A recent speech by Labor Secretary Thomas Perez at the IAFF conference provided some details about the changes to the managerial exemption to the Fair Labor Standards Act (“FLSA”). Significantly, Secretary Perez reiterated that the current salary threshold of $455 is inadequate and that the primary duties test creates an employer friendly “loophole” that is used to prevent many low income employees from earning overtime.
The last changes to the managerial exemption occurred in 2004 when the salary threshold was raised from $250 to $455. This was the second increase in the 40 years the exemption has existed. The remarks by Secretary Perez mirror those made by President Obama back on March 13th that the current $455 threshold is inadequate.
Secretary Perez also discussed changing the primary duties test (which requires the Department to look at multiple subjective factors that are part of the employee’s duties in determining if the employee is exempt) to a test that focuses on the time spent on a particular duty. As Secretary Perez stated, the current “loophole” means: “quite literally somebody can work 1 percent of the time on management issues, 99 percent stacking the shelves and doing other work that has nothing to do with management, and you’re considered a manager, and you are no longer entitled to overtime.”
This criticism was attributed to a 2013 case in the 4th Circuit where the Court of Appeals held Family Dollar employees were exempt even if they spent most of their time on non-managerial tasks such as restocking shelves despite working 50-65 hours per week and earning between $400 to $655 while working at the chain.
Although no rules have been proposed at this time, there is no doubt that the Department of Labor is currently working to overhaul this exemption before the mid-term elections in November.
We will keep you posted on any changes to the FLSA exemptions as well as help you determine if your current employees are exempt.