Wolters Kluwer provides critical information on how companies can best prepare for changes in the new year.
With the new year approaching, the U.S. Department of Labor’s final rule governing the earnings thresholds necessary to exempt employees from the Fair Labor Standards Act’s (FLSA) overtime pay requirements will take effect on January 1, 2020, prompting employers to take action. In order to avoid civil money penalties for each violation, employers must make changes to comply with the new requirements before January 1.
The final rule, which was issued in September 2019, is the first time the weekly threshold has been updated in nearly 15 years. The rule updates the standard salary levels needed for executive, administrative, and professional employees to be classified as exempt from these requirements from $455 per week to $684 per week. According to Lisa Franke, employment law analyst at Wolters Kluwer Legal & Regulatory U.S., even if employers have not yet taken steps to comply with the new thresholds, they still have time to make the changes ahead of the January 1 deadline.
“Back in 2004, the duties tests were completely revised, which was significantly more burdensome for employers to prepare for,” said Franke, “Complying with the changes in this final rule – mostly a revision in salary levels – is relatively simple compared to that endeavor. However, communication out to affected employees is critical.”
Wolters Kluwer’s experts have outlined the most important points for employers to be aware of regarding these changes ahead of 2020.
Complying with the new FLSA requirements
To comply with these changes, employers must identify employees who are currently classified as exempt from overtime but do not make at least $684 per week, which equates to $35,568 on an annual basis. After these employees are identified, employers can reclassify exempt employees as nonexempt, paying these employees overtime for any hours worked over 40 per week, or maintain the exemption for these employees by raising their pay to meet or exceed the revised standard salary level. If employers choose the second option, they should ensure these employees meet the two additional tests involved in FLSA classification: the employees must be paid on a salary or fee basis, and must meet the executive, administrative or professional duties test which has not changed.
Utilizing nondiscretionary bonuses and incentive payments
Under the new ruling, nondiscretionary bonuses and incentive payments can be used to satisfy up to 10 percent of the standard salary level. Employers can give catch up payments to employees at the end of the 52-week period if bonuses do not help to meet the standard salary level.
Handling employee status changes from exempt to nonexempt
If an employee’s status will change from exempt to nonexempt, communicating the updated status and overtime eligibility to the employee ahead of January 1 is important. “Even though employees who are reclassified from exempt to nonexempt status can earn more money due to additional overtime pay, realize that they may view the change as a sort of demotion or loss of status,” says Franke. “Employers should assure the employee that the change is not a reflection of performance and that it is strictly based on job duties and compensation in relation to federal regulations.”
A similar ruling was issued under the Obama Administration in 2016 and was blocked by a federal court. This prompted some employers to implement the changes by reclassifying employees to nonexempt status or raising their salaries. Employers that made those adjustments a few years ago are likely using procedures in line with the new thresholds, but it is advisable to reevaluate processes ahead of the upcoming deadline.
For more information
For members of the media interested in additional detail on changes FLSA requirements or an interview with an employment law expert from Wolters Kluwer Legal & Regulatory U.S., please contact us at [email protected].