What Changes to the FLSA Exemption Salary Threshold Mean for Retailers
On Sept. 24, 2019, the U.S. Department of Labor (DOL) announced a final rule to revise Fair Labor Standards Act (FLSA) regulations (29 CFR 541 et seq.) to modify the criteria to be classified as exempt from the FLSA (“2019 Rules”). The most notable change in the 2019 Rules is an increase to the minimum salary an employee must be paid to be overtime exempt — from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). The DOL estimates that when the 2019 Rules are implemented in 2020, more than 1 million U.S. workers will no longer qualify for an exemption and will have become eligible for overtime pay and other FLSA protections.
The second component of the 2019 Rules, the “Duties Test,” remains unchanged from existing regulations. The duties an employee performs remain a critical component of the criteria for FLSA exemptions. The Duties Test dictates that to be exempt from overtime pay, employees must perform their jobs such that their “primary duty” is exempt. An employee’s primary duty still must satisfy the criteria for an exemption to be classified as exempt from the FLSA.
The goal of this article is to describe scientifically based methodologies that can be used to determine whether employees’ “primary duties” qualify them to be overtime exempt. Each methodology is based on well-established job analysis techniques and is designed to collect detailed data on the work employees actually perform, the amount of time they spend performing that work, and the context in which that work is performed. We've developed and refined these job analysis methodologies over many years, specifically to address the key issues relevant to assessing an employee’s exempt status, and have used them with many clients in both a consulting role and in response to litigation.
The Exemption Job Analysis
The specific method of data collection should be selected and customized based on the specifics of the job and the exemption(s) being evaluated. Having executed more than 100 exemption studies for many different positions across a variety of industries, we offer a general framework for the evaluation process.
The common theme across the following methods is primary data collection. Reviewing documents that provide high-level descriptions of the work that employees in certain positions are supposed to do (e.g., job descriptions) provides some value, but in isolation these documents are limited. In many situations, employers will benefit from a review of data that shows what employees actually do on the job.
The most appropriate job analysis methods for collecting valid and reliable data to evaluate exemption status are one, observing and documenting how employees perform their work or, two, collecting verbal/written self-reports from employees about the work they perform. Each method is based on scientifically sound job analysis techniques. The appropriate method for a given organization or job is dependent on several factors, such as: the type of work performed, the language ability of employees, the geographic disparity of employees, and even practical considerations such as cost and time. Most important, the method selected must be capable of generating valid and reliable data. We describe these methods further below.
Time and Motion Observations
Time and motion observation studies result in a robust data set that many readers find particularly compelling. Observations involve a trained job analyst directly observing and documenting a continuous record of all tasks an employee performs throughout the day, along with the duration of each task performed. One advantage of this method is that data are collected from an objective professional who directly observes and documents the tasks performed in a given work environment. This ensures that data are free from biases or memory decay that may lead to inaccurate self-reports. Once collected, individually recorded tasks can be grouped into exempt and non-exempt categories and analyzed to provide an overall percentage of time spent on different exempt activities.
- Job Analysis Questionnaires: A second method for evaluating exemption classifications is a self-report job analysis questionnaire. This method involves collecting from employees and/or their managers self-report responses to a series of written questions. Based on current science and best practices in the field, the job analysis questionnaire is an instrument carefully and specifically designed to accurately measure employee behaviors in the workplace. A self-report questionnaire can be administered to a large number of employees relatively inexpensively. In addition, data can be collected regarding past experiences, and questions can be asked about issues that may be difficult to observe, such as decision-making authority or the reason tasks are performed. Self-report data collection can be used independently or in conjunction with other methods.
- Structured Interviews: Another self-report tool is the structured interview. The same foundations of job analysis practice are used to form the basis of the structured interview. However, unlike the job analysis questionnaire, which typically contains mostly closed-ended (i.e., fixed scale) questions, the structured interview contains mostly open-ended questions. Open-ended questions allow employees to elaborate and provide significant detail in their responses. These types of interviews can result in interesting and illustrative examples of different scenarios and circumstances. In addition, follow-up questions can be built into the tool to capture the drivers that lead to different employee behaviors. Some interviews may incorporate both open- and closed-ended questions, which can expedite the interview and provide numeric data to analyze.
Changes to the salary component of the FLSA regulations have emphasized the continued importance of the Duties Test in assessing which employees qualify for an exemption. Employers may choose to evaluate how their employees’ duties are aligned with the current exemptions. In our experience, conducting a thorough job analysis is the most effective approach to evaluating the exemption status of employees. The most appropriate approach to conducting the job analysis depends on the specifics of an organization and the position being studied.
Disclaimer: Each of the methods presented above describe data collection options that can be used to inform job classification decisions. However, we recommend seeking legal counsel before making any decisions related to classification. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.
Elizabeth Arnold is a director in the Labor and Employment Practice at Berkeley Research Group (BRG), and has been advising clients on issues related to employment practices and wage and hour compliance for more than 18 years. Chester Hanvey provides consulting services and expert testimony on labor and employment matters for BRG. Keith Jelinek is a managing director in BRG Corporate Finance, leading the Performance Improvement Practice.
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Keith Jelinek is the managing director, retail and consumer practice, Berkeley Research Group (BRG), a leading global strategic advisory and expert consulting firm.
Keith Jelinek has held management positions and led and advised Fortune 100 retail companies to drive transformational improvements for more than thirty years. Before joining BRG, he was a senior managing director in the Retail Performance Improvement practice of a global business advisory firm. Prior to that, he assisted the launch of the Retail Performance Improvement team at an international business management consulting firm, where he twice received the Achievements in Excellence Award for delivering results far exceeding client expectations.
Chester Hanvey, PhD provides consulting services and expert testimony on labor and employment matters for BRG. Dr. Hanvey has worked with more than 100 organizations across a range of industries including public and private sectors. He specializes in designing and conducting job analyses, conducting statistical analyses, and reviewing personnel selection systems to evaluate wage and hour compliance, appropriateness of class certification, allegations of employment discrimination, and damages. Dr. Hanvey has been retained by plaintiffs and defendants as an expert witness to provide expert testimony on issues including wage and hour compliance, statistical sampling, statistical analysis, damages calculations, adverse impact and test validity.
Elizabeth Arnold is a Director in the Labor and Employment Practice at Berkeley Research Group and has been advising clients on issues related to employment practices and wage and hour compliance for more than eighteen years. She provides expert services to counsel, employees, and companies nationwide and has specific expertise in the retail industry. Ms. Arnold develops and implements customized research methodologies that address complex legal compliance issues at the state and federal level. She has conducted more than 150 studies and her engagements often include studying store operations and identifying the tasks and responsibilities of employees. Ms. Arnold provides advisory consulting and expert testimony. Clients have used results from her studies to modify company practices and policies, and at multiple stages of active litigation.