FLSA Endangered Species: The Part-Time Exempt Employee

With the Department of Labor planning to release new Fair Labor Standards Act (FLSA) regulations in 2016, one question that I get frequently is what will happen to part-time exempt employees–professionals (nurses, accountants, etc.), managers, or other administrative personnel who are treated as exempt from the FLSA’s minimum wage and overtime requirements.  My answer is that part-time exempt employees are likely an endangered species.  If your business takes advantage of part-time exempt staff, start planning now for how to restructure those positions.  To understand why, let’s look at a common example.

Assume that an employer pays its assistant store manager $500 per week on a salary basis for working a half-time schedule of roughly 20-25 hours per week and that the manager meets all of the requirements for the FLSA’s executive exemption.  No problem, right?  The current minimum salary level under the FLSA regulations is $455 per week, $45 below the manager’s salary.  The employer is free to treat this employee as exempt for now.  However, what happens after the 2016 regulations take effect?  Depending on changes in the CPI, we’ll see the salary level jump to roughly $970 per week.  Can the employer continue to pay an exempt manager only $500 per week?  Can it prorate the salary, given that the manager works only a half-time schedule?  Unfortunately, no.  The $970 salary level (and the current $455/week level) do not have any exceptions.  Even the fact that the exempt manager only works half time does not make a difference here.  The DOL Wage and Hour Division has observed that the FLSA regulations do not permit employers to take part time status into account when determining whether a salary level meets the exemption’s requirements.  In a 2008 opinion letter, WHD explained clearly that “the salary requirement of $455 per week may not be prorated to reflect reduced hours, and the employee paid a salary of [less than that] does not qualify for the exemption. . . .”.

Upshot for Employers

A part-time manager, nurse, engineer, or other employee who currently meets the salary level test but will fall below it after the DOL releases its new regulations may not require much adjustment.  Some employers might decide to change a part-time exempt employee’s compensation method, such as by paying him or her on an hourly basis.  However, a drastic change like this may not be necessary in many cases.

In our example above, if the assistant store manager will only work 20-25 hours per week, maintaining the existing $500/week salary is unlikely to alter the employer’s compensation expenses substantially.  Remember that just because an employee receives a salary does not mean that they are exempt from overtime.  Here, the store could simply continue to pay $500 per week.  Even if the assistant store manager worked 25 hours in every workweek, then a $500 per week salary represents $20 per hour, well above the minimum wage required by any current federal, state, or local regulation.  Of course, in weeks where the store manager happens to work more than 40 hours per week, then the employer would owe him or her an overtime premium for all hours worked over 40.  The real potential headache here is in tracking hours.  Unless your state or local requirements differ, employers are not required to track the hours that exempt employees work during a workweek.  Part-time exempt employees who get shifted to non-exempt status by virtue of the new FLSA regulations will also trigger additional recordkeeping requirements, too.

Restructuring these positions is necessary, but not necessarily difficult.  Whenever you move employees from exempt to non-exempt status for any reason, be sure to cover any additional recordkeeping requirements and consider the effect that the change will have for state and local laws as well.