Expanding the White Collar Exemption: What the U.S. Labor Department’s New Overtime Regulations Effective January 2020 Mean for Your Business and Payroll
The U.S. Fair Labor Standards Act (FLSA) sets certain minimum wage and overtime rules for eligible employees. Under existing rules, certain “white collar” workers, such as those in professional or managerial positions who meet set criteria, are considered exempt from overtime requirements if they are paid an annual salary that meets or exceeds a certain threshold. Since 2004, that threshold has been $23,700 per year.
But, after many years of discussion–and litigation–the U.S. Department of Labor adopted a new regulation on September 24, 2019, raising the threshold to $35,568 per year beginning in January 2020. Three years earlier, the Labor Department attempted to raise the threshold even higher–to $47,000 per year–but a federal judge blocked the implementation of the necessary rule. This prompted the Department to conduct a new regulatory process before settling upon the $35,568 figure, which works out to $684 per week
According to a news release from the Labor Department, the revised threshold means approximately 1.2 million additional workers “will be entitled to minimum wage and overtime.”
Rules Affecting Highly Compensated Employees
The Department also revised its threshold for “highly compensated employees” (HCEs) who may be exempt from overtime and minimum wage rules. An HCE refers to office and non-manual workers who regularly perform executive, administrative, or professional tasks and earn at least $100,000 per year in “total annual compensation.” Starting in January 2020, the HCE threshold will increase to $107,432 per year.
Counting Bonuses and Commissions Towards the Threshold
The new regulation will also permit employers to apply “nondiscretionary bonus and incentive payments” towards an exempt employee’s annual compensation threshold. This includes commissions or any similar payment that is made on an “annual or more frequent basis.” Such payments may not, however, account for more than 10 percent of the employee’s standard salary level.
Considerations to Keep in Mind
In most other respects, the overtime exemption rules remain unchanged. Employers should therefore consider the following:
- An exempt employee is not determined by job title alone–i.e., simply giving a worker the title of “manager” does not mean they automatically qualify as an “executive, administrative, or professional” employee. Rather, the evaluation turns on their day to day job duties (such as what they are actually doing in their position). For instance, to qualify for an administrative exemption, the employee must perform work that requires “the exercise of discretion and independent judgment with respect to matters of significance.” How this has been interpreted by courts is very specific. It is recommended employers perform a payroll analysis with a qualified Human Resource manager or employment lawyer to ensure that their employees are properly classified – and to avoid liability for misclassified employees down the road.
- While employers must pay a non-exempt employee overtime, employers put rules in place to limit or prohibit overtime for such workers. However, if those employees still work overtime hours, the law will require that they are paid for the hours. For not abiding by the rules, employers can have alternative recourse than not paying the employees for the hours worked– such as disciplinary action. However, and again, any company policy should be carefully reviewed by a qualified Human Resource manager or employment lawyer to ensure compliance with the law.
When Should You Contact a Florida Employment Lawyer?
Employers should take the time between now and January to for a payroll review all of their exempt and non-exempt employees to ensure compliance with the new compensation thresholds. Do not assume that just because an employee is currently exempt they will remain so next year. And if you have any questions or concerns about how the new overtime rules will affect your business and employees, or seek a payroll analysis, contact an experienced Florida employment law attorney as soon as possible.