The difference between exempt and non-exempt employees can be confusing. Speaking at a recent NationaLease meeting, Neil H. Dishman of Jackson Lewis P.C. discussed the differences between the two types of employees, how these statuses affect overtime pay and how the laws are changing.
A much-debated topic in employment law is exempt vs. non-exempt employee status. Everyone gets paid overtime, unless an employer can prove an exemption.
The three most common “white collar” types of exemptions are executive, administrative and professional. These three exemptions have two big parts: duties and salary basis, including a minimum salary level. The duties tests are different for all three, but they are not changing. The salary-basis test is the same for all three, but that is changing, so this article will focus on those changes.
In the salary basis rule, a portion of compensation must be a fixed weekly amount that is not subject to reduction based on quantity or quality of work, so the employee cannot be docked for being late, leaving early or doing poor work. Prior to January 1, the weekly salary requirement for exempt employees was $455 per week, or $23,660 per year.
Exceptions to the salary basis rule are:
- Full day absences for personal reasons, other than sickness or disability
- Full day absences due to sickness or disability if deductions are made under a bona fide plan, policy or practice of providing wage replacement benefits for these types of absences.
Deductions from salary can be made for:
- First or last week of employment, as long as the employee is paid a proportionate share of salary for time actually worked
- Penalties imposed in good faith for violating safety rules of “major significance”
- Family Medical Leave Act-qualifying leave for partial- and full-day absences
- Offset of salary for monies received for jury fees, witness fees or military pay
- Good faith full-day disciplinary suspensions for violating written workplace conduct rules.
The minimum weekly salary requirement increased to $684 per week, or $35,568 annually, on January 1. This means that any exempt employee who makes less than the new amount loses their exemption, no matter what their duties are.
This leaves employers with the choice of increasing the wages of these employees to $35,568 annually or converting them to non-exempt employees where they track their hours and are paid overtime for more than 40 hours of work per week.
This change will create major impacts and new problems for employers:
- Labor costs will increase to cover more overtime pay.
- Hiring needs may change in order to avoid overtime.
- Employee morale may suffer because of “demotions.”
- Work/life problems such as telecommuting, time off, etc. could become a factor.
- Employees who are right around the new floor could experience or cause problems.
