Final Rule makes more Americans eligible for overtime pay under FLSA
January 24, 2020
On September, 24, 2019, the U.S. Department of Labor announced a final rule to make 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act (FLSA). The “standard salary level” has not been raised since 2004 and the increase to the salary threshold necessary to remain an exempt employee is meant to account for growth in employee earnings during that 15 year period. The Final Rule went into effect January 1,
According to the Department of Labor, the Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. 2020. The final rule:
- raises the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);
- raises the total annual compensation level for “highly compensated employees” (HCE) from the currently-enforced level of $100,000 to $107,432 per year;
- does not change the duties test for any exemptions (see below); and
- allows employers 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 in recognition of evolving pay practices.
The Fair Labor Standards Act (FLSA) establishes a minimum wage and requires payment of mandatory overtime for covered employees who work more than 40 hours per week. However, certain employees are exempt from the wage and hours and/or overtime payment provisions of the FLSA. Therefore, employees are divided into two general classes: nonexempt employees, who are paid on an hourly basis and receive overtime payment at premium rates, and exempt employees. Exempt employees are generally paid on a salary basis and perform exempt duties.
The Duties Test
The Final Rule does not make any changes to the “Duties Test.” The substantive duties test focuses on the specific job duties of the employees, requiring that the employee’s primary duties are exempt in nature. There are certain criteria which must be met by executive, administrative and professional employees to qualify them as exempt employees.
- An executive employee’s primary duties are to manage all or part of a business, exercise discretionary powers, and direct the work of two or more employees. An executive has the authority to hire, fire, promote or change the status of other employees or the executive’s opinion is given great weight in those matters.
- An administrative employee’s duties consist of either office work or non-manual work which is “directly related to management policies or general business operations.” The administrative employee must exercise discretion and independent judgment, work under only general supervision, and assist someone employed in an executive or administrative capacity. A distinction must be made between administrative employees, whose duties involve special knowledge, experience and training to actually run the business, and non-exempt employees who perform administrative tasks to aid in day-to-day operations.
- The duties undertaken by professional employees require advanced education or an extended course of study beyond general academic education. Professional employees produce work which is intellectual, creative, and heavily dependent on talent, invention, or imagination. Examples of professional employees include doctors, attorneys, dentists, teachers and professors, registered nurses, scientists, musicians, painters, and actors.
Don’t let a job title throw you. The focus is on the actual job duties of the employee, not the title.