Breathing a Sigh of Relief over Recent Overtime Ruling?

A federal judge in Texas recently invalidated an Obama administration overtime regulation making salaried employees earning less than $47,476 eligible for overtime pay.  The Justice Department announced that it was dropping its appeal to save the rule.

One less thing to worry about, right?

Here’s the rub. In order to classify an employee as exempt from overtime, salary isn’t the only consideration.

Salaried employees must be paid at least the minimum salary threshold (currently $23,660). The employee must be paid on a salary (not hourly) basis which is predetermined regardless of quality or quantity of work.  The employee has to be paid a full salary for any week in which any work is performed.

As a salaried employee, there is also a ‘duties’ test. The employee’s duties must be executive or managerial; administrative or professional in nature.

What are the definitions for each employment category?

Executive – Employees must manage a company or recognized department and customarily and regularly direct two or more full-time employees or their equivalent. The manager must have authority to hire and fire or his/her opinion must be given particular weight in hiring and firing.

Think about maintenance people on salary or those on the restaurant management team below the general manager level. Do they meet the criteria?

Administrative – Employees who qualify under the administrative category are working in an office or non-manual work environment; their job is directly related to management or general business operations; they have the latitude to exercise discretion and independent thinking; and are vital to keeping the business running.

Who qualifies in your organization for the administrative category? What about your office staff? Are they on salary simply to avoid the hassle of timekeeping? If so, they are not likely to be exempt from overtime.

Professional – The professional category includes employees who are “learned professionals” or have extensive educational backgrounds. This category includes accountants, attorneys, engineers, creative professionals (writers, designers, etc.) and other traditional professionals.

While most restaurant organizations don’t employ professional staff, this category might be applicable to creative positions (advertising, graphic designers, writers, etc.) within a restaurant organization.

What are your compliance risks associated with the DOL rules?

If, upon DOL audit or due to an employee claim, employees were denied overtime because they were improperly treated as exempt, you are exposed to potential costs, including:

  • Paying unpaid overtime plus penalties
  • Tarnishing your organization’s reputation with bad media coverage
  • Claims for compensation for “off the clock” work which can be difficult to refute
  • A lengthy, frustrating and costly audit of your payroll records and other documents
  • Related legal fees

The Texas judge’s ruling on the increased salary threshold is certainly good news for the restaurant industry as it faces an ever-tightening labor market and increased staffing costs. We suggest you take the time to review your salaried employee roster and their current duties to confirm they are, in fact, exempt from overtime.