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September-October 2022

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PalletCentral • September-October 2022 27 The Exemption Puzzle It follows that all employers should make a point of correctly categorizing workers as either exempt or non-exempt from overtime. Businesses with only local traffic often believe that overtime law does not apply to them, since the FLSA covers enterprises engaged in interstate commerce. In reality, any local enterprise comes under the FLSA umbrella if it performs seemingly innocuous tasks such as making phone calls or sending emails to vendors or customers in other states, transacting credit card payments with distant entities, or receiving goods or services from beyond state borders. "It's the rare business that is not involved in some way with interstate commerce," says Matthew C. Heerde, Principal at Heerde Law in New York City. Small businesses may also believe they can ignore overtime law because their revenues come in under the $500,000 level at which the FLSA normally kicks in. Yet even the smallest operation is covered by the FLSA on a so-called "per-employee basis" if even a single worker spends a substantial amount of time performing the tasks enumerated above. Finally, state and local overtime laws that mimic FLSA regulations often apply to the smallest of employers, regardless of interstate commerce status. Errors are easily made. "Employers most often get into trouble for misclassifying employees as exempt," says Witte. Ignorance of the law is no excuse, he adds, and wise businesses keep paperwork to support their decisions. "e burden of proving exempt status is on the employer." Employers must be able to convince regulators that exempt personnel fall into one of the so-called "white collar categories" labeled executive, professional or administrative. Exemptions may also be granted for some people who are computer professionals, engage in outside sales, or are highly compensated. (Employers can review the complete duties tests by visiting dol.gov, then clicking on "Topics" and "Work Hours.") Exempt individuals must earn at least $684 a week, which translates to $35,568 per year. Nondiscretionary bonuses and commissions, paid annually or more often, may be used to satisfy up to 10 percent of that level, which many observers believe is due for an increase. "I think you're going to see the Biden administration raise the salary threshold, perhaps linking it to cost of living increases," says Witte. Paycheck size alone, though, is not sufficient criteria. "Employers sometimes fail to understand that exemption from overtime requires not only meeting the salary threshold, but also passing the so-called 'duties test,'" says Heerde. While the duties tests vary by exempt category, they boil down to one essential: e exempt person must exhibit sufficient independent authority to make essential decisions in their daily work. Just being assigned an impressive- sounding job title is not enough. Changes Coming Employers should brace for changes in these exemption parameters. "e DOL is likely to take a strong look at the duties tests for white collar exemptions," says Witte. "e language has not been tweaked in recent years to reflect the way people work today. It may become harder to prove that a certain individual exercises independent judgment and authority rather than just processes papers or follows a flow chart of actions." As the above comments suggest, qualifying for exempt status often requires judgment calls – and that's just where employers often get into trouble. ere is a common temptation – conscious or otherwise – to classify people as exempt to avoid the costs of overtime. is is exactly the problem the Biden administration has stated it wants to address. State and local governments have also been tightening regulations and increasing inspections to ensure that exempt personnel are really exercising management- level decision-making. Up for special attention, say workplace observers, is the administrative exemption. "Many times, employees do not really qualify because they do not have sufficient authority or enough qualifiable duties," says Witte. "is problem has been on the DOL radar for some time. Employees have filed complaints, and there have been class action lawsuits." Misclassifications can be costly for employers, especially when an exempt individual's salary has steadily increased over time. "Sometimes an employer will react to a steadily rising paycheck by saying something like, 'is person has been starting to work too much overtime – let's just make them There is a common temptation – conscious or otherwise – to classify people as exempt to avoid the costs of overtime.

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