Tuesday, March 12, 2019

The FLSA's salary test just doesn't matter

By now you've likely heard that the Department of Labor announced its intent to increase the qualifying salary threshold for its white collar exemptions from $455 per week ($23,660 annually) to $679 per week ($35,308 annually).

I'm here to tell you that this increase just doesn't matter.

Why? Because for an employee to qualify as exempt, he or she still must meet one of the various white-collar duties tests.

  • Administrative: The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers, and which includes the exercise of discretion and independent judgment with respect to matters of significance.
  • Professional: the employee's primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, which work is predominantly intellectual in character and which includes the consistent exercise of discretion and judgment.
  • Executive: The employee's primary duty must be the management of the enterprise or a customarily recognized department or subdivision of the enterprise, in which the employee customarily and regularly directs the work of at least two or more other full-time employees, and the employee has the authority to hire or fire other employees (or the employee's suggestions and recommendations as to such are given particular weight).

If you're paying someone with whom you vest this level of discretion and judgment in your business a salary less than $35,308, either you are grossly underpaying them, or they really aren't all that indispensable to your business (and therefore fail the duties test).

Case in point? Drake v. Steak N Shake Operations, Inc., in which a federal judge awarded a class of 286 Stake N Shake restaurant managers a hair over $3 million in unpaid overtime. The lead plaintiff earned an annual salary between $35,000 and $38,000, and the court determined that managers failed the duties test for both the executive and administrative exemptions.

You will read a lot over the next few months about the DOL increasing its white-collar salary threshold by nearly 50%. I'm here to tell you that it just doesn't matter. The classification of your exempt employees is most definitely an issue to which you should be paying attention, but from the perspective of whether they truly meet the narrow duties tests, and not whether you pay them enough to hit a particular salary threshold. Whether that minimum salary is $455 per week, or $679 per week, if you truly vest your exempt employees with the level of discretion and judgment necessary to meet the duties test, you should already be paying them enough to meet the salary test, too.