Department of Labor Issues Final Rule
by Amy Kleinschmit
Chief Compliance Officer
10/10/2019

DOL Overtime Rule.

The Department of Labor (DOL) recently announced their final rule that updates the earnings threshold to exempt executive, administrative or professional employees from the Fair Labor Standards Act (FLSA) minimum wage and overtime pay requirements. The final rule updates both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees” to reflect growth in wages and salaries. In its announcement, the DOL estimates that as a result of the final rule 1.3 million currently exempt employees will become nonexempt – or in other words, now be entitled to overtime.

Effective Date – January 1, 2020.

Final Rule

Small Entity Compliance Guide

FAQs

There is a three part test that must be met for an employer to exempt an employee from FLSA minimum wage and overtime requirements. Generally, the parts of this test are: 

(1) PAYMENT ON A SALARY BASIS: The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed;

(2) PAYMENT OF A MINIMUM SALARY LEVEL: The amount of salary paid must meet a specified minimum amount; and

(3) A DUTIES TEST: The employee’s job duties must primarily involve those associated with exempt executive, administrative, professional, outside sales, or computer employees.

Remember, as explained in the small entity compliance guide – “Job titles alone do not determine exempt status, and neither does the receipt of a particular salary. In order for an exemption to apply, an employee’s specific job duties and earnings must meet all of the applicable requirements. It is important to note that simply paying an employee a salary does not relieve an employer of minimum wage and overtime obligations to that employee. Unless they meet the criteria of a specific exemption, employees covered by FLSA protections who are paid a salary are still due overtime if they work more than 40 hours in a week.”

When this final rule takes effect on January 1, 2020, the “standard” salary level will be $684 per week (equivalent to $35,568 annually for a full-year worker). This is increased from the current $455 per week. The total annual compensation requirement for highly compensated employees will be $107,432 per year (increased from the current $100,000 per year).

The final rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary test requirement. Such bonuses include, for example, nondiscretionary incentive bonuses tied to productivity or profitability (e.g., a bonus based on the specified percentage of the profits generated by a business in the prior year). The Department recognizes that some businesses pay significantly larger bonuses; where larger bonuses are paid, however, the amount attributable toward the EAP standard salary level is capped at 10 percent of the required salary amount.

For employers to credit nondiscretionary bonuses and incentive payments (including commissions) toward a portion of the standard salary level test, such payments must be paid on an annual or more frequent basis.

If an employee does not earn enough in nondiscretionary bonuses and incentive payments (including commissions) in a given 52-week period to retain his or her exempt status, the Department permits a “catch-up” payment at the end of the 52-week period. The employer has one pay period to make up for the shortfall (up to 10 percent of the standard salary level for the preceding 52-week period). Any such catch-up payment will count only toward the prior 52-week period’s salary amount and not toward the salary amount in the 52-week period in which it was paid. If the employer chooses not to make the catch-up payment, the employee would be entitled to overtime pay for any overtime hours worked during the previous 52-week period.

Contact Amy Kleinschmit with any compliance related questions.

 

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