Client Alert
Neal F. Perryman, Brian P. Pezza, Griffin A. Lowry
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On January 1, 2020, the U. S. Department of Labor’s (DOL's) long-awaited final rule updating the Fair Labor Standards Act’s (FLSA's) white collar exemptions will take effect. Most notable among the updates is the increasing of the minimum salary thresholds for overtime-exempt executive, administrative, and professional employees. The DOL estimates that these changes will affect at least 1.3 million workers who are currently classified as exempt.
This gives employers approximately 60 days to (1) understand the rule, (2) evaluate its impact on their organizations, and (3) implement any necessary changes.
The final rule raises the new minimum salary threshold (the "salary basis test") from $23,660 ($455 per week) to $35,568 per year ($684 per week). This is a significant increase, but it is a far cry from earlier, invalidated efforts from 2016. The final rule also allows for nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level, provided that these payments are quarterly or more frequent. This means that up to $3,557 of the total salary amount can be accounted for via bonuses. The rule also raises the rarely used “highly compensated employee” salary level to $107,423.
The final rule does not change the FLSA's duties tests, which determine whether an employee's current job responsibilities would allow the employee's being classified as overtime exempt. This means that classification as exempt is valid only if an employee (1) earns at least $684 per week on a salary basis, and (2) has the primary duties that would fulfill the applicable category (executive, administrative, or professional).
The final rule also omits any mechanism to automatically adjust salary levels for inflation, meaning that future increases must first go through a new rulemaking process.
Employers must quickly assess their workforce and determine whether they currently have exempt employees making less than $684/week. If so, employers must then evaluate whether to (1) increase their salary to be in compliance with the new threshold, or (2) reclassify them as non-exempt, thus making them eligible for overtime compensation.
Here are basic steps employers should consider to ensure that they make the best possible decision for their organizations:
When making these difficult decisions, the following considerations should be kept in mind:
With the January 1, 2020 deadline quickly approaching, contact a Lewis Rice Labor & Employment attorney if you have questions about the changes or need help evaluating your workplace compensation practices. These changes are sure to affect your business in one way or another, and we understand you might want help evaluating all available options.