Most employers remember with angst the proposed Obama Era rule that would have doubled the salary threshold for the “White Collar” exemptions from overtime under the Fair Labor Standards Act (“FLSA”) from the current $23,660 ($455/week) to $47,476 ($913/week). That rule was enjoined before it could go into effect. Under the FLSA, unless an employee meets both the “salary test” and the “duties test” of one or more of the exemptions set forth in that law, then that employee must be paid 1.5 times their “regular rate” for hours worked in excess of 40 per week.
After a long wait, last week the U.S. Department of Labor (USDOL) issued a new rule, set to go into effect January 1, 2020, that increases the salary threshold from the current $23,660 to $35,568 ($684/week). The new rule also allows up to 10% of the threshold to be satisfied by non-discretionary bonuses and incentive payments, including commissions, that are paid annually. The rule also changes the threshold for the “Highly Compensated Employee” exemption from $100,000 to $107,432. Unlike the Obama era rule, the new rule does not contain provisions for automatic upward adjustments at set intervals, although the USDOL has indicated that the thresholds will be re-examined with more regularity—the last increase in the threshold was in 2004.
It is estimated that between 1.2 and 1.4 million employees will be affected by this change, many in types of work that traditionally have low salaries and long hours, such as restaurant management, retail management, and non-profit administration. Although there have been no changes to the “duties tests” for the various exemptions, employers will need to determine now whether they want to simply give salary increases to currently exempt employees to meet the new salary test as of January 1, or whether they want to reclassify those exempt employees as non-exempt, convert them to an hourly rate and begin to pay overtime as needed. The time is now to examine job descriptions, make necessary budget adjustments for the coming year, and to prepare for changes in pay procedures.
There are some pitfalls in reclassifying employees from exempt to non-exempt, but with careful planning employers can make a smooth transition. For example, you will need to make provisions for your newly reclassified employee to begin keeping contemporaneous and accurate time records. If you have not already done so, you will need to clearly set when your work week begins and ends so that overtime can be accurately calculated. Expectations as to overtime and whether advance permission is required to work extra hours will need to be clearly communicated—especially to employees who formerly did not have any time constraints on their work. Also, examine whether you expect this employee to answer phone calls, monitor or respond to emails or texts during their unscheduled hours—it they are working they must be paid. It may make sense to reallocate this type of function to an exempt employee.
Will the new USDOL rule require reclassifications in your workforce or changes in your policies and procedures? Contact the employment attorneys at Drewry Simmons Vornehm LLP for assistance navigating the process.