Taking Proactive Steps to Comply with New FLSA Rules

As reported in the May 26, 2016, edition of School Law Notes, the U.S. Department of Labor recently announced final rule changes to the Fair Labor Standards Act (FLSA) (effective December 1, 2016) that significantly increase the salary amount an employee must earn to meet the administrative, executive, and professional exemptions from overtime pay. This article addresses proactive steps school officials should take to audit compensation practices to avoid legal liability under the FLSA.

New Salary Basis Test

Generally, the FLSA requires employers to compensate all employees at a rate of time-and-a-half for hours the employee works in excess of 40 hours per week. However, the FLSA provides “exemptions” from overtime pay for employees who perform certain duties (the administrative, executive, and professional exemptions). To be exempt, these employees currently must receive annual compensation on a salary basis above $23,660. As amended, the salary basis test will increase to $47,476 annually, effective December 1, 2016, subject to adjustment every three years.

Because of this significant increase in the “salary basis test,” it is likely that, as of December 1, 2016, some school employees who are currently treated as exempt will no longer meet the new salary basis. Consequently, school officials should use the next several months to audit and evaluate how their school is categorizing employees and utilizing FLSA exemptions.

Exemption for Teachers and Academic Administrators

Generally, teachers for Michigan K-12 schools who have a primary duty of “teaching, tutoring, instructing or lecturing in the activity of imparting knowledge” are exempt from the FLSA’s overtime pay requirements, even if the individual teacher earns a salary less than the threshold amount. Additionally, administrators for Michigan K-12 schools whose primary duty is “performing administrative functions directly related to academic instruction or training” also are exempt from the FLSA’s overtime pay requirements. Even though these “academic administrators” are required to meet a modified salary basis test, their salaries need only be equal to the entrance salary for teachers at the school to be exempt.

Non-Academic Administrators

In contrast, school employees who perform roles related to operations, transportation, accounting, or general administration must meet the salary basis test and fit within a specific FLSA exemption or the employee will be entitled to overtime pay.

Monetary liability for unpaid overtime can add up quickly, especially if a class of employees is involved. It is, therefore, critical for school officials to know which employees are now being treated as exempt, whether each of these employees actually qualifies for the exemption claimed, and whether any of these employees are in reality non-exempt and should be paid overtime compensation. This information should be included in an employee’s personnel file and evidenced by records kept for each employee because the FLSA has strict recordkeeping requirements for exempt and non-exempt employees.

Duties Test Unchanged

In addition to satisfying the salary basis test, school officials also must ensure that an employee’s job duties actually meet the duties test for any claimed exemption (as described below). Generally, non-academic school employees who are exempt from overtime pay satisfy one of three exemptions: (1) the executive exemption; (2) the administrative exemption; or (3) the professional exemption.

Executive Duties

For employees classified as exempt under the “executive” exemption, school officials should verify that the employee’s primary duties (i.e., what the employee spends more than 50% of his/her time performing) include: (1) the management of the school in which the employee is employed or of a customarily recognized department or subdivision of the school; (2) the direction of two or more other employees; and (3) the authority to hire or fire employees, or the employee’s hiring/firing sug-gestions are given particular weight.

The term “management” generally includes activities such as interviewing, selecting, and training employees; setting and adjusting pay rates and work hours; directing employee work; and disciplining employees. Operations directors and transportation directors are examples of employees who may meet the executive exemption.

Administrative Duties

For employees classified as exempt under the “administrative” exemption, school officials should confirm these employees’ primary duties include: (1) the performance of office or non-manual work directly related to school management; and (2) the exercise of discretion and independent judgment with respect to significant matters. This exemption could include a business manager or other central office staff members, depending on specific job duties performed.

Professional Duties

Employees classified as exempt under the “professional” exemption must have a primary duty that is the performance of work requiring advanced knowledge, defined as work which is predominately intellectual in nature and which includes consistently exercising discretion and judgment. The advanced knowledge must be in a field of science or learning and acquired through a prolonged course of specialized intellectual instruction. School psychologists or speech pathologists may qualify for this exemption.

To avoid potentially expensive overtime compensation claims from employees, school officials need to ensure that employees who are classified as exempt actually meet the relevant legal standards under the FLSA. School officials should start by identifying all school employees who do not serve in an academic role and who are classified as exempt employees. From there, school officials must scrutinize whether each employee classified as exempt meets both the duties test and the salary basis test. If not, school officials either must reclassify these employees as non-exempt or adjust salaries and duties as necessary to maintain exempt status. School officials also must track/record hours worked as necessary to ensure that employees who are entitled to overtime pay receive it.