New Department of Labor Rules Will Impact Salaried Non-Instructional Employees

On May 18, 2016, the U.S. Department of Labor announced final rule changes to the Fair Labor Standards Act that significantly increase the salary amount an employee must earn to meet the administrative and executive exemptions from overtime pay. The final rule, however, does not make any changes to the “duties test” that also must be satisfied for administrative and executive salaried employees to be considered exempt. While these rule changes do not take effect until December 1, 2016, school officials should audit employee classifications and comply with the new rules for the start of the 2016-17 school year.

The FLSA exempts certain employees from its overtime and some recordkeeping requirements. School teachers and instruc­tional administrators are generally treated as exempt professionals under the FLSA, and certain non-instructional school employees who perform administrative or executive functions also may be treated as exempt.

To qualify for the FLSA’s “administrative” exemption, an employee must perform non-manual duties related to management or general business operations and exercise discretion and independent judgment as to matters of significance. For the FLSA’s “executive” exemption, an employee must manage the employer’s operations as part of the employee’s primary duty, direct the work of two or more employees, and have managerial authority over two or more employees (e.g., the authority to hire and fire). Additionally, the new rules for both the administrative and executive exemptions provide that the employee must earn a salary of at least $47,476 annually (or $913 per week). This results in an increase that is more than double the current level of $23,660 annually (or $455 per week). The final rule provides for the automatic updating of this salary threshold every three years, beginning January 1, 2020. Each update will revise the salary threshold to the 40th percentile of full-time salaried workers in the lowest-wage census region, which the DOL currently estimates will be $51,168 in 2020.

In the school context, this rule change will affect salaried employees whose primary duties do not include implementing the school’s curriculum (e.g., central office staff and operations and transportation staff). Salaried employees who were once exempt under the administrative or executive exemptions may no longer qualify and may be entitled to overtime pay beginning December 1, 2016. These rule changes may result in an increase to a school’s labor costs. School officials may need to reassign duties among salaried employees to avoid paying overtime.

School officials should audit their school’s FLSA compliance by analyzing whether employees who have historically been treated as exempt meet the requirements for the particular exemption for their assignment, including the increased salary level. School officials should implement a comprehensive recordkeeping system

that tracks all hours worked by non-exempt employ­ees. The failure to appropriately track hours worked will lead to a separate violation of the FLSA. Poor recordkeeping may cause schools significant problems if an employee brings an FLSA claim.

Failure to appropriately classify employees as “exempt” or “non-exempt” or failing to accurately track hours worked by employees could result in significant legal liability, including treble damages in certain cases. We expect to see an increase in DOL complaints and lawsuits filed by employees seeking overtime compensation for claimed misclassification.

Thrun Law Firm will continue to provide additional information on the DOL’s recent rule changes and further discuss the steps school officials should take to ensure compliance with the FLSA.