By: Randall Sutton, Employment Law & Litigation Attorney
Under the Fair Labor Standards Act (“FLSA”), employees paid on a salary basis and performing qualifying duties can be classified as “exempt” from overtime and other requirements of the wage and hour laws. To qualify as exempt, an employee must be paid on a salary basis and perform duties that satisfy one of the categories (executive/supervisory, administrative, professional) set forth in the FLSA’s “white collar” exemptions.
Currently, only employees who are paid a guaranteed salary of at least $455 per week can be considered exempt. Yesterday, the U.S. Department of Labor (“DOL”) issued a rule raising this threshold. Effective January 1, 2020, employees who earn less than $684 per week ($35,568 per year) will be considered non-exempt and must be paid overtime.
The DOL Rule allows employers to apply the amount they pay in nondiscretionary bonuses, commissions and other guaranteed incentive payments towards the minimum salary threshold. Only the first $3,556.80 in incentive compensation will count towards the salary threshold requirement.
The DOL estimates that raising the salary basis threshold will make 1.3 million more workers eligible for overtime. However, reclassification can negatively affect employee morale, as exempt employees are typically proud of their status. Both employers and employees also appreciate the flexibility and predictability of a guaranteed salary, with the employee’s pay neither docked nor rewarded for every fluctuation in the work week.
Prior to the January 1 deadline, we encourage our clients to review the compensation of their exempt employees to verify that every employee is earning more than $35,568 per year in guaranteed compensation. If not, your options include raising the guaranteed salary to meet the minimum threshold, supplementing pay with additional non-discretionary incentive compensation, or reclassifying the employee as non-exempt and paying overtime.
The white-collar exemptions are strictly enforced. When reviewing your exempt positions, we also encourage you to carefully assess whether the employee’s duties actually meet all requirements under the law. Misclassification of an employee can result in significant liability, including underpayment of wages and overtime and potential penalties and attorney fees, so it is important to get this determination right.
Randy Sutton is a partner in the Employment Law & Litigation practice group. The information in this article is not intended to provide legal advice. For professional consultation, please contact Randy Sutton at Saalfeld Griggs PC. 503.399.1070. [email protected] © 2019 Saalfeld Griggs PC