What Employers Need to Know
The Fair Labor Standards Act (FLSA), which governs federal minimum wage and overtime pay requirements, announced on September 24, 2019 that the Overtime Rule for exempt employees will be effective on January 1, 2020. The change affects exempt employees who are not currently eligible for overtime. The FLSA establishes rules that an employee is either non-exempt (eligible for overtime) or exempt from the act based on the responsibilities of their position and their total salary.
Changes to the Overtime Rule
Workers who do not earn at least $35,568 a year ($684 a week) would have to be paid overtime.
Employers can include non-discretionary bonuses, incentive payments and commissions that are paid on an annual or more frequent basis. These amounts can be used to satisfy up to 10% of the standard salary level.
Increases the total annual compensation level for highly compensated employees from the current $100,000 per year to $107,432 per year.
Meeting the salary cutoff is just one requirement for classifying workers as exempt. Employers should also take the time to review job descriptions to ensure positions satisfy applicable exemption criteria. When evaluating employees, it is possible an employee could meet the salary requirements but still fail to qualify as an exempt employee under the FLSA because the employee might not meet the requirements of the duties test.
What is the duties test?
The duties test can be generally thought of as an employee’s day-to-day responsibilities and role within the organization that determine overtime eligibility. The FLSA’s exempt-level classifications are described below with each having a slightly different duties test.
Executive Exemption. The employee’s primary duty must be managing the enterprise or a department or subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two employees and have the authority to hire or fire workers (or the employee’s suggestions and recommendations as to hiring, firing or changing the status of other employees must be given particular weight).
Administrative Exemption. The employee’s primary duty must be office or non-manual work that is directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty must also include the exercise of discretion and independent judgment with respect to matters of significance.
Professional Exemption. The employee’s primary duty must be work requiring advanced knowledge in a field of science or learning that is customarily acquired by prolonged, specialized, intellectual instruction and study.
Occupations that typically do not qualify for exemption include:
Software and customer support staff
Licensed practical nurses
Day care instructors
Code and compliance inspectors
If there is a question if a position is eligible, it is recommended you contact Human Resources or your legal counsel.
How to comply with the overtime rule
Here are a few steps you can do to be in compliance with the overtime rule effective January 1, 2020.
Review exempt employee’s salaries to see if the salaries are close to the threshold of $35,568 a year ($684 a week).
Review employee job descriptions and update the duties to include any changes of education, credentials, experience and physical requirements.
Compare the new job duties, responsibilities and updated salary level to FLSA requirements for exempt-level classification (see above).
Consider what positions are impacted. Determine positions you wish to reclassify as non-exempt (hourly) or increase the salary above the threshold level to allow the position to remain as exempt. Another option is to determine if the position could be converted to part-time. It is recommended that employers should evaluate the potential overtime cost with raising employee salaries above the new threshold when factoring budgetary information.
Develop a Communication Strategy
If employers decide to reclassify employees to nonexempt status, best practice recommendation is to develop a communication strategy to make sure reclassified employees know they are not being demoted and the change is not a reflection of their performance. Be clear that these changes are based on new government rules.
In addition, as non-exempt employees, they will be required to track their hours and be paid overtime for hours worked over 40 hours in a workweek. Employees and managers should be trained in proper time-keeping procedures.
It may be a good time for employers to evaluate their systems for timekeeping, tracking overtime and paying bonuses as well as update company policies and procedures.
If you need assistance ensuring that your company stays up to date and compliant with all labor laws, we are ready to help. Click on the link below to schedule a complementary consultation.