How to Prepare for the Changes to the Executive, Administrative and Professional Exemption?

The Department of Labor issued a final rule that updates the earnings thresholds necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. The final rule is effective on January 1, 2020. The question on employer’s minds: do I owe my workers overtime?

The final rule made the following key changes:

1. To qualify for the “white collar” exemption, the “standard salary level” is being raised from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker).
2. To qualify for the “highly compensated employees (HCES)” exemption, the total annual compensation level is raised from the currently-enforced level of $100,000 to $107,432 per year.
3. Employers are allowed to use nondiscretionary 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
4. There are special salary levels for workers in U.S. territories and in the motion picture industry.

What do these changes mean for employers?

Employers need to take the necessary steps to maintain compliance with the FLSA between now and the end of the year. Employers need to confirm that they are properly claiming exemptions under the FLSA. With a January 1, 2020 effective date, it is a perfect time for employers to perform an audit of your current payroll practices.

To perform the audit, employers should evaluate each employee to confirm that they are properly classified as exempt or nonexempt. Take this opportunity to revisit job descriptions to assess any ambiguity in whether the exemptions are satisfied. Confirm actual job duties are consistent with the written job descriptions. Assess the current exempt employees making between $23,660 and $35,568 annually and evaluate whether the position should convert to nonexempt or receive an increase in salary. Consider alternatives to optimize your workforce by restructuring the workforce, hiring additional workers to offset over time, or other solutions that may be business-specific. Finally, effectively communicate with employees about the upcoming changes.

Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.