What do employers need to comply with regarding exempt vs non-exempt?

By Michael Burns, courtesy of SBAM Approved Partner ASE

When the Obama Administration’s Department of Labor increased the Exempt Rule’s salary level test to $913/week, this forced most employers to review many of their positions for exempt compliance. For the past few years employers have had the opportunity to re-classify jobs properly – hopefully avoiding a compliance complaint in the rule “changeover and controversy fog.”

Employers are experiencing anxiety around fixing a misclassified job based upon the salary level or duties test.  Changing those jobs to “non-exempt” based upon either test raises the question of: wasn’t this job non-exempt all along? 

Fear not. Legal ambiguities surrounding properly classifying jobs remain. The Trump Department of Labor has indicated it will change the department’s position and possibly seek a new salary level test. This test may set the salary level about halfway between the old and current test of $455/wk. and the new rule and rejected salary level test of $913/wk. The Trump Administration Department of Labor has a deadline of October 31st to decide if it will appeal the Texas court’s ruling striking down their higher salary level test rules. It has requested comments from the public on how the revised rule may be changed.

Before all this regulatory back and forth, how much change did the Obama DOL rule cause? As reported by the National Law Journal, a survey conducted by the law firm of Littler Mendelson and Compliance HR found that 50% of companies had changed their policies to comply with the 2016 rule. Of the 900 survey respondents, nearly half made plans to comply and did not implement any changes, and 11% did not comply with the rule.  The survey reports that those that did initiate changes because of the rule change did so by reclassifying employees or raising salaries. Hearing anecdotally from our membership, the American Society of Employers found member response much the same.

So as the Trump Department of Labor tries to fix this situation, what is the concern? Well, a lawsuit pending in a New Jersey court against Chipotle (one of the companies that went ahead and made changes to positions’ exempt or non-exempt status) raises the challenge that the Texas court’s injunction did not apply to employers but was only against the Department of Labor’s power to enforce the new rule. This would mean the higher 2016 salary level test should still be complied with until the DOL comes out with a new salary level test as is being discussed. What’s an employer to do?

ASE has advised members wrestling with this dilemma to continue reviewing positions as they should have been anyway. Employers and their HR or legal professionals should always be reviewing whether a job has changed significantly enough to result in a change to its Fair Labor Standards Act (FLSA) exempt classification. Good faith compliance actions will at the very least provide an employer an affirmative defense in the face of a challenge or complaint, whereas sitting on the misclassification and hoping it is never discovered, will aggravate enforcement and fines (willful violation). 

The revised rulemaking process is expected to continue for some time – into next year at the least. Employers are advised to work toward compliance with the 2016 rule. Cheryl Stanton, Trump’s Wage and Hour Chief nominee (not yet confirmed), says the DOL has control over FLSA rulemaking and it will, as it has in the past, eventually raise the salary level test to some rate. Therefore, she advises, “Employers need to keep their focus” on proper compliance as best they can.

Just this week, the DOL announced Bryan Jarrett was made acting administrator of the Wage and Hour Division of the DOL apparently to help continue pushing the rule revision through while Cheryl Stanton awaits confirmation by the Senate.

ASE has not heard about any heightened enforcement activity by the Wage and Hour Division of the DOL in addressing misclassification based upon the 2016 rules. We are interested in hearing what activity may have occurred surrounding exempt and non-exempt classification determination. If your organization has experienced an exempt classification complaint, we would be interested in learning how the DOL is enforcing the rules currently.