octobernovember2022 - 26

THE LABOR LAW ADVISOR
REVIEW YOUR EXEMPT EMPLOYEES:
Manager and Supervisor Pay
THE FAIR LABOR Standards Act (FLSA) is the federal law governing employee compensation
in U.S. workplaces. Some states also apply their own, more rigorous wage and hour laws.
The FLSA requires employers to pay employees a minimum wage for all hours worked and a
time-and-a-half overtime rate for all hours worked over 40 in a workweek.
However, the FLSA provides
certain exemptions from minimum
wage and overtime requirements. The
so-called " white collar " exemptions to
minimum wage and overtime requirements
refer to the executive, administrative,
professional, computer, and
outside sales exemptions. To qualify
an exemption, employees must receive
a predetermined salary not subject to
reduction based on hours worked or
quality of work, and the salary must
meet the minimum FLSA threshold of
$684 per week or $35,568 annually. In
addition, employees must satisfy duties
tests set out by the FLSA to fit into one
of the exemptions.
■ To qualify for the executive exemption,
which covers most managers
and supervisors, an employee's
primary duty must be management
of the enterprise or a recognized
subdivision or department thereof.
The fundamental requirement is
that the employee must regularly
direct the work of two or more
subordinate employees.
■ The administrative exemption
covers many office managers,
financial consultants, sales directors,
production planners, inspectors,
insurance agents, and human
resources employees and requires
an employee's primary duty be office
or non-manual work directly related
to management or general business
operations. In particular, the duties
must include the exercise of discretion
and independent judgment regarding
matters of significance.
■ The professional exemption can
be broken up into two categories -
learned professionals and creative
professionals. Learned professionals'
primary duty must involve advanced
knowledge in a specialized field of
science or learning, generally acquired
through prolonged study - often a college
degree. Engineers, pharmacists,
medical technologists, nurses, dental
hygienists, physician assistants, and
accountants are common examples.
Creative professionals include
editorial writers, journalists, graphic
artists, actors, and artistic painters.
■ The computer employee exemption
generally excludes IT support employees
who install and maintain workstation
software and similar functions.
The exempt ion requires both
theoretical and practical knowledge
in systems analysis, programming,
or software engineering and duties
that consist generally of designing,
testing, and/or implementing software
or hardware systems. While the same
minimum salary of $684 per week
is required if paid on a salary basis,
the FLSA also permits payment of an
hourly rate of at least $27.63 per hour
to qualify.
■ In addition to a duties test, common
among each white collar exemption,
the outside sales exemption requires
a location test. However, in contrast
to the other exemptions, it requires
no minimum salary. As the name
suggests, to qualify, an employee's
primary duty must be making sales
away from the employer's place or
places of business, which of course
excludes inside sales employees,
unless they qualify separately for
the executive or administrative
exemption.
The DOL has raised the salary
threshold numerous times over the
years in response to economic conditions.
The most recent increase in the
minimum salary became effective on
January 1, 2020, rising from $455.00
per week ($23,660 annually) to $684.00
per week ($35,568 annually). In 2016,
the Obama administration proposed
an increase from $455.00 per week to
$913.00 per week ($47,476 annually).
Numerous
business
associations,
as well as a number of states
immediately challenged this proposal
in federal court. The court blocked
implementation of the Obama
administration's proposed increase,
and it remained blocked until the
Trump administration withdrew
it. It is estimated that if the Obama
proposal had gone into effect four to
five million more workers would have
become overtime eligible.
The Biden administration
announced several months ago that
it plans to issue a proposed increase in
the salary threshold in October 2022.
If the increase proposed during the
Obama administration is any guide,
we may see a near doubling of the
current $684.00 per week to about
$1,300.00 per week. Many small and
even medium-sized employers may
struggle to afford such a dramatic
increase, with as many as 10 million
workers becoming entitled to overtime
pay if the FLSA's salary threshold
doubles. Whatever the increase
RICHARD D. ALANIZ
Senior Partner
Alaniz Schraeder Linker Faris Mayes, L.L.P.
ralaniz@alaniz-schraeder.com
turns out to be, its implementation
will almost certainly be delayed by
court challenges.
Nonetheless, now is the time for
employers to carefully review the
specific duties and number of hours
worked each week by their exemptclassified
employees. A thorough
review can confirm whether the
employee's primary duties are sufficient
for exempt status. Unfortunately,
misclassification is a common problem
that can create substantial liability.
Reviewing the hours worked
will also help determine whether an
exempt position requires more than
40 hours, such that converting it from
salaried to hourly may not result in a
difference in cost due to the need to
pay substantial overtime. This review
could also help confirm whether a
consolidation of exempt duties and/
or positions could be an option.
Beyond additional overtime costs,
employers should consider the effect
on employee morale and productivity
if an employee's position is reclassified
from salaried to hourly. A supervisor
who rose through the ranks of hourly
jobs to ultimately become a salaried
supervisor may see going back to an
hourly position as a demotion.
Since an increase in the salary
threshold, perhaps a substantial one,
is virtually certain, even if delayed
by court action, these are the types
of issues that proactive employers
should be seriously considering in
anticipation of any salary threshold
increase. ■
26 OCTOBER/NOVEMBER 2022 ■ www.CPAPracticeAdvisor.com
http://www.CPAPracticeAdvisor.com
octobernovember2022

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