Monday, November 7, 2016

We measure salaries for FLSA exemptions weekly, not annually

An article entitled, “Obama overtime-pay rule prompts changes, requires loans, as Ohio universities adapt,” which ran last week on, caught my eye. The articles discusses how universities are struggling with the impending salary-test change to the FLSA’s various overtime exemptions.

The article links to a communication plan published by the University of Cincinnati [pdf], discussing how the new salary test will impact its salaried employees. This is what the university is telling its employees:

Exempt employees are paid on an annual basis and are excluded from overtime payment. Nonexempt employees are paid hourly, must report hours worked, and are paid overtime for work done in excess of 40 hours/week. Exemption is based on qualifying for all three of the following tests:
  • Salary Basis Test. Employee must be paid on an annual salary basis; AND 
  • Minimum Salary Threshold Test. Employees must be paid equal to or above a salary threshold amount that is $47,476 annually (effective December 1, 2016), AND 
  • Duty and Discretion Tests. Employee must qualify as an executive, administrator, professional, or computer professional. 
What is wrong with this communication? It defines the salary test based on an annual salary, not a weekly salary. The proper salary test is based on $913 per week, not $47,476 per year. If you pay an employee $47,476 (or more) annually, but fail to pay that same employee a minimum salary of $913 each week of that year, that employee will not be exempt, period.

Don’t take my word for it. Take the DOL’s word for it:
Q. Are employers in compliance if they follow the annualized amounts? (Or do they have to make sure they are always in compliance each week?) 
A. An employee’s exempt statusand, if nonexempt, the employee’s right to overtime payis determined on a weekly basis. Generally, to retain exempt status, an employee must satisfy the duties test and earn at least $913 per week.
As a result, confusing $913 per week with $47,476 per year could be a very costly mistake.