White-Collar Exemption and Overtime
Reporting that 1.3 million workers will now become eligible for overtime pay, the Department of Labor (DOL) has released its final rule to update the exemption requirements of the Executive, Administrative and Professional Employee (EAP) as well as Highly Compensation Executive (HCE) classifications.
After overcoming many hurdles, injunction enjoined and invalidation, the DOL released its final rules yesterday with an effective date of January 1, 2020. Additionally, the 2016 final rule that was declared invalid by the United State Court of Appeals for the Fifth Circuit has been rescinded by the DOL.
Settling below the original published salary level and just slightly higher than the most recently proposed the DOL raised the nation’s exempt salary threshold from $455 per week/$23,660 annually to $684 per week/$35,568 annually. As a reminder, this is the first time since 2004 that the salary level has been increased. As previously published, these newest final regulations do not include any adjustment to the standard duties test for these “White Collar” Exemptions.
There are also no changes in overtime rules for Police Officers, Fire Fighters, Paramedics, Nurses, Laborers including non-management and production line employees, and non-management in maintenance, construction, and similar occupations. However, new or “special” salary levels have been released for both employees in the motion picture industry and certain U. S. territories.
Additionally, the new regulations will increase the salary threshold for certain HCEs from $100,000 to $107,000. It is important for employers to note that an HCE must be paid at least the weekly standard salary amount of $684.00 without nondiscretionary bonus, incentive pay or commissions. Non-discretionary bonus, incentive pay, or commission may be counted toward the annual salary requirement of $107,000.00.
Employers will still be able to use a nondiscretionary bonus, incentive pay, or commissions to satisfy up to 10% of the standard salary level for EAP classifications and as previously stated for meeting the annual salary requirement for HCEs. These payments must be paid annually or on a more frequent basis in order to be eligible. A one-time “catch-up payment of up to 10% of the total standard salary level may be made within one pay period of the end of the 52-week pay period for those employees who have not earned enough to maintain their exempt status. This makeup payment only counts toward the previous 52-week salary amount and not for the salary in the year that it was paid.
I continue to promote that the following actions steps can help employers determine the impact on their organization and encourage that they should be promptly initiated for the effective date of January 1, 2020:
- Identify employees currently classified as exempt who will fail the new salary test.
- Model potential costs based on possible response (e.g. raise pay to new threshold level, reclassify as nonexempt and pay overtime, or lower pay to offset overtime requirement).
- Review job descriptions and tasks of impacted positions to determine if certain exempt tasks and responsibilities may be reassigned or maintained with the current position.
- Consider how pay changes or other changes in job assignments may impact your organization (e.g., pay compression with next level, supervisory career paths).
- Develop administrative implementation plans including payroll and HRIS systems, in order to ensure compliance and maintain compliance with the three-year automatic update provisions.
If employers find that certain positions no longer meet the standards set out in the white-collar exemption, they are required to either (1) readjust duties and compensations to re-qualify their employee or, (2) the position(s) need to be reclassified as non-exempt and the employee(s) are required to receive overtime pay for all hours worked over 40 hours in a workweek.
Misclassifications in these white-collar exemption’s categories happen often. As employers apply the final salary guidelines, also know that salary level is just one criterion for exemption from overtime. The standards duties test can be hard to apply especially for administrative and lower-level management positions. These positions typically carry non-exempt duties and can be difficult to classify as exempt duties with the confines of the DOL regulations. Since, these groups consistently average over 40 hours a workweek – pushing upwards of 50- 60 hours, employers will need to ensure that the positions are correctly categorized as exempt from the overtime provisions of the FLSA applying both the salary threshold and the standard duties test.
Penalties for misclassification of employees range from recovery of back wages and an equal amount of liquidated damages. The DOL may also litigate and recommend criminal prosecution. Employers who willfully violate or repeatedly violate the wage laws (Fair Labor Standards Act) may be assessed civil monetary penalties and more for child labor violations. Employees who file a complaint or who participate in a claim are also protected from retaliation.
Employers should also continue to monitor Wage and Hour laws as the DOL aims to update the salary requirements on a more frequent basis. This has been written into the final rules with the DOL using the notice and comment rule-making procedure.