How to Identify Nonexempt Employees Under New Rule

July 5, 2016

The new overtime rule will go into effect December 1, 2016. Learn how to identify your nonexempt employees under this new ruling!

confused by new ot rules

New overtime rules may have you scratching your head. Below is an article on how to identify nonexempt employees under the new rule. Take action now to ensure you and your employees are on track for the new rule taking effect December 1, 2016.

Under the Department of Labor’s new overtime rule, payroll professionals need to ensure that they are able to identify employees who are not exempt from overtime requirements.

The rule (RIN 1235-AA11), issued May 18, increases the annual salary thresholds for exemption from the Fair Labor Standards Act’s overtime requirements, to $47,476 from $23,660 for executive, administrative and professional employees, and to $134,004 from $100,000 for highly compensated employees.

TLC may be asked to help identify employees classified as exempt whose salaries fall between the current weekly salary requirement of $455 and the new $913 level, effective December 1, 2016, to assist management in determining the best way to assure compliance for each employee.

Training to Track Time
If employees are reclassified from exempt to nonexempt, they would have to be trained to deal with the time keeping or recording of hours worked to provide their employers with the required time-worked records.

There is no prescribed method to track time. Time clocks may be used or employees may fill in sheets to show hours worked.

If the hours worked each week are fixed, the employee may report exceptions for time off or additional hours worked. Flex-time and off-site work policies should be communicated when training employees to track time.

Payroll-processing systems may have to be expanded or updated to handle additional volume or changes in payment method, for example for fluctuating workweeks or inclusion of bonuses in the standard salary level for exempt employees.

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The communication and training for employees should be conducted before the December 1 effective date.

Required updates to electronic systems should be implemented and fully tested to make sure they are working well before December 1 to avoid problems during payroll’s busy year-end processing time.

The payroll department should be included in planning procedures for implementation of the new rules so that we are aware of its responsibilities and resource requirements.

Payroll may help ensure that changes made by the employer comply with state wage and hour requirements and the FLSA.

Exempt employees reclassified as nonexempt may require training in how to record hours worked.

Payroll may help management understand the new rules and the requirements, effects, limitations and potential consequences of certain decisions. For example, payroll may help management understand the implications under the new rule of adopting the fluctuating workweek method.

The new rule did not change the standard duties tests, but implementation may provide an opportunity to review the job duties of employees classified as exempt to provide assurance that they satisfy the duties requirements for exemption.

An employee satisfies the duties test for the executive exemption if the employee:

  • has a primary duty of managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
  • customarily and regularly directs the work of at least two other full-time employees and
  • has the authority to hire or fire other employees, or may suggest or recommend as to the hiring, firing, advancement or promotion of workers.

There is no limit on the amount of nonexempt work the employee may do, but the primary duty, supervision and authority provisions must all be part of the job.

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An employee satisfies the duties test for the administrative employee exemption if the employee’s primary duty is the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers, and that primary duty includes the exercise of discretion and independent judgment regarding significant matters.

Applying Professional Exemption

Two categories cover the professional exemption from overtime requirements: the learned professional and the creative professional.

  • Learned Professionals: An employee satisfies the duties test for the learned professional employee if the employee’s primary duty consists of performing work that requires advanced knowledge, defined as work that is predominantly intellectual in character, and that also requires the consistent exercise of discretion and judgment.
    The advanced knowledge must be in a field of science or learning and customarily acquired by a prolonged course of specialized intellectual instruction.
  • Creative Professionals: The duties test for a creative professional is satisfied if the employee’s primary duty is the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
    In evaluating an employee’s exempt status, employers should take into account the tests for job duties, as well as salary basis and salary level. Otherwise, the worker may be misclassified and the employer could face penalties for noncompliance with FLSA overtime rules.

For help with how to handle a specific situation we would love to put you in contact with a partner that can provide HR and legal advice. Please let us know if you would like to be connected with one of our trusted resources.

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