In 2015 the Department of Labor (DOL) proposed increasing the salary employees must receive in order to be classified as exempt. The DOL finalized the rules and the changes are pending before the White House’s Office of Management and Budget. If approved, it is likely that the final rules would take effect late summer or early fall of 2016. Here are five action items employers should take now in order to comply with the pending DOL regulations:
1. Understand how California differs from Federal regulations in regards to the exempt status of employees.
It is very dangerous for an employer to read a few legal updates from lawyers and a few articles from the internet and assume that they have a full understanding the requirements and the analysis that goes into properly classifying employees as exempt or non-exempt. At risk of sounding like a lawyer, it is a very detailed analysis, and California’s requirements differ from the Federal requirements in many ways. Therefore, it is imperative that employers understand which laws apply to their employees, and that they are following the correct laws. The set of rules that provides the employee with more rights is usually the law that governs the particular situation. As an example, California law sets forth requirements specific for an employee to qualify as a computer professional, while Federal law does not have a separate set of rules for this position.
2. Take time to evaluate workforce and make any reclassifications when new regulations are issued.
Employers should use the DOL’s change in regulations as an opportunity to audit their workforce to determine if there are some employee classifications that should be changed. It would be an ideal time when the DOL’s regulations take effect to reclassify employees as nonexempt without raising the question of why is the reclassification taking place.
3. Update timekeeping system and policies.
If the DOL regulations are implemented as drafted, it would significantly raise the level of pay required to meet the white collar exemption to $50,440 salary per year in 2016. Currently, California employers must pay the higher amount of twice the state minimum wage for employees to meet one of the white collar exemptions. As of April 2016, the state minimum wage is $10 per hour, and therefore employers must pay an annual salary of $41,600 for an employee to meet the salary basis test for a white collar exemption. The increase in the salary level proposed by the DOL will likely result in many employers reclassifying employees as nonexempt. Therefore, with more employees needing to clock in an out for the start and stop times (in addition to tracking the start and stop times for meal breaks as required under California law), employers need to ensure their timekeeping system is up-to-date and compatible with their workforce.
4. Ensure the company’s policy prohibiting off the clock work is effective and enforced in addition to policies designed to limit the amount of overtime worked.
If reclassifying employees as nonexempt as a result of the DOL regulations, employers need to ensure they take steps to protect themselves off-the-clock work claims. Employers should have an effective timekeeping policy and train their managers about how prevent off-the-clock work. In addition, employers need to develop and train managers on the correct policies to control unauthorized overtime worked. Managing overtime costs requires effective policies and training of managers to ensure all wage and hour laws are complied with.
5. Keep current on when the DOL rules go into place.
Employers should not analyze employee exemption issues now and delay taking any action until later this summer. It is likely that the DOL regulations will take effect soon, and employers cannot get caught in not updating and reclassifying employees once the relations are implemented. Now is the time to start the analysis. In the unlikely chance that the DOL regulations are not implemented, employers can chalk up the work done as a wage and hour audit to ensure compliance with the current obligations.