by Amy Thomson.
More than likely, you have heard about the U.S. Department of Labor’s (DOL) proposed rule change that would increase the salary level requirement for the Executive, Administrative, and Professional (EAP) and highly-compensated employee (HCE) exemptions under the Fair Labor Standards Act (FLSA). If you’re not sure what we’re talking about, read our short primer on the FLSA—most likely, it affects your business, particularly this rule regarding overtime pay. For those of you familiar with the FLSA, you may be thinking: “Here we go again. Maybe it’s not worth the time and effort to prepare like we did back in 2016.” That would be a mistake.
The new rule’s proposed salary thresholds for the EAP exemptions are not as high as those proposed back in 2016 (although the HCE salary threshold is higher), as the DOL appears to be trying to find a middle ground to please both worker advocates and businesses. Since there hasn’t been a significant update to the overtime rules for nearly 15 years, there’s a good chance this rule could go into effect. The DOL anticipates it could be as early as January 1, 2020. What should you do now to prepare? We’ll get to that in a minute. But first, a quick refresher on the proposed new changes.
The Current FLSA Overtime Rule
Currently, the FLSA sets forth three tests, all of which must be met, for an employee to be considered exempt from overtime under the EAP exemptions:
- The employee must be paid on a salary basis;
- The salary must be at least $455 per week ($23,660 per year); and
- The employee must pass a duties test specific to each exemption.
The FLSA also allows highly-compensated employees (HCE) making approximately $100,000 or more per year to be exempt from overtime.
Previous Attempt to Update the Salary Level
In 2016, the DOL issued a revision to the overtime rule where the salary level for the EAP exemptions was increased to $47,476 per year ($913 per week) and the HCE salary level was increased to $134,004 per year. The revision also included automatic increases to the salary levels every three years. The 2016 rule was blocked from going into effect, and businesses have been in a holding pattern since.
Proposed New FLSA Overtime Rules
In March 2019, the DOL finally proposed a new rule to replace the 2016 rule. The DOL proposes to set the new EAP salary level at $679 per week ($35,308 per year) and the HCE salary at $147,414. They have included a provision allowing employers to count non-discretionary bonuses, incentives, and commissions for up to 10% of the EAP salary threshold.
The DOL is not including automatic increases to these salary levels as part of the proposed rule. Rather, it will propose updated salary levels every four years. These proposals will require notice and comment rulemaking.
The DOL projects that the new rule’s salary threshold will qualify approximately 1.3 million additional individuals for overtime.
Final FLSA Overtime Rules
The DOL’s 60-day comment period expired on May 21, 2019. The DOL reviewed comments and published a final rule on September 24, 2019, which provides the new EAP salary level will be $684 per week ($35,568 per year) and the HCE salary at $107,432. Additionally, the final rule confirms that employers are allowed to count non-discretionary bonuses, incentives, and commissions for up to 10% of the EAP salary threshold. The final rule will become effective January 1, 2020.
Between now and January 1, 2020, employers can still take active steps to prepare for the new overtime rules. Of course, you may have already done some of these things when you were preparing for the rule that was supposed to take effect in 2016. If you have, then you’re ahead of the game. Otherwise, consider the following:
Five Ways to Prepare for the New FLSA Overtime Rules:
- Identify employees who will need to be reclassified because of the new salary threshold if the new rule takes effect January 1, 2020. Basically, identify any employees who are currently exempt but are paid less than $679 per week or $35,308 annually.
- Identify employees who are currently exempt and barely meet the threshold. This would be any employees who make just over $679 per week. Be aware that they could fall below the next new threshold.
- Track the number of hours these employees work and analyze the financial impact on your organization as you decide to:
- Raise the employee’s pay to the new threshold level;
- Reclassify the employee as non-exempt and pay overtime; or
- Lower the employee’s pay to offset overtime requirements.
- Consider how you will handle potential employee issues when you raise some employees over the new threshold while leaving those who are already over the threshold at their current salary. For example, Employee A currently makes $600 per week, while Employee B currently makes $700 per week. Employee B makes more money based on tenure, experience, skills, etc. If you raise Employee A to $679 per week, how will this affect Employee B?
- Consider developing administrative plans to ensure your organization complies with the proposed new rule if it is finalized, keeping in mind that the salary threshold could be subject to change about every four years
Get FLSA Answers from Georgia Employment Law Attorneys
The sooner you take steps to prepare, the better off you’ll be if the new overtime pay rule takes effect. FLSA compliance is essential or you risk subjecting your company to a DOL audit with serious financial repercussions. If you have any questions or need help figuring out how to move forward, please contact us or call us at 404-531-2341. In the meantime, the Atlanta FLSA attorneys at Stanton Law will continue to keep you updated on the new rule.