Preparing For New “White Collar” Overtime Exemption

New Minimum Salary Requirements Take Effect January 1, 2020

Employees discuss new FLSA overtime thresholds in conference roomRecently the U.S. Department of Labor issued a Final Rule changing the minimum salary requirements for the Fair Labor Standards Act. It is estimated that an additional 1.3 million workers will qualify for overtime pay based on the new thresholds.

OLD THRESHOLDSNEW THRESHOLDS
1. Minimum salary level is $455 per week1. Minimum salary level to $684 per week
2. Annual salary level is $23,6602. Annual salary level to $35,568
3. Total annual compensation for Highly Compensated Employee is $100,0003. Total annual compensation for Highly Compensated Employee $107,432

Summary of New Rule

The new thresholds account for growth in employee earnings since 2004, when the current thresholds were set. The rule provides for one threshold regardless of exemption, industry or locality, subject to a few exceptions that already existed.  No changes will be made to the duties test, which is the crux of the relevant exemptions. The changes are limited to the executive, administrative, professional and highly compensated employee exemptions

In addition, the final rule updates the special salary levels for employees in Puerto Rico, the U.S. Virgin Islands, Guam and the Commonwealth of the Northern Mariana Islands ($455 per week), as well as the special base rate for employees in the motion picture producing industry ($1,043 per week).  (On a proportionate amount based on the number of days worked).

Employers are permitted to satisfy up to 10% of the standard salary level with nondiscriminatory bonuses and incentive payments (including commissions) that are paid at least annually. (Discretionary bonuses should not be used for this purpose.) If an employee does not earn enough in nondiscriminatory bonus or incentive payments in a given year (52-week period) to retain his/her exempt status, the the Employer is permitted to make a “catch- up” payment within one pay period at the end of the 52-week period.  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 year.

Employer Action Plan

Employers should begin the process of evaluating existing policies and practices to ensure compliance ahead of the new rule’s effective date.  It is essential that all Employers:

• Analyze whether the FLSA exemptions that you have relied on will satisfy requirements under the new rule.

• Take a hard look and review the payroll and salary records to understand which employees will no longer be considered exempt.

• Develop FLSA – compliance pay plans for those employees that you intend to re-classify to overtime eligible (non-exempt).

• Develop a well thought out communication plan to address employees that are reclassified to overtime-eligible.

• Determine whether human resources, payroll, benefits and other staff are prepared for the change in classification.

• Begin tracking hours and paying overtime to any employee you convert to non-exempt status.

• When you begin counting “hours worked” and January 1st falls in the middle of the workweek, does your workweek coincide with the effective date of the new rule (a Wednesday), or does it begin, for example on the Sunday or Monday before the change? If your work week starts before the effective date, are you prepared to pay your exempt employees at least $684 for the work week in which January 1 falls?

• Resist the temptation of converting a formerly salaried exempt employee to an independent contractor in order to avoid overtime payments. This could result in a painful and expensive audit with the I.R.S.

Frank Botta advises companies in a variety labor and employment matters. Please contact Frank at (724) 776-8000 or fbotta@lynchlaw-group.com for more information on the new overtime rule or for assistance in understanding the current state of employment laws, rules and regulations.

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