Before employers start planning Thanksgiving potlucks or holiday parties, they need to set some time aside to ensure that they are in full compliance with the new Overtime Rules that will impact exempt employees on January 1, 2020.
Among other things, the Fair Labor Standards Act, or the FLSA, requires employers to compensate covered, non-exempt employees for overtime at a rate of one and one-half times the regular rate of pay for all hours worked above forty hours in a workweek. To be exempt from this general rule, employee positions must satisfy strictly enforced and narrowly construed “duties tests” under the FLSA.
Employers must understand that job titles do not determine exempt status and neither do statements or provisions included in employment agreements; rather, for an exemption to apply, an employee’s specific and actual job duties and salary must meet all the requirements of the FLSA. An exemption is determined by what the employee does on a day-to-day basis and not by a description appearing in any job description or company handbook. Finally, the burden of properly classifying an employee always rests with the employer exclusively; and the risks associated with an employer improperly classifying an employee are extensive.
Under the new Rule, minimum salary thresholds for the FLSA’s white-collar exemptions will increase. Notably, however, these changes will not impact the duties test. In summary, the new Rule provides for the following changes:
- The minimum salary threshold for exempt employees will increase from $455 a week to $684 per week, or a biweekly wage of $1,368, which annualizes to $35,568 per year. This means that workers who do not earn at least $35,568 a year will be entitled to overtime, even if they otherwise satisfy the FLSA’s duties test. Unlike in the past, the new Rule allows employers to use nondiscretionary bonuses and/or incentive payments to satisfy up to 10 percent of the salary threshold (which means a weekly threshold of at least $616). Such bonuses or incentive payments must be paid at least annually. Employers are permitted to make one “catch up” payment if an employee does not earn enough nondiscretionary bonuses or incentive payments in any given year, so long as the payment is made within one payday of the end of the 52-week period.
- The exemption for the highly compensated employee requires an increased annual compensation of $107,432 per year, of which $684 must be paid weekly on a salary or fee basis.
Before these upcoming changes take effect, we recommend that employers conduct a wage and hour audit of their exempt positions to ensure that exempt employees are paid at least the minimum salary, with or without a nondiscretionary bonus or incentive payment. We further recommend that employers review the FLSA’s duties tests to ensure that exempt employees are, in fact, properly classified as exempt. Ward Damon’s Labor and Employment Team stand ready to assist employers in conducting wage and hour audits, evaluating positions to ensure proper classification and, if need be, transitioning positions from exempt to non-exempt status.
Bari Goldstein is a partner at Ward Damon who focuses her practice on preventative labor and employment defense work and represents and counsels private, not-for-profit and public sector employers on varied regulatory, administrative and litigation issues that affect all aspects of the employment relationship. Ken Rehns is a partner at Ward Damon who primarily focuses on business and commercial law, labor and employment litigation as well as complex commercial litigation. If you have Employment & Labor matters that you would like to discuss, you can contact Bari at email@example.com, contact Ken at firstname.lastname@example.org, or call 561-842-3000.