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Changes Looming for Overtime Exemption Rules


By: Linda Drassen, BSM, MM/HRM, PHR; Director of Operations – Human Resource Services

February 20, 2015 – On Thursday, March 13, 2014, President Obama signed a Presidential Memorandum directing the Secretary of Labor to update the Fair Labor Standards Act (FLSA) regulations that dictate “white collar” overtime exemption rules (not otherwise governed by other federal statutes such as railway labor or truck drivers). President Obama indicated that his mission was to make overtime exemption rules easier for employers to understand; however, like most government programs, the actual outcome of this initiative could lead to more upsetting consequences for business owners.

The FLSA requires non-exempt employees to receive overtime at one and one-half times the regular pay rate when the hours exceed 40 (in Texas). Not all employees are allowed to be classified as overtime-exempt and the rules to determine eligibility can be quite confusing.

Under the current rules, employees must meet several strict tests before they can be exempt from overtime. Most (but not all) of the requirements, and the main target of the Presidential Memorandum, begin with the employee making a minimum of $455 per week.

The President expects this limit to be raised to more modern and realistic limits which could create a significant issue for organizations’ most highly compensated salaried-exempt personnel.

The rules can be difficult to understand; inside sales, for example, is usually required to receive overtime pay while outside sales positions may not. Computer personnel must be paid hourly unless they are responsible for coding or other high-level activities; help-desk personnel, for example, must be paid overtime. Employees who earn more than $100k per year are typically (but not always) exempt from overtime benefits.

Although there are other ways to determine exempt-level qualifications, there are three typical categories that fall under a “duties test” labeled, “administrative,” “professional,” and “executive.” An abbreviated (non-exhaustive) duties list is discussed in the following sections.

Exempt professional job duties:
The term “professional” actually means “learned professional” which includes lawyers, doctors, dentists, registered nurses (but not LPNs), accountants (not bookkeepers), and engineers who have an engineering degrees who perform tasks normally accomplished by licensed engineers.

The work under the professional job duties test must be predominately intellectual and requires specialized education. As with the executive test, a professional exempt employee must be able to exercise discretion and judgment. Also, to qualify for a professional exemption, advanced degrees or equivalent skills and education is required.

Exempt executive job duties:

1. Regularly supervises two or more other employees, AND also

2. Has management as the PRIMARY duty of the position, AND also

3. Has genuine input into the job status of other employees (firing, hiring, promotions, assignments)

Administrative job duties:
Administrative job duties are the most vexing; gone are the days of making all office staff overtime exempt. To qualify for this exemption, the administrative job duties are as follows:

1. Office or non-manual work, which is

a. Directly related to management or general business operations of the employer or employer’s customers, AND

b. A primary component of which involves the exercise of independent judgment and discretion about matters of significance.

Generally speaking, the administrative exemption is valid for high-level employees who keep the business running. Merely handling the finances or performing secretarial or receptionist duties is not enough to pay an employee salary; however, an executive secretary may qualify for salary exempt positions.

The Darker Side…
Finally, keep in mind that titles have nothing to do with determining whether or not an individual qualifies to be exempt from overtime. An individual can have a management title but still not be permitted to be a salaried exempt employee.

Wage and hour claims continue to be the fastest growing area of class litigation today. Under current regulations, employers may be required to pay employees back wages for up to two years of overtime (three if the employer is found guilty of willfully violating the statutes); employees may also be awarded an equal amount as liquidated damages. Furthermore, employers can expect to pay additional penalties of up to $1,100 for each violation.

Should President Obama be successful in his initiative, many employers could find themselves paying overtime to a larger and higher-compensated employee pool. There is no way to predict the minimum pay threshold for this initiative; however, the suggestion was made that significant changes should be considered for the professional and executive exempt employees – typically the highest paid employees in any company. Imagine if you will what would happen to your organization if the minimum pay threshold became $1,200 or more per week?

What to do Next…
For employers still trying to unravel and recover from the mysteries surrounding penalties and financial requirements for the Affordable Care Act, this is not good news. But IBTX never presents you with a challenge without having a solution.

1. Create or review your job descriptions to ensure that the duties meet the salary exempt classification.

2. Review your current salary exempt positions first. Remember: pretty much everyone can be paid hourly non-exempt but not everyone can be paid salary exempt.

3. Make sure your employees understand his or her duties; if the Department of Labor were to audit your employees, would said employees know that they are “in charge” of a department in a way that supports an exempt status?

4. Make sure each employee signs off on the job descriptions and affirms that all his or her questions were answered to their satisfaction.

5. Have your non-exempt employees sign timecards and especially sign off on any changes made to the timekeeping records. If an employee asserts he or she worked overtime and you cannot prove otherwise, you will have to pay the employee.

6. Update your handbooks to reflect clock in/clock out policies and enforce these policies. If it is not written down, it happened exactly as the employee said it happened!

7. Have a third-party conduct an audit of your exempt positions to help you determine your exposures and options for remedying the misclassifications. Job descriptions are difficult, tedious and usually the most dreaded business task; giving this over to a professional can save you time, money, and certainly, ulcers.

IBTX can assist you with advice and information about FLSA liability and compliance. Consider teaming up with IBTX’s FLSA and HR Services professionals. We can help guide your clients and your agency into compliance.

Please contact or call us at 800.880.6698 for information about our Human Resources Services or to schedule a meeting today.

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