The Fair Labor Standards Act (FLSA) establishes a minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and Federal, State, and local governments. Unless you fit into an exemption, the Fair Labor Standards Act (FLSA) requires virtually all employers to pay employees at least the federal minimum wage for each hour worked and to pay overtime for all hours worked more than 40 in a workweek. Non-exempt employees are entitled to overtime pay, while exempt employees are not.
Most employees covered by the FLSA are non-exempt. Whether employees are exempt or non-exempt depends on (a) how much they are paid, (b) how they are paid, and (c) what kind of work they do. With few exceptions, to be exempt, an employee must (a) be paid at least $23,600 per year ($455 per week), (b) be paid on a salary basis, and (c) perform exempt job duties. Most employees must meet all three “tests” to be exempt from the FLSA. This blog is only regarding the FLSA pending changes. Keep in mind that this discussion is limited to rights under the FLSA changes. Exempt employees may have rights under other laws or by way of employment policies or contracts that exist outside of the scope of the FLSA.
On September 24, 2019, the Department of Labor reached a final rule that will increase minimum salary requirements for the administrative, professional, and executive exemptions from $23,600 per year ($455 per week), to $35,568 annually ($684 per week). This rule is set to take effect on January 1, 2020. For currently exempt employees, if you are making less than $35,568.00 annually, under the new changes, you would be a non-exempt employee. This means that you are entitled to overtime hours, even if you are a salaried employee. Non-exempt employees are entitled under the FLSA to time and one-half their “regular rate” of pay for each hour they actually work over the threshold in the applicable work period (Usually 40 hours).
Under the new rule, employers can satisfy up to 10% the annual payment threshold through bonuses, incentive payments, and commissions for exempt employees, but the other 90% of the threshold must be paid at a regular rate equal to $615.60 per week. The FLSA changes allow for the employer to make a final catch up payment within one pay period of the end of the year if the employee’s compensation has not reached the required level. If the employer chooses and properly prepares for this option, they are only required to pay their employees 90% of the required salary level ($615.60) per week. At the end of the year, the employees paid-out salary plus bonuses, incentive payments, and commissions do not equal at least $35,568.00 annually; the employer would have to make up the difference within one pay period. After this one pay period, the employer would be in violation of the FLSA regarding exempt employees if they have not paid at least $35,568.00 annually.
If you are an employer, it would be wise to review the status of your employees to determine whether your exempt employees are properly classified under the new rules. If your previously exempt employees were making less than $35,568.00, they will no longer be exempt, and you will be required to pay overtime at time and a half for every hour worked over 40 hours. Reevaluating your employees would also help determine whether reclassifying an employee is a financially wise decision. If the employee does not meet the threshold for exempt status and rarely works overtime, it might be a better decision to reclassify that employee as non-exempt instead of raising their salary by more than $10,000.00. On the other hand, if an employee who works regular overtime is close to the exempt salary threshold, it may be wise to increase their salary to save money on the overtime.
The FLSA is a complex system of laws regulating most employer/employee relationships. If you are unfamiliar with the FLSA and what impacts it may have on your business, do not hesitate to contact a lawyer. The Orlando Law Group, PL is ready to help with all of your employment needs.