DOL RELEASES FINAL RULES ON OVERTIME EXEMPTIONS
September 27, 2019
On September 24, 2019, the United States Department of Labor (DOL) released its Final Rule updating the standard salary levels necessary to qualify for the executive, administrative and professional exemptions to the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. The Final Rule is effective on January 1, 2020.
This update marks the first since 2004 that these salary levels have been adjusted. By raising the standard salary level, the Final Rule is expected to “make approximately 1.3 million American workers newly eligible for overtime pay.” Therefore, employers, both public and private, should be aware of these new thresholds when classifying employees as exempt vs. non-exempt under the FLSA.
Under current DOL regulations, an employee performing executive, administrative, or professional duties are exempt from the minimum wage and overtime rules of the FLSA if that employee earns more than $455 per week or $23,660 per year. The Final Rule increases this “standard salary level” to $684 per week or $35,568 per year.
In addition to the increased standard salary level, the Final Rule allows an employer to count discretionary bonuses towards an employee’s compensation calculation. In the past, the DOL has excluded discretionary bonuses from an employee’s compensation for the purposes of the standard salary level. The Final Rule provides that 10% of an employee’s salary may be in the form of a discretionary bonus, while the remaining 90% must still be paid on a salary basis. Therefore, to maintain an employee’s exempt status, employers cannot rely on discretionary bonuses totaling more than 10% of the standard salary level, $3,536.80, to classify an employee as exempt.
Finally, the Final Rule introduces a new “catch-up” payment provision. If an employee’s compensation falls short of the standard salary level for a given year, the employer may make a one-time payment to the employee to raise the employee’s yearly salary above the threshold requirement. The payment would only count towards the previous year’s salary, and the one-time payment could not exceed 10% of the standard salary level or $3,536.80. These “catch-up” payments must be made within one pay period of the end of the proceeding 52-week period. If a “catch-up” payment is not made, the employee would be entitled to overtime pay for any overtime hours worked during the previous 52-week period.
It is important to remember that certain school district employees are not subject to the salary basis requirement. For example, teachers are exempt from the FLSA’s overtime regulations independent of the standard salary level. In addition, academic administrative personnel are subject to separate exemption tests under the FLSA and are unaffected by the Final Rule. However, other employees who were previously classified as exempt under the FLSA as executive, administrative, or professional employees could soon become non-exempt if their salaries do not meet the new standard salary level.
Employers should take the remainder of the year to review exempt employees’ salaries and job descriptions. Employers will need to determine whether such employees remain exempt under the Final Rule. If the Final Rule affects an employee’s exempt status, employers must decide whether to adopt a strategy for adjustment, such as increasing an employee’s salary to ensure they remain exempt or establishing rules about working hours for those employees who will no longer be classified as non-exempt. Properly classifying employees will ensure that employers do not find themselves defending against a wage dispute.
For questions regarding this article, please contact the author, Attorney Colin M. Lane (email: firstname.lastname@example.org; telephone: 844-626-0909), or your Strang, Patteson, Renning, Lewis & Lacy, s.c., attorney.
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