Today the Labor Department announced a proposal to increase the minimum weekly wage for exempt employees from $455.00 per week to $970.00 per week, or $50,440.00 per year.

If adopted, this dramatic increase will significantly impact the ability of employers to classify their employees as exempt and will necessitate all employers with exempt employees to thoroughly review their employees’ classifications and job duties.

Under federal law, most employees must be paid overtime at a rate of 1 ½ times their regular rate of pay for all hours worked over 40 hours in a week. Certain employees are exempt from this requirement to pay overtime. For employees to be exempt, they must be paid a certain minimal salary and meet tests based on the duties they perform.

The current minimum salary level for exempt employees of $455.00 per week has been in place, without adjustment, since 2004. The proposed new salary level would more than double the current rate. Additionally, the Labor Department proposes automatic annual increases based on a standard which is yet to be determined.

The following is a brief summary of the primary “white collar” exemptions. Please keep in mind that each of the summaries is an overview and these determinations are very fact specific. Exempt employees generally fall into three main “white collar” categories – executive, administrative or professional.  In addition to the minimum rate of pay, the employees in each category must perform certain duties to qualify as exempt.

(1)   The executive employee’s primary duty must be managing the business or a customarily recognized department or subdivision of the business. As part of this management, the employee must customarily and regularly direct the work of two or more full-time employees and must have the authority to hire and fire other employees or, at minimum, the employees’ suggestions and recommendations as to hiring, firing and advancement must be given particular weight.

(2)   In the administrative exemption, an employee’s primary duty must involve 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. Additionally, that primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

(3)   With the professional exemption, there is both a learned professional exemption and a creative professional exemption. To qualify as a creative professional, , the employee’s primary duty must be the performance of a work requiring invention, imagination or originality in a recognized field of artistic or creative endeavor, such as music, writing, acting or the graphic arts. A learned professional’s primary duty must be the performance of work requiring advanced knowledge and include work requiring the consistent exercise of discretion and judgment.  The advanced knowledge must be in a field of science or learning and must be customarily acquired by a prolonged course of specialized instruction. Examples of employees in this category are teachers,lawyers, and doctors.

The Labor Department is also seeking comments and suggestions on whether or not any of the duties’ tests for the exemption should be modified. Before the rule can become effective, it must be formally published in the Federal Register and subject to a period during which the public is allowed to comment. At the conclusion of the process, the Department of Labor will issue a final rule.

Woods Rogers PLC will continue to monitor the progress of this potentially significant change and update you with any developments.  In the meantime, now is the time to begin assessing your organization’s pay practices to determine how this change may impact you.  Frankly, the review of your payroll and pay practices should occur regularly under all circumstances as a good human resource process.

As always, if you have any questions, please let us know.