AAC F A M I L Y & F R I E N D S Labor Laws
other would be based on changes in the CPI-U. Both methods are described in detail in the NPRM.
Duties Test WHD’s proposal to set the salary threshold at the 40th
percentile of weekly earnings of full-time salaried employees is intended to severely limit the need for a duties test by restricting it only to employees who earn more than the increased salary threshold. Tey believe that the proposed salary level increase, coupled with automatic updates, will address most of the concerns relating to the application of the EAP exemption. A regularly up- dated salary level will screen out employees who spend significant amounts of time on nonexempt duties and for whom exempt work is not their primary duty. Duties will remain a critical metric of exempt status, but it will be relevant to a much smaller number of employees.
Impact on Employers and Employees In 2013, there were an estimated 144.2 million wage and salary
workers in the United States, of whom DOL estimates that 43 million were salaried employees who may be affected by a change to the Department’s part 541 regulations. Of these workers, DOL estimates that 21.4 million are currently exempt EAP workers under existing rules. DOL projects that their proposed changes, if adopted, would affect an estimated 4.6 million currently exempt workers who earn at least $455/week but less than the 40th earn- ings percentile ($921). Absent some intervening action by their employers, these employees would become entitled to overtime if the proposed rules take effect. Similarly, an estimated 36,000 cur- rently exempt workers who earn at least $100,000 but less than the 90th earnings percentile ($122,148) per year and who meet the HCE duties test also may become eligible for minimum wage and overtime protection. As the rates are adjusted, more employ- ees will be affected. In addition to the 21.4 million potentially affected current
EAP exempt workers, WHD estimates that an additional 6.3 million salaried white collar workers who do not satisfy the du- ties test and who currently earn at least $455 per week but less than the proposed salary level will become entitled to overtime because the salary test alone will determine their status, without the need to examine their duties. At the current standard salary threshold, there are 11.6 million salaried workers who fail the standard duties test and are therefore overtime eligible, but earn at least the $455 threshold, while there are only 845,500 sala- ried workers who pass the standard duties test but earn less than the $455 level. Te number of workers who pass the current salary threshold test but not the duties test is nearly 14 times
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the number of workers who pass the duties test but are paid below the salary threshold. Tis underscores the large number of overtime-eligible workers for whom employers must perform a duties analysis, and who may be at risk of misclassification as EAP exempt. If the salary threshold is raised to the 40th percentile, WHD estimates that the number of overtime-eligible salaried workers who would earn at least the threshold but do not pass the duties test would be reduced to 5.6 million.
“Unlike private-sector employers, who must always pay cash overtime wages, under certain conditions a public-sector employer may give compensatory time off in lieu of overtime wages.”
— J. Larry Stine Attorney
Alternatives Employers will not be
required to raise the pay of all formerly EAP workers to the 40th percentile ($921/ week) to comply with these rules. It is much more likely that employers will shift salaried workers paid less than the new minimum to hourly status, with hourly rates that approximate their former salaries, and control costs by restricting overtime.
Salaried, nonexempt pay will remain a viable option to employ- ers interested in controlling overtime expense in states where the practice is permitted (such as California). Tis allows an employer to pay a nonexempt employee a guaranteed salary for all hours worked, plus an overtime premium of an additional ½ the regu- lar rate for each overtime hour. Tis method is desirable where an employer wants to contain costs by discouraging employees from shifting work from regular hours to overtime, since the employee’s effective rate of earnings per hour actually declines the more over- time hours are worked. If either of these methods is adopted, the employer will, of course, be required to make and preserve records of hours worked for these employees.
What about Compensatory Time (Comp Time)? Unlike private-sector employers, who must always pay cash
overtime wages, under certain conditions a public-sector employ- er may give employees compensatory time off in lieu of overtime wages. Compensatory time off must be awarded at a rate of not less than one and one-half hours for each overtime hour worked, but there are limits on the amount that can be accrued: law en- forcement, fire protection, and emergency response personnel and employees engaged in seasonal activities may accrue up to 480 hours of comp time; all other state and local government employ- ees may accrue up to 240 hours. Many public-sector employers faced with an increase in the number of overtime-eligible employees will find compensatory time an appealing alternative. However, it is important to remem- ber that compensatory time is not budget-neutral: the amount of overtime paid in the form of compensatory time ultimately must be regarded the same as cash overtime because it correlates directly with the employee’s compensation and hours worked. An employee must be permitted to use compensatory time
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