The Department of Labor has issued a new rule on who qualifies as exempt from overtime. Classifying a worker as exempt requires identifying a specific exemption, such as the executive, administrative, learned professional, computer employee or outside sales exemptions. Then, the job must both meet the definition of the exemption and exceed the salary threshold.
For example, to qualify for the executive exemption, all of the following tests have to be met:
- The employee’s primary job duty must be managing the enterprise or a customarily recognized subdivision of the enterprise
- The employee must regularly and customarily direct the work of at least two full-time employees or their equivalent
- The employee must be authorized to hire and fire other employees, or their recommendations must be given particular weight as to hiring, firing, promotion or any other change of status
- The employee is compensated on a salary basis at a rate of not less than $684 per week
The tests are similar for other exemptions. This new rule affects only the last test, which is called the salary threshold. This is meant to ensure that workers who earn less than the threshold amount are never exempt from overtime. The new rule raised the salary threshold from $23,660 a year ($455 per week) to $35,568 per year ($684 per week), effective Jan. 1, 2020.
When a job meets all the tests for an exemption, including the new, higher salary threshold, the employee is not entitled to overtime under the Fair Labor Standards Act (FLSA). If the job does not meet all the tests, the FLSA mandates the employee receive 1-1/2 times their regular rate of pay for every hour past 40 worked in a regular workweek.
How is the employee’s salary determined?
Determining the employee’s actual salary is a common area of dispute in FLSA litigation. When determining whether a potentially exempt employee reaches the salary threshold of $35,568 annually, the employer should include not only their regular earnings but also a portion of any non-discretionary bonuses and commissions. The employer can count up to 10%, or up to $3,556.80, of bonuses and commissions toward the salary threshold.
New rule expected to increase number of eligible employees
Since the salary threshold has gone up, there will likely be employees who used to be exempt from overtime who are no longer exempt. That means you should reassess any employees you have previously classified as exempt and determine if they meet the new salary threshold.
If you are not sure your workers are exempt from overtime, you could be opening yourself up to wage and hour lawsuits. To determine the proper classification of your workers, meet with an experienced employment law attorney.