The Federal Labor Standards Act requires employers to pay overtime to employees who work over 40 hours in a workweek, unless the employee works in an “exempt” position. There are various classes of exempt employees, one of which is the executive, administrative and professional employees (i.e., the “white-collar” exemption). Generally, to qualify for the “white-collar” exemption, an employee:
must be paid a fixed weekly salary (the “salary basis test”), and
must primarily perform executive, administrative or professional duties in accordance with the Department of Labor regulations (the “duties test”).
Released on September 24, 2019 but effective January 1, 2020, the Trump Administration has announced its intention to revise the salary threshold for white collar employees and highly compensated employees. The new regulations do the following:
Increase the threshold salary earnings for exempt executive, administrative and professional employees (i.e., the “white-collar” exemption) by 50% from $455 per week ($23,660 annually) to $684 per week ($35,568 annually) and for highly compensated employees from $100,000 annually to $107,432 annually.
Allow employers to use non-discretionary bonuses and incentive payments, in kind commissions paid at least annually, to satisfy up to 10 percent of the salary threshold.
Permit employers to make a “catch up” payment if an employee does not earn enough non-discretionary bonuses or incentive payments in a given year, as long as the payment is made within one payday of the end of the 52-week period.
Omit any automatic updates to the salary threshold and instead reiterates its determination to update the earnings thresholds more regularly through notice-and-comment rulemaking.
Repercussions for Employers:
Employers who fail to satisfy the minimum salary level will lose the exemption for their employees and be required to pay overtime at the legal rate.
Thus, employers must immediately audit and reclassify affected employees in order to ensure overtime eligible employees are paid their due, that salaries are increased or other compensation is introduced to avoid overtime eligibility. The Department of Labor estimates that 1.3 million workers will become non-exempt when the proposed rule becomes effective, yours might be one of the 1.3 million to be affected.
An audit would consist of reviewing payroll records for salary history, reviewing job descriptions for exempt/non-exempt classification, consider options to pay the affected employees more, or reassign their duties to avoid the need for overtime hours.
An audit should also include a review and revision of benefit plans that determine eligibility and other metrics on salary or exempt/non-exempt status.
Some states have thresholds higher than the federal even after this change, such as New York. Georgia follows the federal rules. Apply the rules appropriate to the state in which you have employees.
Call our office or visit the Department of Labor’s website for more information on how to implement these changes in your workplace.