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.