One of the most frequently asked questions we field at the EA is the exempt versus non-exempt question. For example: "All my employees are salaried; therefore, they're all exempt from overtime, right?" Well, not exactly. How you pay an employee doesn't determine whether they're exempt from the overtime rules. The process of determining whether an employee is exempt or non-exempt can be confusing. But employers need to determine employees' classifications to pay them in an appropriate, legally compliant fashion.
Being classified as "exempt" means an employee isn't subject to either Illinois' or the federally mandated Fair Labor Standards Act (FLSA). In short, it means the employee doesn't have to be paid for working overtime. To determine an employee's exempt status, your company must follow the more stringent of the regulations between the state and federal guidelines. If an employee is non-exempt, employers must pay covered employees a minimum wage, plus overtime for hours worked in excess of 40 in a workweek.
New Illinois Law Adds to the Confusion
While the United States Department of Labor recently passed the long-awaited final regulations April 20, revising the definitions of who can be exempt for overtime payment under the federal FLSA (being called the Fair Pay Rules) for the first time in more than 50 years, Illinois signed into law, effective April 2, a bill amending the state's Minimum Wage Law, which governs overtime pay as well. Under the Illinois Law, the definitions of an exempt executive, administrative, and professional employee in Illinois are effectively the same as those in existence the day before the Department of Labor issued its proposed revisions.
Prior to the new law, Illinois had essentially "piggybacked" on the FLSA's overtime exemptions; that is, if an employee was considered exempt from overtime requirements under the FLSA and its implementing regulations, the Illinois Minimum Wage Law generally held the employee exempt from Illinois' overtime pay requirements. This situation allowed Illinois employers to determine exempt/non-exempt status by reference to the FLSA and its long history of regulations, administrative interpretations, and case law. Employers knew if they made the correct determination under federal law, they also would be in compliance with Illinois state law. That will no longer be the case.
What Do These Changes Mean For You?
Not only will Illinois employers have to ensure they've correctly classified employees as exempt under the Illinois law, incorporating the regulations in effect from 1950 through 2003, but federal law.
The amendments to the Illinois law adopted the higher salary thresholds that will be in effect under the new Fair Pay rules. Thus, to meet the salary exempt test under Illinois state law, effective immediately, employees who may have been eligible for the executive, administrative, or professional exemption will no longer be eligible unless they make at least $425 per week-$22,100 per year-regardless of their job duties.
Given that the Illinois law became effective immediately April 2, all employers with employees in Illinois should revisit their exempt employee classifications to ensure each exempt employee is earning the new, higher threshold salary. However, effective August 20, employers will have to meet the final federal minimum of $455 per week or $23,660 per year.
This is a good reminder, too, that employers should review the accuracy of job descriptions and actual job duties to ensure, first, that they meet the current legal requirements for exempt status and, second, that they'll meet the new requirements of the federal changes to be implemented.
As I stated earlier, the process of determining whether an employee is exempt or non-exempt can be confusing. While this article certainly doesn't cover the myriad details of either the new Fair Pay Rules or the amendment to the Minimum Wage Act, hopefully it will prompt employers to review payroll practices and job descriptions to ensure employees are being compensated appropriately under the state and federal rules. IBI