As is common knowledge, and as I wrote last week, the USDOL has proposed to raise the minimum salary required for exempt status for the Part 541 white collar exemptions to more than $1000 per week.  Although that will naturally increase employer costs on that basis alone, the greater “costs” may ensue when people who may make that minimum salary are yet not performing the duties that the white-collar exemptions require.  This new development mandates that employers perform internal wage hour audits (amongst other steps) to either re-classify people or to shore up the range of exempt duties they perform.

The most important step is to objectively, coldly, analyze whether duties performed by workers meet the rigorous tests, especially on the administrative exemption.  If there are borderline employees, employers should seriously consider re-classifying them.  The best way to do this is to audit the duties against the tests, as I have done numerous times for clients.  Once that “honest” baseline is established of who is/is not exempt, the employer can decide what strategy to undertake. 

After the review, decide who should be maintained as exempt and raise their salaries accordingly.  Note that you do not have to raise their salaries if you determine that the currently exempt employees do not work more than forty hours on a regular basis.  Put differently, if these employees hardly ever work overtime, the employer may choose to leave them just as they are and if/when they work overtime, just pay them.  Employers also may have to adjust benefits for newly classified non-exempt workers.  Usually, not always, but usually, non-exempt workers have different (i.e., lower) levels of benefits so these have to be adjusted as well. 

There are also the employee relations, the employee morale issues, and they are not insignificant.  There is a distinct “attitude” in the workforce about being white collar versus blue collar.  Many (formerly) exempt people will resent clocking, having time tracked or, in their minds, “carrying a lunch pail.”  Many might well resent the change in benefit levels.  These issues will be tougher to manage, making the messaging to newly re-classified employees of paramount importance.  Even if they are advised they will make the same money, or more, with possible overtime, they will still be resentful and feel their “status” in the Company has been diminished.

The Takeaway

Some of this analysis will involve more art than science.  I know that people do not want to be re-classified, and I have seen people turn down money from the USDOL for misclassification mistakes because they did not want to be considered “blue collar.”  I also know that the duties components of these white-collar exemptions now become of crucial importance for employers to focus upon.  An internal wage hour audit is the best (and cheapest) way to do that.  

That ounce of prevention thing (again)…  

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