- Recently announced: The Department of Labor recently increased the key salary threshold below which workers must be considered non-exempt and subject to overtime pay for any hours over 40 worked in a work week. The Final Rule, issued on Tuesday, September 24, 2019, will go into effect January 1, 2020, and will:
- Increase the Fair Labor Standards Act’s overtime threshold from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker), a figure that hasn’t changed since 2004. The change effectively expands pay requirements for over a million Americans.
- Update the Fair Labor Standards Act’s total annual compensation level for “highly compensated employees (HCE)” from the currently-enforced level of $100,000 to $107,432 per year, extending exemption to a sizable proportion of workers who may now require higher pay for overtime.
- Allow employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices; and
- Revise the special salary levels for workers in U.S. territories and in the motion picture industry.
Exempt Vs. Non-Exempt Employees: What’s the Difference?
The Fair Labor Standards Act (FLSA) is a federal law that sets the minimum wage, eligibility for overtime pay, and other standards that affect full-time and part-time employees in the private and government sectors. Under the FLSA, employees must be paid a salary of at least a minimum threshold amount (as well as meet certain duties tests), to be considered ‘exempt’ from overtime pay. If they are paid less than that amount (regardless of their duties), they are considered ‘non-exempt,’ meaning they are required to be paid one-and-a-half times their regular hourly rate for hours worked in excess of 40 per workweek. The Final Rule raises the minimum threshold from $23,660 annually, or $455 a week, to an annual salary of $35,568, or $684 per week. This change will result in the reclassification of many exempt employees to a non-exempt classification.
In addition to meeting the salary threshold, exempt employees must also meet certain duties test requirements to be fully eligible for exemption status. See the Department of Labor’s fact sheet for more information on how to perform this analysis. While the new rule only applies to salary-based requirements, the new adjustments are a good opportunity for employers to assess the job duties of all their employees to ensure they are properly classified.
Steps Employers Should Take To Be In Compliance
The first step employers should take is to identify all exempt employees whose salary does not meet the new salary threshold. If their duties have not changed, employers must either increase their salaries consistent with the new, higher threshold, or reclassify them as non-exempt and pay them overtime for all hours over 40 worked in a work week. Employers must be thoughtful about how to communicate any reclassifications to employees as some employees may be under the wrong impression that a non-exempt classification is somehow a demotion. From there, employers will need to inform payroll of any employee-specific changes, and ensure that they are documented in the employee’s personnel file.
Get Professional Assistance
Smart HR consultants are well-versed on FLSA classifications and can help your company determine whether existing employees are properly classified and which employees, if any, will be affected by the Final Overtime Rule. Smart HR can provide your HR department guidance on how to properly implement any necessary reclassifications with as little disruption to your business operations as possible. January 1, 2020, is quickly approaching. Don’t wait and call Smart HR today.