What Employers Need to Know About the New Overtime Salary Threshold

Oct 10, 2019 | Written by: Leslie A. Parikh, Esq. | Share

The Federal Fair Labor Standards Act (“FLSA”) determines whether employees are eligible (non-exempt) or exempt from overtime requirements. Generally, the FLSA looks to either an employee’s work responsibilities or rate of pay in order to designate an employee as exempt or non-exempt from overtime. Exempt employees are not eligible for overtime for hours worked in excess of 40 hours per work week. Non-exempt employees must be paid overtime at a rate of time and a half for time worked in excess of 40 hours in any one work week.

On September 24, 2019, the Department of Labor increased the minimum salary threshold for white-collar exemptions, which will go from $450 a week to $684 a week ($35,568 a year). The rule goes into effect January 1, 2020.

It is important to note that meeting the salary threshold does not automatically make an employee exempt from overtime.  The employee’s job duties must also primarily involve executive, administrative or professional duties as defined by the regulations.

Thus, once an employer is confident that the employee meets the minimum salary threshold, the employer should turn its attention to analyzing whether the employee’s job duties fall within the classification of the white-collar exemption. The “duties test” is utilized and is dependent on a variety of factors. Each of the white-collar exemptions has slightly different criteria. These exemptions include the executive, administrative, professional, computer, and outside sales employee exemptions. Employers must understand the criteria and the complexities of the exemption analysis and should likewise undertake a careful review of the employee’s functions before classifying an employee as exempt.

As of January 1, 2020, the threshold pertaining to highly compensated employees will also increase to $107,432 a year.  Highly compensated employees making over the threshold amount will be exempt from the federal overtime requirements if they meet a more relaxed duties test as follows:

• The employee’s primary duty is office, non-manual work.
• The employee “customarily and regularly” performs at least one of the bona fide exempt duties of an executive, administrative or professional employee as described in the regulations.

The employer has the burden of demonstrating that the exemption applies, so employers must be thoughtful in designating employees as exempt or non-exempt. The final rule will extend overtime protections to more than one million workers who are not currently eligible under our current Federal law.  Additionally, recent legislation will make penalties far more severe for employers who fail to properly designate employees.

Employer Takeaways

• Employees who do not earn at least $35,568 a year ($684 a week) will have to be paid overtime, even if they are classified as a manager or professional and typically have duties that would render them exempt in nature.
• The duties test for overtime exemptions remains unchanged.
• Employers must be ready to implement the change and designate employees affected by the new rule before January 1, 2020.