Legal Ease


Employee Misclassification and the New Salary Threshold


t some point in the coming months employers across the country will be obligated to comply with the Department of Labor’s (DOL) new regulation increasing the minimum threshold salary for exempt status under the wage and hour laws. The regulation raises the current weekly threshold of $684.00 ($35,568 yearly) to $1,058.00 ($55,068 yearly). It is estimated that the increase could impact at least 5 million workers. Those that will be most likely affected fall within two of the most common so-called “white collar exemptions”, the “executive” and the “administrative” exemptions. Exempt status requires that the person satisfy a two part test. The worker must satisfy the minimum salary and have exempt work as their primary duty. In the case of the “executive” exemption, the person must have as their primary duty managing the enterprise or a customarily recognized department or subdivision thereof.


A The person must also direct


the work of at least two or more others. In the case of the “administrative” exemption, the person must have as their primary duty performing office or non-manual work directly related to managing the business operation that requires discretion and independent judgment with regard to matters of significance. Misclassification most frequently arises because the position claimed to be administratively exempt fails to require the use of discretion and independent judgment. Positions where the duties involve following defined procedures or guidelines, generally do not involve the use of discretion and independent judgment. Some positions


96 ❘ March 2024 ®


that almost always satisfy the duties test are “office manager”, “executive assistant”, “receivables and/or payables manager”, human resources personnel”, “purchasing agent”, “warehouse manager”, “auditor”, “inspector” and similar positions. Historically, when the minimum salary threshold has been increased, it has often been followed by claims from exempt employees that they have been misclassified. In most cases, they claim that their duties do not require discretion and independent judgment. Such claims can be filed with the Wage and Hour Division of the Department of Labor (DOL). They can also be the basis of a private lawsuit under the provisions of the Fair Labor Standards Act (FSLA). The reasoning for such claims following a required salary increase is that by being ruled to be an hourly employee, the person would receive overtime pay, which in many cases would guarantee total pay that is greater than the salary increase.


Most salaried employees


routinely work in excess of 40 hours in the workweek, sometimes substantially more.


If they The overtime pay could be


significant. Additionally, if successful in their claim, they would be entitled to backpay for all the unpaid overtime going back up to three years.


file a private lawsuit instead of filing a complaint with the DOL, and are successful, they would also be entitled to all their attorney’s fees as well. While both legal actions can be costly


for


employers, if a complaint is filed with DOL, the investigation of the claims will trigger a review of all exempt positions in the company.


Often other cases of


misclassification come to light. In order to be prepared in case


such claims do arise when the salary increase takes effect, as well as insuring compliance with the FSLA, employers should take the proactive step of carefully reviewing the actual duties performed by their exempt employees.


It might also


help to confirm the number of hours they routinely take to complete their weekly duties. In the case of most managers and supervisors, it is relatively easy to satisfy the duties test. However, in the case of some lower level supervisors, the new salary requirement may be difficult for some employers to justify. They could be tempted to convert such supervisors to hourly. Such a change raises several questions that bear consideration. First, depending on the number of hours normally


required to complete their


weekly duties, the overtime premium could cause their total pay to exceed the new minimum salary without strict overtime controls.


Additionally, for


some supervisors, their supervisory position is a major part of their personal identity. A change to hourly would be seen as a demotion, even if there is no significant reduction in pay. It would certainly create a morale problem for the employee, and perhaps others would see the demotion as arbitrary, and unfair. Thus, any conversion from salaried to hourly requires care and consideration before implementation.


It is with persons exempt as


“administrative” that potential claims of misclassification are most likely to arise. The “administrative” exemption has historically been the one most frequently misapplied. It used to be a matter of


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