October 31, 2019
The United States Department of Labor (DOL) serves multiple functions and is responsible for everything from congressional improvement to mine safety. One of the DOL’s primary purposes, however, is to administer and enforce the Fair Labor Standards Act (FLSA). FLSA is the federal legislation that sets forth the law regarding several labor issues, including:
Many employees, particularly salaried administrative and executive professionals, are exempt from FLSA’s minimum wage and overtime requirements. This is often a boon for employers. Not every salaried employee qualifies for minimum wage and overtime exemptions, however. Employees that make less than a certain amount of money each week or year are protected by FLSA and must be paid accordingly. This standard salary level sets the minimum amount an exempt employee must be paid for base and overtime work.
The DOL recently amended FLSA to raise the standard salary level for the first time in 15 years. This amendment, known as the final rule, opens the door for an additional 1.3 million employees to claim overtime compensation as of January 1, 2020. Discuss how these changes will affect your business with the experienced Virginia and D.C. business labor lawyers at McClanahan Powers, PLLC. Call our Vienna office today at (703) 520-1326 or contact us online for your labor law consultation before the New Year.
The final rule made the following key changes to FLSA, which will take effect on January 1, 2020:
Because state law typically mandates a higher minimum wage, and most employers pay even exempt employees at least $7.25 per hour, the practical effects of these recent changes will be to overtime compensation. FLSA itself does not limit work hours for adult employees but does mandate that non-exempt employees be paid at least 1.5 times their normal hourly salary for every hour worked over 40 hours in a week. For example, a non-exempt nurse who makes $30 per hour and works four 12-hour shifts per week (48 hours) will be paid $30 per hour for the first 40 hours she worked but $45 per hour for the additional 8 hours she worked.
There are two ways to measure an employee’s standard salary level under FLSA. The measure used depends on the type of work being performed. If an employee makes over $107,432 per year and is an executive, administrative, or professional employee performing nonmanual labor, he or she is considered a highly compensated employee and is exempt from FLSA overtime requirements. Despite early proposals, the final rule did not substantially change the salary level applicable to highly compensated employees. Employers with otherwise non-exempt employees currently making between $100,000 and $107,431 will have to decide whether the pay overtime (1.5x normal hourly rate) throughout the year or increase the employee’s salary to at least $107,432 at the start of 2020.
The biggest change to FLSA benefits currently exempt employees making between $455 and $683 per week. This is estimated to be about 1.3 million American workers. For example, a chef currently being paid $10 per hour to work 50 hours per week makes $500 each week. She would be exempt from overtime requirements under the current standard salary level. As of 2020, the final rule would make her a non-exempt employee. This would change her weekly salary from $500 ($10 x 50) to $550 ($10 x 40 + $15 x 10). Employers will have to decide whether to raise their employees’ weekly salaries to at least $684 or start paying overtime.
In addition to the standard salary level changes, employers may count certain annual bonuses and incentives as part of an employee’s compensation for exemption purposes. Up to 10% of an employee’s FLSA compensation may consist of a yearly bonus or weekly incentive payments. For example, if your current office manager makes $100,000 per year and receives a $10,000 annual Christmas bonus, he would still be exempt from overtime under the final rule.
This change actually serves an important secondary purpose designed to protect employers. Employers are also permitted to make a catch-up payment of up to 10% of an employee’s salary at the close of the year if anticipated bonuses were less than expected. This catch-up payment can be used to exempt an otherwise non-exempt employee. Employers can avoid paying overtime during the year in anticipation of an annual profit share payout, for example, that would exempt an otherwise non-exempt employee. Under this rule, an employer would not have to pay an office manager making $100,000 per year overtime if the employer anticipates her annual profit share to be $10,000, as $110,000 is over the salary threshold for highly compensated employees. If the profit share is only $3,000, however, making her annual salary a non-exempt $103,000, the employer can make a catch-up payment of $5,432 at the end of the year. This would give her a salary of $107,432, and she would be exempt under the final rule.
FLSA is complicated, and these changes are only the tip of the labor law iceberg. Not every employer is subject to FLSA, and many employees qualify for a non-salary based exemption. Further, state law often controls minimum wage and overtime requirements in so far as it requires a higher payout, and these changes may not affect you at all. Schedule your initial labor law consultation with one of McClanahan Powers, PLLC’s experienced Virginia and D.C. business attorneys to discuss and, if necessary, prepare for implementation of the final rule in 2020. Call us today at (703) 520-1326 or contact us online.