BACKGROUND
On September 24th, 2019 the U.S. Department of Labor (DOL) issued its long-awaited changes to the overtime regulations of the Fair Labor Standards Act (FLSA—and sometimes referred to as the Wage & Hour Act).
- The FLSA establishes regulations related to which employees are required to receive overtime pay (classified as “non-exempt” employees) and which employees may be classified as “exempt” (and therefore not entitled to overtime pay).
- In its regulations related to the determination of “non-exempt” or “exempt” status, the FLSA has a two-factor test, with both parts needing to be met in order for an employee to be classified as exempt:
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- A pay level test
- A duties test
NOTE; The DOL has made ensuring employers are not misclassifying employees who do meet both parts of the test to be exempt an enforcement priority.
- The FLSA requires employers (regardless of the number of employees) to pay non-exempt employees making less than a threshold amount at time-and-a-half of their regular rate for all hours beyond forty (40) in a week.
NOTE: California’s related state law requires time-and-a-half payment for hours greater than eight (8) in a day, regardless of the number of hours worked in the week.
KEY PROVISIONS OF THE FINAL RULE
In the final rule, the DOL:
- raises the “standard salary level” (the pay level part of the two-factor test) from the currently enforced level of $455 per week to $684 per week (equivalent from $23,600 to $35,568 per year for a full-year worker)
- raises the total annual compensation requirement for “highly compensated employees” from the current level of $100,000 per year to $107,432 per year;
- The DOL had been proposing to raise the new level to $147,600 per year for an employee to meet the salary test to be classified as a “highly compensated employee”.
- allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually) to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices
- decided not to include automatic updates to the required salary level, but instead the DOL will review the salary level every four years
- did not change the duties test for “white collar” exemptions to
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EFFECTIVE DATE
The new regulations will go into effect on January 1, 2020.
- It is estimated that an additional 1.3 million workers will now become eligible for overtime pay.
- The estimated annual cost to employers is about $300 million.
RECOMMENDED NEXT STEPS for employers
- Review its classification of employees to ensure they are properly categorized in terms of non-exempt or exempt status.
- The review should include a record for each position that documents the process by which the classification was determined.
- Without a documented, formal process, an employer at risk for the DOL to do a deep dive into your pay practices—this is never (never is a word to be rarely used) a good thing!
NOTE: From Trinity’s experience, it is not uncommon for such a review to discover that there are employees
classified as exempt who definitely do not qualify as such. We’ve seen cases in which the percent of employees misclassified has exceeded twenty (20) percent.
- Determine how to correct this non-compliance in such a way as to minimize the cost and the employee relations impact—this is not as simple as at first you may think it is.
NOTE: Reclassifying exempt employees to nonexempt requires considering a broad range of issues, including a communication strategy, manager and employee training, new or revised timekeeping policies and practices, scheduling, compensation structures, calculation of the overtime rate, and other issues.
For more information, INCLUDING HOW TRINITY CAN ASSIST YOU TO ENSURE COMPLIANCE:
- E mail Trinity at info@TrintyHR.net
- Visit our website at www.TrinityHR.net
- Call us at 856.905.1762 or Toll Free at 877.228.6810
You have HR questions…Trinity has answers!