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The increase in the minimum salary threshold for the Fair Labor Standards Act's (FLSA) overtime exemption takes effect December 1, 2016, which will be here sooner than you think. Will your company be ready?

Under the new rules, the minimum weekly salary that an otherwise exempt executive, administrative or professional employee must receive for the employer to be relieved of the obligation to pay overtime will rise from $455/week to $913/week ($47,476 per year). This salary threshold will be updated automatically every three years, based on wage growth over time, to keep pace with inflation.

Remember -- in addition to being paid on a salary basis, in excess of the minimum, the employee also must meet the "job duties" test to qualify for the exemption. This means that their job duties must be executive, administrative, or professional and require the exercise of discretion (judgment). In most cases, the employee's primary duty must be managing the enterprise, or a department or component of the enterprise, and he or she must supervise 2 or more full-time employees. They must have the ability to hire, fire, promote, or discipline other employees, or at least the power to influence those decisions. Alternatively, their primary duty must include non-manual work or the performance of work requiring advanced knowledge, requiring the exercise of discretion and independent judgment.

If this sounds complicated, that's because it is. The law reports are full of misclassification cases, disputes about whether the employee's actual duties (titles are meaningless) qualify them for the exemptions. A mistake can cost the employer thousands of dollars in back wages, liquidated damages, and attorneys' fees. And an employer who thought an employee was exempt usually has no time records to speak of, and is at the mercy of the employee's recollection as to the number of unpaid overtime hours worked. In large part, this explains the dramatic rise in wage-hour litigation over the past 20 years; today, wage-hour cases are the single largest sub-group of employment-related lawsuits in the federal judicial system.

(Another potentially expensive misclassification trap is treating an employee as an independent contractor – more about that another time.)

The salary threshold change affords employers an excellent opportunity to review how employees have been classified, and to make any necessary changes. A thorough wage-hour audit will more than pay for itself by keeping your company out of trouble.

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