The New FLSA White Collar Exemption Salary Threshold – Are You Ready for January 1?
Posted on 12/06/2019 at 02:03 PM by Mike Staebell
It seems like we’ve discussed this subject for years. It was May of 2016 when the Obama DOL issued final regulations that among other things, more than doubled the minimum salary requirements for the Executive, Administrative, Professional, Computer, and Highly-Compensated (EAP) FLSA exemptions to apply. Of course, those rules were struck down by a federal judge, and never did take effect.
Subsequently, the Trump DOL proposed their version of the rule to increase the EAP exemptions salary test in March of 2019, and their final rule was issued on September 26, 2019. This rule put the minimum annual salary for EAP exemptions at $35,568, and for highly compensated employees (HCE’s) at $107,432. Like the Obama rule, it provides that up to 10% of the salary may be met by non-discretionary bonus, incentive, or commission payments. The new rule dropped the Obama DOL’s provision that automatically indexed the salary amount, but it does call for periodic reviews of the salary standard. The Trump DOL’s final rule on the EAP exemptions did not make any changes to the EAP duties tests.
On January 1, 2020 the final rule takes effect. Are you prepared? You should be: Back in 2004, after the last increase in the salary test was implemented, WHD waited several months, then initiated investigations throughout the U.S. to determine if employers were in compliance. I supervised a number of those investigations as an Assistant District Director for WHD. 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. Employers were in violation even before the new test went into effect. In 2016, as Compliance Specialist with Dickinson Law, I was assisting employers in preparing for the Obama-era rule, and I found the same scenario.
Although there will be no change in the duties tests for EAP exemptions, as noted employers often lose sight of the fact that an employee must meet both the salary and the duties requirements to be exempt under the FLSA. So as the nationwide threshold for implementation of the new EAP exemptions salary test comes ever closer, what should employers be doing now, if they haven’t already? We recommend several steps:
- Evaluate all exempt positions on the basis of the FLSA’s EAP 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. Don’t forget that HCE’s must not only meet the annual total compensation test, they must also receive a guaranteed salary of at least $648/week.
- 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.
- Paying hourly is not the only option for non-exempt staff. While not applicable in some states due to their own laws, consider the “fluctuating workweek” method of paying a guaranteed salary plus additional overtime to non-exempts. Wage and Hour Watch gave a thorough explanation of that FLSA rule that may be found here:
- Communicate with affected staff. This action cannot be overemphasized. There will be those who don’t want to be reclassified as non-exempt. If they are explained the situation in advance, and in detail, hopefully they won’t blame the firm. WHD makes a perfect scapegoat!
- Individuals who haven’t kept timesheets can be lackadaisical in keeping track of their worktime. Consider providing training in FLSA hours worked and recordkeeping provisions. Just because workers don’t record all of their work time does not mean that employers aren’t required to pay them.
Finally, seeking assistance from a labor law professional familiar with WHD and the FLSA can save an employer thousands in the long run. Back pay, damages, court costs and attorney fees can be very expensive.
Questions, Contact us today.
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