Brief History

In 1938, the Fair Labor Standards Act (FLSA) was passed to establish minimum wage, overtime pay, recordkeeping and youth employment standards affecting full time and part time workers in the private sector and in federal, state and local governments. Nonexempt or hourly workers must be paid overtime pay at a rate of at least one and one-half times their regular rates of pay after 40 hours of work in a workweek.

Since 2004, the minimum amount for the salary test was $455/week or $23,660/year. Note that this amount is below the poverty level for a family of four. No changes or increases to this minimum salary test have been made in the past 15 years.

Revised Overtime Rules

All employers, no matter their size, must comply with the DOL’s final regulations under FLSA. The FLSA does, however, contain some exemptions from these basic standards – some apply to specific types of businesses; others apply to specific kinds of work. It has been estimated that the rule will expand overtime pay obligations to an estimated 1.3 million additional workers.

As of September 24, 2019, the US Department of Labor announced the final regulations revising the current Overtime Rules. The new regulations include:

• Effective January 1, 2020, in order to classify an employee as Exempt/Salaried, not only must they be paid on a salary basis and be paid more than the minimum salary level of $684/week or $35,568 per year, they must also pass one of the DOL duties test.
• The total annual compensation level for “highly compensated employees (HCE)” will increase from $100,000 to $107,432 per year.
• To recognize evolving pay practices, employers are allowed to use non-discretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level.
• The final rule does not make any changes to the current Department of Labor duties test for executive, administrative and professional positions.
• No change has been made to the various other exemptions (for example, outside sales) that do not specifically include a salary requirement although these positions may be receiving a base salary.
• Although no automatic annual adjustments have been announced, the DOL will continue to review the threshold to determine if any additional changes are needed in order to account for marketplace movements.

Companies who had made changes in 2016 due to the anticipated change in the salary threshold may not need to do anything additional. However, it is important to consider reviewing positions that may have increased in responsibility since it has been three years since the last discussions on this topic.

There are a number of factors that companies will need to think about as they move forward with implementing any necessary changes, and the consequences of not doing so are significant. Employers that improperly classify employees as exempt are normally required to reimburse employees for their lost income, and they may also be subject to civil and criminal prosecution and fines from $1,000 – $10,000 per violation.

Speaking with an HR professional is highly recommended to all organizations who anticipate changes, and you can contact MCM’s HR Advisory Services Team for more information by going to www.mcmhrsg.com.

*Source: US Department of Labor