The wait is over for better or worse – the Trump Administration has released the Department of Labor’s final rule concerning changes to the salary requirements to be exempt from the overtime pay requirement under the Fair Labor Standards Act (FLSA).
Under the final rule, the DOL has increased the minimum salary threshold that must be paid in order for most executive, administrative or professional employees to qualify for exemption from $455 per week ($23,660 annually) to $684 per week ($35,568 annually). This new salary threshold does not apply to teachers, doctors, lawyers, or certain other exempt professionals who are not currently subject to the salary basis or salary level tests. While the new salary threshold is $11,908 less per year than what was originally proposed in 2016, it still presents headaches for many employers who have exempt employees who are paid well below this new salary level.
The final rule also raises the amount paid to an employee to qualify for the highly-compensated employee exemption (from $100,000/yr to $107,432/yr), a much lower increase than what the DOL proposed earlier this year. As expected, the final rule makes no changes to the duties requirements that these administrative, executive or professional employees must also meet in order to qualify for exemption.
Covered employers have until January 1, 2020 to make necessary changes (which is when the final rule is effective), after which employers could be held liable for overtime pay violations in subsequent workweeks for up to 3 years after each violation (plus liquidated damages and attorneys’ fees). This final rule will likely be the subject of various court challenges over the course of the next few months but employers are cautioned not to solely rely on the court system in the event courts refuse to enjoin the final rule.
What Employers Can Do
For affected exempt employees who are not paid enough to qualify under the increased salary basis test, consider the following:
- Compute what their current weekly salary would be under a 40 hour workweek and then figure how much overtime s/he would have to work before hitting the new minimum salary level (this will determine whether and how much of a change will be needed).
2. For employees whose hours significantly vary week to week and who meet the applicable requirements, consider adopting the fluctuating workweek method which permits employers to pay non-exempt employees a fixed weekly salary regardless of the number of hours worked. If you implement this properly, employers only have to pay one-half (.5) the regular rate of pay for all hours that exceed 40 per workweek instead of the typical one and one-half (1.5) overtime rate.
You may also consider setting a maximum hour cap beyond which they cannot work without prior management approval. However, should one or more non-exempt employees exceed this cap in a particular workweek, you must pay them the required overtime for that workweek but you may discipline them for violating the cap.
3. For employees whose hours are fairly consistent, consider translating their current weekly salary to an hourly rate where they would continue to receive approximately the same amount of compensation even if they are re-classified as non-exempt and are paid overtime.
4. Take steps to manage off the clock work by employees who were previously treated as exempt, especially if they use electronic devices such as smartphones or laptops outside of the workplace (or outside of normal work hours) for work purposes.
5. Implement a “safe harbor” policy that details your timekeeping requirements and prohibits off the clock work. Such a policy may provide a good faith defense to liquidated damages stemming from FLSA OT violations, and may also preserve an employee’s exempt status in the event impermissible deductions are made.