On January 1, 2020, a new rule took effect which updated the earnings threshold necessary to exempt executive, administrative or professional employees from the Fair Labor Standards Act (FLSA) minimum wage and overtime pay requirements.
The FLSA requires employers to pay the federal minimum wage to employees who work more than 40 hours per week, and overtime pay of at least 1.5 times the regular rate of compensation.
The FLSA also contains a provision which exempts executive, administrative or professional employees from the minimum wage and overtime pay requirements. To fall under this exemption, an employee must (1) be paid a pre-determined, fixed salary that is not subject to reduction based on quality or quantity of work; (2) meet a minimum specific amount; and (3) perform duties that primarily involve executive, administrative, or professional activity as defined by statute.
The updated rule increases the earnings threshold necessary for employees to fall under the exemption, and allows an employer to count a portion of bonuses or commission towards meeting the threshold. The update will (1) raise the “standard salary level” from $455 per week ($23,660 per year), to $684 per week ($35,568 per year); (2) raise the total annual compensation requirement for “highly compensated employees” from $100,000 to $107,432 per year; and (3) allow employers to count non-discretionary bonuses and commissions paid annually, toward 10 percent of the “standard salary level.”
In other words, while the old rule meant that employers did not have to pay overtime or minimum wage to employees who earned more than $23,660 per year. Under the updated rule, employers have to pay minimum wage and overtime to employees who earn less than $35,568 per year.
The Department of Labor estimates that the update will make an additional 1.3 million workers eligible for overtime pay.
Please note that this Article does not constitute legal advice nor does it establish an attorney/client relationship.
Hodges and Davis, P.C. – January 2020