This past May, the Department of Labor revised the regulations in the Fair Labor Standards Act (FLSA) that determine whether an employee is exempt from receiving overtime pay.
The FLSA is a federal statute that requires employers to pay most of their employees a minimum wage, and overtime for time worked over forty hours per week. However, some employees, most often those in an executive or administrative role, are exempt from these regulations, thus are not subject to receiving minimum wage or overtime pay.
In order for an employee to be exempt from these regulations, they must pass three tests:
- The employee must be paid a predetermined and fixed salary without deductions based on the quality or quantity of work performed (salary basis test);
- The salary must meet a minimum specified amount (salary level test); and
- The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (duties test).
Prior to last month’s updates, the regulations were last revised in 2004, when the salary level test was set at $455.00 a week, or $23,660.00 per year. Additionally, the 2004 updates included the addition of a “highly compensated employee” exemption that allowed employees earning at least $100,000.00 per year to qualify as exempt using a less stringent test.
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So What Changed?
The new rules do not touch the duties test. However, the minimum specified amounts increased to $913.00 per week, or $47,476.00 per year. These value are based on the 40th percentile of earnings of full-time salaried workers in the lowest wage Census Region, which is currently the South. Furthermore, the total annual compensation for highly compensated employees will be raised to $134,004.00 per year. This number is based on the Census data from the same region, but uses the 90th percentile. These amounts will be automatically updated every three years starting on January 1, 2020 based on the 40th and 90th percentiles.
But Wait...there’s More!
With the new regulations, nondiscretionary bonuses and incentive payments will now be counted toward up to 10% of the salary requirement if they are paid on a quarterly or more frequent basis. Nondiscretionary payment includes bonuses for meeting production goals, or commissions. This is in contrast to discretionary bonuses such as a spontaneous reward for completion of specific tasks, or an end-of-year bonus.
Fortunately, these new rules do not go into effect until December 1, so there is still time to evaluate your business to see if you are in compliance with the FLSA. If you have any questions or concerns about these regulations and how they might affect your business, do not hesitate to contact the business lawyers at the Vethan Law Firm.