Some of the Fair Labor Standards Act (FLSA) wage provisions are changing as of January 1, 2020.
Jobs that are governed by the FLSA are referred to as exempt (often called “salary”) or non-exempt (often called “hourly”). Non-exempt employees are entitled to overtime. Exempt employees are not (think, exempted from overtime). To be considered exempt from overtime, the employee must meet three tests:
- Employees must be paid at or above a minimum salary threshold ($684 per week or $35,568 per year, as of 1/1/2020)
- Employees must be paid on a salary basis (meaning the employee can count on receiving a guaranteed minimum remuneration each week in which any work is performed)
- The kind of work that is done must meet the guidelines set forth by the FLSA as exempt under the duties test. These duties fall under specific categories and have nothing to do with the job title. The work actually performed is taken into consideration. The classifications are:
- Executive
- Learned Professional
- Creative Professional
- Administrative
- Outside Sales
- Computer Employee
- Highly Compensated Employee
The wage is the first hurdle to determining if an employee qualifies as exempt from the overtime provisions of the FLSA. The weekly minimum pay threshold has been set at $455 for many years. Now that the minimum compensation has been raised to $684, employers should audit their payroll and find the employees whose wages fall between $455 and $684 per week. These employees may now be subject to overtime.
All employees who are currently classified as exempt and making less than $684 per week, will either need to be reclassified as non-exempt (with overtime as applicable) or be given a raise to the new minimum salary threshold of $684 per week (where no overtime would apply).
It is vital to be sure that employees are being classified and paid correctly. Otherwise, you could be facing a costly wage and hour claim. Let’s look at an example.
An employee who is currently salary exempt and making $500 per week will no longer qualify as exempt under the new threshold ($684 per week). Employers have a couple of options in this scenario. This employee can receive a pay raise to meet (or exceed) the new salary threshold. Assuming the other requirements for exemption were met, the employee would be exempt from the overtime requirement. This may not be a cost all employers can take on — especially if they have many employees that fall into this scenario. This employee could also be reclassified as non-exempt (with an hourly wage of $12.50). At $12.50 per hour, the employee would still early $500 per week assuming they worked a 40 hour workweek. However, if the employee worked more than 40 hours per week, be prepared to pay overtime. If this position regularly works more than 40 hours per week where overtime would be an issue, this may not be a viable option.
Another way to balance the new salary threshold is to adjust work schedules. For example, (4) 10-hour days, or (3) 12 hour days may help decrease the number of shifts and hours worked, which can alleviate overtime.
Employers will need to weigh the cost of paying overtime against the cost of a pay increase to match the new threshold.
Whatever direction you decide to go. Communicate these changes to your staff. Exempt employees who become non-exempt may not be used to having to keep time sheets or having to clock in and out. The more information you can give about these changes, the easier any transition will be.
NAE can assist member organizations in reviewing these new rules and even conducting an audit based on the new FLSA threshold. Contact us for more information.
