On May 18, 2016, the U.S. Department of Labor announced its Final Rule setting forth the new requirements employers must meet to properly classify their employees as “exempt” from federal overtime standards.
These new requirements go into effect on Dec. 1, 2016, and because misclassification can result in enormous costs and liability, it is imperative that employers start planning now to be ready for the change.
What Will be Different Under the Final Rule?
The most significant change is that employers will be required to pay their exempt employees a much higher salary than is currently required.
Under the current regulations, exempt employees must be paid a salary of at least $455 per week (equivalent to $23,660 annually). The new regulations will more than double the minimum salary level, increasing it to $913 per week (equivalent to $47,476 annually).
The Final Rule also permits employers to satisfy up to 10 percent of the minimum salary requirement with non-discretionary bonuses, commissions, or other incentive payments, so long as such payments are made at least quarterly.
Importantly, however, the new regulations do not alter the applicable tests for determining whether the duties performed by employees qualify them for exempt status.
How Will the Final Rule Affect the Exempt Status of Nevada Employees?
Nevada law recognizes the same types of overtime exemptions as federal law: administrative, executive, and professional. If the Nevada exemptions are met, employers are not obligated to pay Nevada overtime.
If the exemptions are not met, however, employers must pay time-and-a-half for hours worked in excess of 40 in a week and, if the employee earns less then one-and-a-half times the state minimum wage, hours worked in excess of eight in a day.
Nevada’s administrative and executive overtime exemptions are co-extensive with federal law. Employers that qualify for the federal exemption will also qualify for the Nevada exemptions.
Therefore, Nevada employees classified as exempt under the administrative or executive exemptions will be directly affected by the new regulations. These employees will lose their exempt status as of Dec. 1 if their salary is less than $913 per week.
The Nevada professional exemption, however, differs from federal law in some respects.
First, an employee may be classified as exempt if “licensed or certified by the State of Nevada for and engaged in the practice of law or any of the professions regulated by chapters 623 to 645, inclusive, 645G and 656A” of the Nevada Revised Statutes.
Dozens of professions are covered by these chapters, including architects, physicians, cosmetologists, and private investigators, to name a few. If employees are licensed by the state and engaged in the practice of any of these professions, they are exempt. There is no minimum salary level requirement.
The second professional exemption under Nevada law is coextensive with the federal-law “creative professional” exemption.
If Nevada employers have employees engaged in “the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor,” they should consult 29 C.F.R. section 541.302 to determine whether these employees qualify for this exemption.
This exemption is subject to the minimum salary level requirement under the new regulations.
How Can Nevada Employers Prepare for the Final Rule?
If employers have exempt employees who are making less than $913 per week, they will need to decide whether to increase these employees’ compensation or reclassify them as non-exempt.
This may require a difficult analysis, as both options will likely come with increased costs stemming from either the obligation to pay higher salaries or the obligation to pay overtime wages to previously exempt employees.
Employers should also take this opportunity to review the job descriptions, performance evaluations, and related policies applicable to exempt employees.
The job description of any exempt employee should closely track the duties of the applicable exemption as set forth in 29 C.F.R. section 541. Also, performance evaluations should center on the employee’s exempt duties.
Employers may implement drop-box policies to require non-exempt employees to report off-the-clock work, and require exempt employees to report the performance of non-exempt tasks.
Employers may also require non-exempt employees to sign an attestation clause each pay period, certifying they have accurately reported all working time.
For additional insights, visit www.suttonhague.com/blog and consult our May 18, 2016 entry containing information and resources for understanding the DOL’s Final Rule.
You can also order an audio recording of Sutton Hague’s 90-minute June 2, 2016 webinar on this topic, by calling 775-284-2770.
Brett Sutton is licensed to practice law in Nevada and California. He is the founder of Sutton Hague Law Corporation, with offices in Reno, Las Vegas, Fresno, and San Jose.
