Effective January 1, 2020, the Department of Labor (“DOL”) increased the standard salary level which triggers the required overtime pay for exempt employees from $455 per week ($23,660 a year) to $684 per week ($35,568 a year). Thus, an employee who makes less than $684 a week, must receive overtime pay, even if they are an “exempt employee.” The regulations do not affect the non-exempt employee because the non-exempt employee already receives overtime pay. Although the DOL recognizes several exempt workers, this article will focus on the effect of the DOL’s revised regulation on the exempt employee.
The Non-Exempt Employee
The Fair Labor Standards Act (“FLSA”) requires employers to pay employees a minimum wage and, for employees who work more than 40 hours a week, to receive overtime pay of at least 1.5 times their regular rate of pay. These employees are classified as “non-exempt” employees.
The Exempt Employee
The FLSA, exempts “any employee employed in an executive, administrative, or professional capacity” from the minimum wage and overtime pay requirements provided below.
The regulations implementing this exemption, which date back to 1940, generally require each of the following three tests to be met for an employee to be classified as “exempt:”
1. The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”).
2. The amount of salary paid must meet a minimum specified amount (the “salary level test””).
3. The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”).
The Highly Compensated Employee
Under the revised rule, Highly Compensated Employees must also be paid overtime if their pay is less than $107,432 a year. This is up from $100,000. To be considered a highly compensated employee, the employee must meet all of the following requirements:
1. The employee must earn at least $107,432 a year in total annual compensation (employee’s total annual compensation may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation).
2. The employee must customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee.
3. The employee’s primary duty must consist of performing office or non-manual work.
Because wages for non-exempt employees will surely continue to increase over time, the DOL will continue to evaluate this rule and may issue more tailored regulations for different job markets and geographical areas.
If you have any questions or concerns with respect to the way you compensate your employees or independent contractors, and whether they are exempt or non-exempt, give us a call at 305-222-7282 to schedule a consultation. Ser & Associates will aide you in ensuring that your business is compliant with this new law and any other concerns you may have.