U.S. Department of Labor Issues Final Overtime Rule

The U.S. Department of Labor recently announced a final rule that will enable approximately 1.3 million American workers to be newly eligible to receive overtime pay under the Fair Labor Standards Act (FLSA). The new rule becomes effective January 1, 2020 and represents the first update to overtime regulations in fifteen years.

What Are the Critical Updates to the Final Rule?

-The new rule raises the ‘standard salary level’ from $455 to $684 per week, which is equivalent to $35,568 per year for a full-time employee;
-The new rule raises the total annual compensation level for ‘highly compensated employees (HCE)’ from $100,000 to $107,432 per year;
-To assist with meeting the new threshold, the Department of Labor will allow employers to count non-discretionary bonuses, incentive payments, and commissions to satisfy up to 10% of an employee’s salary level, as long as those bonuses are paid annually. Discretionary bonuses cannot be used toward meeting the salary threshold;
-The new rule revises the special salary levels for workers in U.S. territories and in the motion picture industry.

How Should Your Organization Comply with the Final Overtime Rule?

Employers will need to assess their exempt employees and verify that the employees will remain exempt under the new 2020 rules. Meeting the salary threshold doesn't automatically make an employee exempt from overtime pay. The employee's job duties must also be taken into consideration as they must primarily involve executive, administrative or professional duties as defined by the regulations. Therefore, it is important to understand the difference between exempt employees and nonexempt employees.

How Should Your Organization Determine the Distinction Between Exempt and Nonexempt Employees?

-FLSA requires that employers classify jobs as either exempt or nonexempt. Nonexempt employees are covered by FLSA rules and regulations and exempt employees are not. Exempt employees are not eligible for minimum wage, overtime pay, or other rights and regulations given to nonexempt workers. Exempt employees are commonly defined as executive, administrative, or professional. Nonexempt employees, as the term implies, are not exempt from FLSA requirements. Employees who fall within this category must be paid at least the federal minimum wage for each hour worked and given overtime pay of not less than one-and-a-half times their hourly rate for any hours worked beyond 40 each week.

-In general, an employee must meet all the standards of three different tests to qualify as exempt from minimum wage and overtime pay. Those three tests include:

1. Job Duties

The job duties tests have many detailed components that are specific to each white-collar exemption. Most exemptions, though, require that the employee regularly exercise discretion and independent judgment in performing his or her job duties. Some states have different duties requirements than those under the FLSA. There are no changes to the duties tests for executive, administrative, and professional employees under the new 2020 rules.

For executive exemption, the employee's primary duty must be managing the organization or a department or subdivision of the organization. The employee must regularly direct and/or supervise 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).

For administrative exemption, the employee's primary duty must be performing office or nonmanual work that is directly related to the management or general business operations of the employer or the employer's customers/clients. The employee's primary duty also must include the exercise of discretion and independent judgment with respect to matters of significance.

For professional exemption, the employee's primary duty must be to perform work requiring advanced knowledge.

Of the three exemptions listed above, the administrative exemption can be the most complicated to determine as it is not always a straight-forward process to determine the level of discretion and independent judgment on matters.

2. Salary Basis

In general, an exempt employee must be paid a fixed salary for certain exemptions. That means their salary won’t be reduced due to the quality or quantity of work they perform. Be sure to check applicable state law as the salary basis requirements may vary.

3. Salary Level

With limited exceptions, an exempt employee must be paid a salary that meets the minimum threshold under the FLSA. Several states have salary thresholds that are higher than the FLSA, so it is important to check the appropriate state laws.

Finally, Some Key Compliance Tips For Your Organization to Follow:

-Create accurate and complete job descriptions that are tailored to each position.
-Make sure job descriptions are kept up to date.
-Monitor all job positions for any changes in responsibilities.
-Analyze each exempt position on an employee-by-employee basis.
-The duties of the job are the key in determining the proper classification, not the job title.

*Note this summary is not meant as a substitution for reading the new standard in its entirety.