On September 24, 2019, the Department of Labor announced a “Final Rule,” effective January 1, 2020, that mandates an increase from $455 per week ($23,660 annually) to $684 per week ($35,568 annually) to the salary threshold below which employees must be considered non-exempt and paid overtime for any hours over 40 worked in one week. Acting U.S. Secretary of Labor, Pat Pizzella, stated, “For the first time in over 15 years, America’s workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans.” This marks a major change to overtime regulations, one for which employers must prepare now.
The Classification Conundrum
As employers prepare for the change, many may be asking, “What is the difference between exempt vs non exempt employees?” This is a good question that warrants further explanation, as an incorrect FLSA classification can be costly and lead to recovery of unpaid or underpaid back wages, as well as double damages and attorneys’ fees. And, as you will see, the designation is not always so clear cut.
The Simple Explanation
An easy way to remember the most significant difference between exempt vs non-exempt employees is that an exempt employee is exempt from being paid overtime. An exempt employee’s hours are not tracked, and she is paid a salary. It makes no difference if she works 30 hours one week and 45 hours the next week. Her salary will be the same for both weeks. A non-exempt employee’s hours are tracked, and she is paid for any and all hours worked, including at a rate of one-and-a-half times her hourly rate for any hours over 40 worked in a work week.
The Salary and Job Duties Tests
Contrary to what many believe, you cannot simply rely on an employee’s job title when making an exempt/non-exempt determination, and under no circumstances can you allow an employee to decide how she wants to be classified. You must conduct a thoughtful analysis that includes reviewing the employee’s salary and her job duties. An exempt employee must, as of January 1, 2020, make at least $684 per week ($35,568 annually). If an employee’s salary is below that threshold, you can stop your analysis there. She is non-exempt. If the employee meets the “salary test” threshold, then her job duties determine whether she is exempt. She can be classified as exempt if she meets the FLSA’s standards for an administrative, professional, computer and outside sales employee exemption based on her job duties. The Department of Labor’s Fact Sheet #17A is a great resource for conducting this analysis. If she doesn’t meet the FLSA’s standards for any one of those exemptions, she is a non-exempt employee.
A Few Common, Tricky Scenarios
Confusion sometimes arises when a non-exempt employee takes a vacation or sick day in a work week. Vacation and sick days do not count as work days when calculating overtime. Consider this example. Non-exempt Nelson works eight hours each day, Monday, Tuesday and Wednesday for a total of 24 hours worked. Non-exempt Nelson works through lunch and an hour past quitting time on Thursday for a total of 10 hours worked. He feels he needs a three-day weekend to recover from his busy week so he takes a day of vacation on Friday. He submits a timesheet recording 42 hours worked that week and is expecting 2 hours of overtime (Monday – 8 hrs, Tuesday – 8 hrs, Wednesday – 8 hrs, Thursday – 10 hrs, Friday – 8 hrs. vacation = 42 hrs). The FLSA says no overtime is due, because Non-exempt Nelson didn’t “work” on Friday and only “worked” 34 hours that week.
Another common issue arises when an employee leaves work early for any non-work related reason. If a non-exempt employee leaves work early for any reason not work-related, you do not have to pay her for a full days’ work. However, with very few exceptions, if an exempt employee leaves work early, you do have to pay her for a full days’ work and cannot “dock” her pay.
Employers with compensatory time policies may also run into issues concerning overtime for non-exempt employees. A “comp time” policy allows employees who work more than their regular number of hours in a work week to take those hours off as comp time at a later date. For non-government employees, FLSA wages due must be paid in money. Compensatory time off in lieu of cash for overtime due is not permitted in private sector employment. An employer may decide how it wants to compensate employees for hours worked up to 40 in a work week including allowing comp time for non-exempt employees. For example, assume Non-exempt Nellie is regularly scheduled to work 37.5 hours per work week, and actually works 40 hours in a work week. Since Non-exempt Nellie’s total time worked did not exceed 40 hours, the FLSA overtime rules have not been triggered. There is no FLSA requirement about how hours 37.5-40 are paid (except for the minimum wage laws). An employer may compensate for these hours however it wishes, in wages at the regular rate, or some other rate or in time off later (comp time).
Never Fear, Smart HR is Here
Understanding FLSA regulations can be challenging for even the most seasoned HR professional. Fortunately, Smart HR consultants deal with FLSA classification issues regularly and can provide you the peace of mind you seek when classifying your employees. It is critical you plan now for the Final Rule’s January 1, 2020, implementation. A Smart HR consultant can help you identify which, if any, of your employees will be affected and create a plan of action to get you ready and compliant. If you are sure you will not be affected by the Final Rule, now is a good time to take a fresh look at your employees’ exempt/non-exempt classifications, as job duties change over time. A Smart HR consultant can conduct an FLSA classification audit for you to put your mind at ease. For more information about exempt vs non exempt employees, or to schedule a consultation, call Smart HR at (703) 952-3177 or contact us at https://www.smarthrinc.com/contact/.