Compliance with the Fair Labor Standards Act is Good Business

Have you heard about the Department of Labor’s latest rule change? In this week’s blog, Epiphany Law attorney Sarah Coenen breaks down what the Fair Labor Standards Act means for your business.

Q: Can a salaried employee be entitled to overtime pay?

A: In general, regardless of whether an employee is paid an hourly or salary rate, he or she may be entitled to overtime pay. The Department of Labor (“DOL”), however, created an exemption under the Fair Labor Standards Act (“FLSA”) allowing certain employees to be exempt from receiving overtime pay.

Q: How do you know if an employee is qualified for the exemption?

A: To qualify for this exemption, the employee must:

  1. be salaried, meaning that he or she is paid a predetermined and fixed salary not subject to reduction because of variations in the quality or quantity of the work performed;
  2. be paid at least a specified weekly salary level; and
  3. primarily perform executive, administrative, or professional duties, as defined in DOL regulations.

Q: How will the Department of Labor’s 2019 update affect the rule?

A: The update raises the annual standard salary level from $23,660 to $35,568. This equates to the weekly rate increasing from $455 to $684. Therefore, an employee must have an annual salary level above $35,568, to be exempt from receiving overtime pay.

Q: Does the DOL update affect highly compensated employees (HCEs)?

A: Yes, the rule also increases the total annual compensation level for highly compensated employees (“HCEs”) from $100,000 to $107,432. HCEs are employees whose primary duty includes office/non-manual work and who customarily/regularly perform one or more of the exempt duties of an executive, administrative, or professional employee. For example, an employee may qualify as an HCE if he or she customarily and regularly directs the work of two or more other employees, even though he or she does not meet all of the other requirements in the standard exemption test.

Q: Are employers allowed to use commissions and incentive pay toward the employee’s salary?

A: Yes, the rule allows employers to use nondiscretionary bonuses and incentive pay (including commissions) to satisfy no more than 10 percent of an employee’s salary in order to qualify that employee under the exemption.

Q: What happens if the employee has not earned enough in nondiscretionary bonuses and incentive payments to retain his or her exempt status?

A: Then, the rule allows for the employer to have a “catch-up” payment at the end of the 52-week period. If the employer does not make up the “shortfall” during that one pay period, the employee is entitled to any overtime pay earned during the previous 52-week period.

Q: When does the new rule go into effect?

A: The new rule goes into effect on January 1, 2020.

Q: Why does this matter for me?

A: If you have any employees who are receiving a salary rate, you will need to re-evaluate those employee classifications to ensure that your business is in compliance with the new Fair Labor Standards Act rules by January 1, 2020.

Epiphany Law attorney’s can help you make sure your business is protected. For more information, contact us here.

Employment and Compliance Attorney
Sarah Coenen

About the Author

Sarah M. Coenen is an experienced business attorney with Epiphany Law. She focuses her practice on employment services including non-competition agreements, employee handbooks, compliance, hiring and termination. Sarah enjoys educating and empowering her clients to help them achieve their personal and business goals. You can learn more about Sarah’s background here.