On September 24, 2019, the U.S. Department of Labor (DOL) issued a final rule that updated and revised the earning thresholds necessary to exempt executive, administrative and professional employees under the Fair Labor Standards Act (FLSA). The FLSA final rule rule is estimated to extend overtime protections to more than one million workers that are currently not eligible. The rule is effective as of January 1, 2020.
Learning More about the FLSA Final Rule
As a brief background, the distinction of being an ‘exempt employee’ is based on an employee’s rate of pay and the type of duties they perform. This distinction is important, because an ‘exempt employee’ is exempt from the FLSA minimum wage and overtime provisions. This means that they are not eligible for overtime pay hours worked over 40 in a workweek. Whereas a ‘nonexempt employee’ must be paid time and a half for any hours worked more than 40 in a workweek.
What does the rule do?
No doubt, you have a few questions regarding how to comply with the FLSA final rule:
What changes can I expect?
Does this impact payroll?
How can I prepare my business for these changes?
In summary, this final rule contains the following changes:
- Increased the ‘standard salary level’ from $684 per week (equivalent to $35,568 per year) from $455 per week. This rules sets the standard salary level at the 20th percentile of earnings.
- Raises the total annual compensation requirement for ‘highly compensated employees’ to $107,432 (up from $100,000).
- Allows employers to use non-discretionary bonuses and incentive payments to satisfy up to 10% of the standard salary level, when paid annually.
- Revises the special salary levels for workers in U.S. territories, as well as in the motion picture industry.
For more information, check out this resource.
There had previously been two hotly contested provisions regarding changes to the job duties test and automatic updates to salary threshold amounts that have not been included in this ruling. Additionally, the new rule will have a minimal impact on payroll duties. The newly configured salary thresholds come in well under many state-mandated standards.
What should employers do?
In preparation for these changes, employers should analyze the impact of this rule on their bottom line. Actions like reviewing employee classifications, managing employee hours, and reevaluating current pay structures can be a great starting point for preparing for the change. You can read more about how to set yourself up for success while keeping costs low here.
Want to learn more about staying compliant? Contact Boon!