, that employee is not an Outside Salesperson.

Well, that’s it. No more FLSA . . . at least until the new regulations are published.  Can you see me dropping the  mic and walking off?

Computer Professionals – Calculating the Exemption

This one is going to be short and sweet. Well, maybe not sweet, but certainly short. First, some computer employees, like Software Engineers, for example, may qualify for the Professional Exemption. To put some definition around when they do, the Regs give us this general rule:

(b) The section 13(a)(1) exemption applies to any computer employee compensated on a salary or fee basis at a rate of not less than . . . (remember, I‘m taking out the Salary Level Test because it is about to change). In addition, under either section 13(a)(1) or section 13(a)(17) of the Act, the exemptions apply only to computer employees whose primary duty consists of:

(1) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;

(2) The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

(3) The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

(4) A combination of the aforementioned duties, the performance of which requires the same level of skills.

29 CFR §541.400.

The first thing you need to know is this. These are people who write code, design systems, or do systems analysis at very high levels. This is not your help desk guy. Your help desk guy is not exempt, and if you are paying him that way, you need to fix that. The second thing you need to know is this exemption only applies to these very highly skilled and trained computer professionals, not to other skilled people who do other work that is dependent on computers.  29 CFR §541.401.

And that, is that

Professional Employees . . . Hey, that’s Me!

This is the last of the big three, the Professional Exemption. And this one is a bit more like the Executive in that it is a bit more straightforward and easy to understand. So let’s get down to it. To be eligible for a Professional Exemption you must:

(a) The term ‘employee employed in a bona fide professional capacity’ in section 13(a)(1) of the Act shall mean any employee:

(1) Compensated on a salary or fee basis at a rate of not less than . . . and (yes, I took this out again, but not all of it this time. Yes, the salary rate is going to change, but for this one it is not just a salary, but you can also pay on a fee basis. Look it up at 29 CFR §541.605).

(2) Whose primary duty is the performance of work;

(i) Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or

(ii) Requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

29 CFR §541.300.

So we have a couple of different kinds of “professionals” here. This first is “Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.” That is a “Learned Professional.” The second is “Requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.” That is a “Creative Professional.” What’s the difference? Let’s look.

(a) To qualify for the learned professional exemption, an employee’s primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. This primary duty test includes three elements:

(1) The employee must perform work requiring advanced knowledge

(2) The advanced knowledge must be in a field of science or learning; and

(3) The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

29 CFR §541.301.

To keep this short,

(b) The phrase ‘work requiring advanced knowledge’ means work which is predominantly intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment, as distinguished from performance of routine mental, manual, mechanical or physical work. Id.

(c) The phrase ‘field of science or learning’ includes the traditional professions of law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy and other similar occupations that have a recognized professional status as distinguished from the mechanical arts or skilled trades where in some instances the knowledge is of a fairly advanced type, but is not in a field of science or learning.

Id.

And finally,

The phrase ‘customarily acquired by a prolonged course of specialized intellectual instruction’ restricts the exemption to professions where specialized academic training is a standard prerequisite for entrance into the profession.

Id.

So what we are talking about here? Doctors, lawyers, engineers, teachers CPAs are professionals under this definition, but not HR professionals and paralegals are not.

So what about “Creative Professionals”?

(a) To qualify for the creative professional exemption, an employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work. The exemption does not apply to work which can be produced by a person with general manual or intellectual ability and training.

29 CFR §541.302.

Again, we get some nice explanations in the Regulations.   “To qualify for exemption as a creative professional, the work performed must be ‘in a recognized field of artistic or creative endeavor.’” Id. “The requirement of ‘invention, imagination, originality or talent’ distinguishes the creative professions from work that primarily depends on intelligence, diligence and accuracy.” Id.

There are also special rules for Teachers and the Practice of Law or Medicine, but I’m not going to get into those. See you next time.

Administrative Employees. And, no, this does not mean that the receptionist is exempt.

The second of the White Collar Exemptions we are going to discuss is the administrative exemption. Why, you ask, is this the next one we are going to discuss? Because it is next in the Regulations. Now, we could have saved it for last and we could have done that because it is clearly the most complex, least well-defined of the Exemptions. Let me show you.

(a) The term ‘employee employed in a bona fide administrative capacity’ in section 13(a)(1) of the Act shall mean any employee:

(1) * * * (this is the Salary Level Test, and as I told you last time, I took this out because it is about to change)

(2) Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

(3) Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

29 CFR §541.200.

You can see already why this one is a bit more complex. The second requirement is pretty simple and straightforward. To start with, the primary duty has to be the performance of “office or non-manual work.”   OK, simple enough, it is not somebody who works on a production line or in a plant making a product. But what does “related to the management or general business operations” mean?

(a) To qualify for the administrative exemption, an employee’s primary duty must be the performance of work directly related to the management or general business operations of the employer or the employer’s customers. The phrase ‘directly related to the management or general business operations’ refers to the type of work performed by the employee. To meet this requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.

29 CFR §541.201.

Well that’s very helpful . . . not. Fortunately, that is not all the Regulations provide us. They give us some examples.

(b) Work directly related to management or general business operations includes, but is not limited to, work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities. Some of these activities may be performed by employees who also would qualify for another exemption.

29 CFR §541.201.

OK, I get it now, it is support functions like HR and advertising and marketing. It is not stuff like, say, facilities management – you know, the janitors. That makes some sense. But that is not all. In addition to being a staff rather than a line function, the employee must “exercise discretion and independent judgment with respect to matters of significance.” What?

(b) The phrase ‘discretion and independent judgment’ must be applied in the light of all the facts involved in the particular employment situation in which the question arises. Factors to consider when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval; whether the employee has authority to negotiate and bind the company on significant matters; whether the employee provides consultation or expert advice to management; whether the employee is involved in planning long- or short-term business objectives; whether the employee investigates and resolves matters of significance on behalf of management; and whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.

29 CFR §541.202.

Come on, that is not helpful at all. Here is what we do know – the receptionist is not exempt. What we also know is that this standard requires that “the employee has authority to make an independent choice, free from immediate direction or supervision. . . .”  Id. So determining if someone meets this standard is a bit of an art rather than the more straightforward application of requirements under the Executive Exemption. This is also the sort of “catch all” category that employers tend to throw people in when they don’t know what else to do with them, and the one that causes the most trouble. Not often that you get a misclassified supervisor or professional (although it does happen from time to time). Very often you get a misclassified administrative employee. To help, the Regs give us examples. I’m not going to put them all in here, because the Regulation is very long, but go look at 29 CFR §541.203.

And one more thing. Before you go and classify your mortgage loan originators or paralegals as exempt, give us a call. Because they are not, and it will save you in the long run.

 

Executive Employees: That’s the People in Charge

OK, so last time we talked about improper deductions from an exempt employee’s pay. There are some other Regulations in that part, but we are not going to go into them as they don’t come up all that often.

Instead, we are going to move on to what I hope are the last 5 posts on the FLSA before we try to find another topic to write about: the heart of the so-called White Collar Exemptions. We talked about them back here. We have already discussed the Salary Basis Test and the Salary Level Test and now, over the next 5 posts, we will talk about the duties tests and call it a day.

We start with the bosses. The Executive Employees. To be an Executive Employee, you must:

(a) The term ‘employee employed in a bona fide executive capacity’ in section 13(a)(1) of the Act shall mean any employee:

(1) * * * (this is the Salary Level Test and I took this out because it is about to change);

(2) Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;

(3) Who customarily and regularly directs the work of two or more other employees; and

(4) Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

29 CFR §541.100.

Pretty simple, right? Basically it means you are a manager or supervisor of two or more employees. But, if you work for a smaller company, for example, it might also mean you are an owner:

The term ‘employee employed in a bona fide executive capacity’ in section 13(a)(1) of the Act also includes any employee who owns at least a bona fide 20-percent equity interest in the enterprise in which the employee is employed, regardless of whether the business is a corporate or other type of organization, and who is actively engaged in its management. The term ‘management’ is defined in §541.102. The requirements of Subpart G (salary requirements) of this part do not apply to the business owners described in this section.

29 CFR §541.101.

Management means basically what you would think it means:

… activities such as interviewing, selecting, and training of employees; setting and adjusting their rates of pay and hours of work; directing the work of employees; maintaining production or sales records for use in supervision or control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used; apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the employees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures.

29 CFR §541.102.

The Regulations also tell you what a “Department or Subdivision” means at 29 CFR §541.103, that “two or more other employees” means “two full time employees or their equivalent”, 29 CFR §541.104; what “particular weight means when determining if an employee has the ability to effectively recommend, for example, hiring or firing”, 29 CFR §541.105; and finally, what happens when an employee has concurrent duties, 29 CFR §541.106.

The concurrent duties section is particularly important when it comes to managers in the retail setting. The Regulations recognize that in retail, different rules apply:

(b) For example, an assistant manager in a retail establishment may perform work such as serving customers, cooking food, stocking shelves and cleaning the establishment, but performance of such nonexempt work does not preclude the exemption if the assistant manager’s primary duty is management. An assistant manager can supervise employees and serve customers at the same time without losing the exemption. An exempt employee can also simultaneously direct the work of other employees and stock shelves.

29 CFR §541.106.

See, pretty simple, right? You bet it is, but don’t worry, it will get more complex as we go.

It is going to cost me what? The Effect of Improper Deductions from Exempt Employee’s Salary.

I know, it’s been a while, but we are back. And last time we talked about the general rule for the “salary basis test” and the limited deductions you can make from an exempt employee’s salary and still keep the exemption. And last time I warned you to be very, very careful before you start making any deductions from an exempt employee’s salary. And why did I tell you to be very, very careful? Because the penalty, if you will, if you do make these improper deductions, is pretty darn bad.

(a) An employer who makes improper deductions from salary shall lose the exemption if the facts demonstrate that the employer did not intend to pay employees on a salary basis. An actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis. The factors to consider when determining whether an employer has an actual practice of making improper deductions include, but are not limited to: the number of improper deductions, particularly as compared to the number of employee infractions warranting discipline; the time period during which the employer made improper deductions; the number and geographic location of employees whose salary was improperly reduced; the number and geographic location of managers responsible for taking the improper deductions; and whether the employer has a clearly communicated policy permitting or prohibiting improper deductions.

29 CFR §541.603(a).

You see, you lose the exemption altogether. That means you are liable for overtime. But that is not all. You aren’t just on the hook for the employee from whom you made the improper deductions.

(b) If the facts demonstrate that the employer has an actual practice of making improper deductions, the exemption is lost during the time period in which the improper deductions were made for employees in the same job classification working for the same managers responsible for the actual improper deductions. Employees in different job classifications or who work for different managers do not lose their status as exempt employees. Thus, for example, if a manager at a company facility routinely docks the pay of engineers at that facility for partial-day personal absences, then all engineers at that facility whose pay could have been improperly docked by the manager would lose the exemption; engineers at other facilities or working for other managers, however, would remain exempt.

29 CFR §541.603(b).

Yep, that’s right, you do this wrong and you lose the deduction for everyone in the same job classification working for the same managers responsible for the improper deduction. Got 35 supervisors working for a manager that is making improper deductions for one of them? Lose the exemption for them all. And that can run into some real money.

But don’t worry too much. If it is just a mistake, you can fix it.

(c) Improper deductions that are either isolated or inadvertent will not result in loss of the exemption for any employees subject to such improper deductions, if the employer reimburses the employees for such improper deductions.

29 CFR §541.603(c).

And to cap it off, you can protect yourself even more. Have a policy that prohibits improper deductions and put it in your handbook. Give employees a way to report improper deductions and investigate it and do something about it if improper deductions occur.

(d) If an employer has a clearly communicated policy that prohibits the improper pay deductions specified in §541.602(a) and includes a complaint mechanism, reimburses employees for any improper deductions and makes a good faith commitment to comply in the future, such employer will not lose the exemption for any employees unless the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints. If an employer fails to reimburse employees for any improper deductions or continues to make improper deductions after receiving employee complaints, the exemption is lost during the time period in which the improper deductions were made for employees in the same job classification working for the same managers responsible for the actual improper deductions. The best evidence of a clearly communicated policy is a written policy that was distributed to employees prior to the improper pay deductions by, for example, providing a copy of the policy to employees at the time of hire, publishing the policy in an employee handbook or publishing the policy on the employer’s Intranet.

29 CFR §541.603(d).

But keep one thing in mind, and this is important for every policy you have. I think you need a policy like the one described in the regulation.  But that also means you have to enforce it.  It is better to have no policy than it is to have a policy you are not going to enforce. So when you put this policy in place and someone complains, do the investigation, and if there are improper deductions, fix them. If you don’t do that, again, you lose the exemption for the whole class of employees working for the same manager.

The Times They Are a Changin’

So I read this great article on Forbes online today. One of our partners sent it around for us to see. The article, by a guy named Dan Schawbel, who bills himself as a “millennial expert and workplace futurist,” which is a cool title by the way, is titled “10 Workplace Trends You’ll See in 2016.” You can find it at http://www.forbes.com/sites#/sites/danschawbel/2015/11/01/10-workplace-trends-for-2016/. I’ve got to tell you, I like this guy’s style. It’s not workplace trends you may see – no, it’s trends you will see. You have to like that kind of confidence.   As a matter of fact, I liked it so much that I thought I would do the same thing. Only I’m going to tell you about labor and employment law trends that you will see in 2016. And because I’m not nearly as creative as Mr. Schawbel and because I only get 800 or so words for this article, I’m only going to tell you about one trend you will see in 2016. How’s that for courage? So without further ado, that trend is . . . I need a drum roll here, don’t I? . . .

Independent Contractors are About to Become as Common as the Dinosaur

Back in July of 2015 the Administrator for the Wage and Hour Division of the Department of Labor issued Administrator’s Interpretation No. 2015-1. It was titled “The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Identification of Employees Who Are Misclassified as Independent Contractors.” Snoozer, right? But it’s really important. It’s 15 pages long and it purports to clarify the standards for when a worker is an independent contractor. Basically, in a highly simplified way, the Guidance says that if the worker is economically dependent on an employer, that worker is an employee. The Guidance gives a bunch of tests and examples but boils it down to this: “Is that worker really in business for himself or herself?” The Guidance ends by saying, “In sum, most workers are employees under the FLSA’s broad definitions.” Doesn’t sound good if you use a lot of independent contractors, does it? And that is not all.

Uber, that uber cool ridesharing company, is being sued in California for misclassifying its drivers as independent contractors. In O’Connor, et al., v Uber Technologies Inc., et al., Case No. 3:13-cv-0386, the judge recently certified a class action alleging that Uber drivers are employees whom Uber has improperly classified as independent contractors. And in a similar suit, Uber competitor Lyft was recently denied summary judgment in a suit alleging similar misclassification issues. See Cotter v. Lyft, Inc., Case No. 13-vc-0465-VC.

Oh, and some states are weighing in too. In Uber Tech., Inc., v. Berwick, Case No. CGC-15-546387, the California Labor Commission determined that Uber driver Barbra Berwick was an employee and not an independent contractor.

So what, you say – all that is out in California and I am in the Midwest (at least you probably are if you are reading this) and that is true. But don’t forget, the Guidance is from the Department of Labor, a federal agency, and the two California cases are applying the FLSA, a federal statute, and they apply to you too. Even if your business is not as hipster chic as Uber.

So what do I do, Steve? I can hear you saying that from way over here. Well, here are some things to consider:

First, we have to get a handle on the scope of the issue for you. How many independent contractors do you use and what do you use them for? Where do you get them? And who are they?

Second, once we know who they are and what we are doing with them, let’s look at whether we have a problem. Are these folks properly classified?

And finally, if we have a problem, how can we fix it? And here you have some options, things like hiring these folks as employees, or sending them to a temp agency. Things like that.

Oh, and one more little piece of advice. Before you do this all yourself, or worse yet, hire a consultant to do it for you, remember that any documents you or your consultants create will be discoverable if you do get sued. On the other hand, communications between you and your lawyer for the purpose of securing legal advice are covered by the attorney-client privilege and documents produced by your lawyer may be covered by the work product doctrine. Keep that in mind when you are deciding who to call.

 

Exceptions. Deductions from Exempt Employee’s Salary . . . . Again.

Last time we talked about the general rule regarding the Salary Basis Test. Remember, According to the regulations, to meet the salaried basis test, your employee has to “receive each pay period . . . a predetermined amount . . . which is not subject to reduction because of variations in the quality or quantity of the work performed.” The regulations go on to say “Subject to the exceptions provided in paragraph (b) of this section, an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days of hours worked.”

Hold it just a second, what do you mean EXCEPTIONS PROVIDED IN PARAGRAPH (b)? That’s right, there are exceptions. Wouldn’t be a very good rule if there were no exceptions now would it? So what are these exceptions you ask? Well let me just tell you. You can make a deduction from a salaried employee’s pay for:

  • Absences of one or more full days for personal reasons, not sickness (NOT ½ DAYS, FULL DAYS, so if the employee is out for a day and a half you can only deduct for the full day);
  • Absences of one or more full days for sickness, if you have a sick pay plan that replaces the pay;
  • Off sets (not full day deductions) for amounts received for jury duty, military leave or attendance as a witness;
  • Penalties imposed in good faith for infractions of safety rules of MAJOR SIGNIFICANCE (one of the examples given is smoking in the explosives plant);
  • Unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules in accordance with a WRITTEN POLICY APPLICABLE TO ALL EMPLOYEES;
  • Time not worked in the first or last week of employment;
  • Time not worked when an employee is on FMLA LEAVE.

29 CFR §541.602(b).

So, if the employee is paid on a salaried basis how on earth do you decide what to deduct?

When calculating the amount of a deduction from pay allowed under paragraph (b) of this section, the employer may use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee. A deduction from pay as a penalty for violations of major safety rules under paragraph (b)(4) of this section may be made in any amount.

29 CFR §541.602(c).

OK, now before you get all worked up, let me throw in this caution. You mess these up and take an improper deduction and you have a problem. A big problem. So, before you do any of this CALL YOUR LAWYER. And stick around for next time when we talk about what happens if you do mess this up.

 

And if all of this seems familiar, it is. I posted this before. You can see it here.

The Salary Basis Test.

Last time we talked about the amount of salary to qualify for the White Collar exemptions, this time we are going to talk about the “salary basis test.” What you ask is the salary basis test. Great question. I’m going to answer it. Well, I’m going to let the regulations answer it:

An employee will be considered to be paid on a “salary basis” within the meaning of these regulations if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to the exceptions provided in paragraph (b) of this section, an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Exempt employees need not be paid for any workweek in which they perform no work. An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.

29 CFR §541.602(a).

So that is the general rule. Any week in which an exempt employee does any work, the exempt employee has to receive all of their salary (which has to be at least $455 for the week at least for now, but see my last post for the increase that will happen when the new regulations are finalized.   You can see is here) and it CAN’T be “subject to reduction because of variations in the quality or quantity of the work performed. . . . , an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.” Id.

But that is just the general rule and there are exceptions. And we will talk about those next time.

The Salary Requirements . . . for Now.

Now we have to skip around a bit in the Regulations. You see, in order to be exempt, an employee generally has to meet the salary requirements and the duties requirements for the exemption that is applicable. So it would seem logical that the way to write the Regulations would be to do the intro, which we talked about last time, and then discuss the salary requirements that apply to all (well, most) of the various exemptions and then talk about the individual duties. It would make complete sense to do it that way, so of course that is not the way the government did it.

So let’s you and I be logical and hit the salary test first. To do that we skip down to Subpar G of part 541 of the Regulations. And we are going to start with how much salary is required. And before we do that I need to say this:

ALL OF THIS IS GOING TO CHANGE!!! Look here.

What? Then why are we doing this? Because I’m sick of waiting. So I’ll do my best. Again, how much do I need to make to be exempt? Right now, not much.

To qualify as an exempt executive, administrative or professional employee under section 13(a)(1) of the Act, an employee must be compensated on a salary basis at a rate of not less than $455 per week (or $380 per week, if employed in American Samoa by employers other than the Federal Government), exclusive of board, lodging or other facilities. Administrative and professional employees may also be paid on a fee basis, as defined in §541.605.

29 CFR §541.600(a).

By the way, if you did the math, in order to be paid on a salary basis, you only need to be paid $23,660 per year. Now when the proposed Regulations are finalized, that number will go to “an amount that is equal to the 40th percentile of weekly earnings for full-time salaried workers” which for 2016 is estimated to be $970 per week or $50,440 annually. So while the numbers are going to change, the principle should stay the same. So on we go.

But I don’t pay my exempt employees by the week, you say. I offer them an annual salary and pay bi-weekly, so do I still get the exemption? Yep.

The $455 (FOR NOW) a week may be translated into equivalent amounts for periods longer than one week. The requirement will be met if the employee is compensated biweekly on a salary basis of $910 (FOR NOW), semimonthly on a salary basis of $985.83 (FOR NOW), or monthly on a salary basis of $1,971.66 (FOR NOW). However, the shortest period of payment that will meet this compensation requirement is one week.

29 CFR §541.600(b). (And in case you are wondering, yes, I added the (FOR NOW). That is not in the Regulations.

So that is the basic rule. But right off the bat, before we even get out of this Regulation, there are some exceptions to this basic rule. For example, academic administrative employees meet this requirement if they are paid “on a salary basis at a rate at least equal to the entrance salary for teachers in the educational institution by which the employee is employed.” 29 CFR §541.600(c). And for certain computer employees, you can actually pay an hourly rate as long as it is at least “$27.63” per hour. And that is $27.63 per hour, not $27.62. Who comes up with these things? 29 CFR §541.600(d). And for professional employees who are teachers, lawyers or doctors and who are actually engaged in teaching, the practice of law or medicine, or are medical interns or residents, this section does not apply at all. That’s right, you don’t have to pay them a salary, you can pay them by the hour. And frankly, we will have to wait for the final Regulations to see what will happen to these numbers.

And that is not all. If an employee makes $100,000 per year and customarily and regularly performs any one or more of the exempt duties of an “executive, administrative or professional employee” that person is also exempt. In short, that means that if your employee makes $100k per year, that employee does not have to meet the entire duties test. That is a simplified way of putting it, but that is the basic rule. 29 CFR §541.601. Oh, and you get to prorate this in the first and last year of employment without losing the exemption. And the $100k does not have to be all “salary”, it can include commissions, nondiscretionary bonuses, stuff like that. And under the proposed Regulations, what happens to this number? Well, under the proposed Regulations “the highly compensated employee annual salary will be set at the 90th percentile of earnings for full-time salaried workers or an estimated $122,148 annually in 2016.”

So Steve, what the heck do I do between now and when the proposed Regulations are finalized? If you have salaried employees making more than $23,660 but less than $50,440, you might want to give us a call. We have some work to do.

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