Big Mistake with New OT Rules

I've been quite busy helping organizations prepare for the December 1 deadline to be in compliance with the new overtime rules. Most people understand the new salary test - that in order to be exempt from overtime compensation requirements an employee must now earn $913 per week or more. But many people still struggle with the duties tests. And it's not surprising as the Department of Labor's published Fact Sheets for Executive, Professional, Administrative and Computer-Related Occupations exemptions are intentionally (in my opinion) vague.

The biggest mistake I encounter when discussing this with a business owner or high-ranking executive is the misapplication of the Administrative exemption. The confusion lies in this sentence: The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. Business leaders set the bar for what they think qualifies as discretion, independent judgement and matters of significance much lower than the DOL does and this places their business at risk for back pay and fines.

As a good example of what I mean, let's take the DOL investigator who may show up at your door one day. The investigator performs office or non-manual work directly related to the general operations of the business as defined in the Administrative exemption. The investigator has the discretion to recommend corrective action, levy fines and even submit violators for prosecution, based on the level of intent the investigator discerns. Sounds like that job certainly meets the standard for the Administrative exemption, right?

Wrong!  DOL investigators are non-exempt.  And here's why: investigators use an enforcement manual that guides them on the proper application of the law. And even though they frequently encounter situations that may not be specifically addressed in the manual, and even though they have a reasonable amount of discretion as to how to apply the standards, as evidenced by the sometimes contradictory advice you might get when you call their employer help-line, the DOL sees the investigators as people who apply the law, they don't write the law.

Now compare that with administrative employees in your organization whom you've deemed to be exempt based on this exemption. Does your payroll administrator have more discretion than a DOL investigator regarding matters of significance in your business? Does your accounting assistant have more? Most likely each spends the bulk of their day processing transactions based on policies or best practices already in place. Most likely they need to get the approval of someone who meets the Executive Exemption like their controller, CFO or business owner to make any significant change in the way things are done. Most likely their discretion lies in when to do certain things and to determine priorities within their defined scope of work, not in changing processes or policies in matters of significance.

So he punch line here is, if your administrative employees don't have more discretion than a DOL investigator, then you should classify them as non-exempt.