On January 1, 2020 the new Salary Threshold rule takes effect. Employers will be required to pay most executive, administrative, and professional employees at least $684 per week ($35,568 per year). To be exempt from overtime under the federal Fair Labor Standards Act (FLSA), employees must be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1 1/2 times their regular hourly rate for hours worked in excess of 40 in a work week.
First Questions to Ask Yourself
- Have you prepared a list of potentially affected employees?
- Have you compared the cost of increasing their salaries to the new minimum with the cost of keeping their salaries where they are and paying for overtime?
- If you raise their salaries to the new minimum, have you considered whether you still have a “duties test” risk?
In 2004, after the last increase in the salary test was implemented, the Wage and Hour Division (US Department of Labor, Employment Standards Administration) waited several months, then initiated investigations throughout the U.S. to determine if employers were in compliance. The results showed that employers for the most part were not in compliance, not because of the new salary test, but for failure to meet the duties tests for the exemptions.
So, are you out of compliance now or will you be? In helping to ensure that you have all the correct information needed to make determinations regarding your employees while staying compliant; follow the checklists below.
Recommended Next Steps
- Evaluate all exempt positions on the basis of the FLSA’s Executive, Administrative, Professional duties tests, even if the salaries are above $648/week. The publicity surrounding the nationwide change provides a perfect opportunity to reclassify as non-exempt those who don’t meet the duties requirements, or change their duties to meet the tests.
- Decide what to do with exempt positions paid less than $648/week. Raise their salaries to the new threshold, or reclassify them as non-exempt.
- Communicate with affected staff. This action cannot be overemphasized. There will be those who don’t want to be reclassified as non-exempt. If the situation is explained in advance, and in detail, hopefully they will understand.
- Employees who are moved to non-exempt status will have to record their hours worked. Ideally, they should be trained in how the firm handles this, and the FLSA requirements. Individuals who haven’t kept timesheets can be lackadaisical in keeping track of their worktime. Consider providing training in FLSA hours worked and record-keeping provisions. Just because workers don’t record all of their work time does not mean that employers aren’t required to pay them.
Duties Test Exemptions
- Executive exemption. The employee’s primary duty must be managing the enterprise or a department or subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two employees and have the authority to hire or fire workers (or the employee’s suggestions and recommendations as to hiring, firing or changing the status of other employees must be given particular weight).
- Administrative exemption. The employee’s primary duty must be performing office or nonmanual work that is directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty also must include the exercise of discretion and independent judgment with respect to matters of significance.
- Professional exemption. The employee’s primary duty must be to perform work requiring advanced knowledge in a field of science or learning that is customarily acquired by prolonged, specialized, intellectual instruction and study.
Formal reference and more details: https://www.dol.gov/whd/overtime/fs17a_overview.pdf This will be a change for all involved and sometimes tricky to manage so please reach out if HR On-Call, LLC can be of any help to determine the pros and cons of the new Salary Threshold rule in your business.
A little more about us: Susan Arnold, owner and lead HR Consultant at HR On-Call, LLC. Susan has 20+ years of HR experience and provides a HR presence to business organizations without the overhead expense of a full-time employee. Susan helps business owners improve employer/employee relationships and allows them to focus on their business while resting assured that they are in full compliance with state and federal law. Areas of expertise:
- Reduce Employer Risk and Liability
- Customized Employee Handbooks
- Performance Reviews
- Improve Employee/Employer Relationships
- Background Checks
- Personality Assessments
- Guaranteed EEO Compliance
- Employee Retention
- Recruitment / Hiring
- Employee Discipline/Discharge
Susan is passionate about her customers and listens to their needs. If you are interested in any of the details above or would like more information about her services, please contact Susan! If you have questions on how your specific policy should read or need help navigating a certain instance, contact HR On-Call, LLC.