The 2004 regulations provided that, in general, any employee earning less than $455 per week ($23,660 per year) is a nonexempt employee entitled to overtime pay regardless of whether he or she is paid on an hourly or salary basis. Employees paid above that level have to meet a duties test, discussed below in more detail, in order to be classified as an exempt executive, administrative or professional employee.
Effective January 1, 2020, the final overtime rule:
The final rule does not make changes to the duties test and it does not include a provision to automatically adjust the salary threshold.
The DOL stated its intent to update the standard salary level and HCE total annual compensation threshold more regularly in the future using the notice and comment rulemaking process.
Employees now covered by the Act must receive overtime pay for hours worked over 40 hours in a workweek at a rate not less than time and one-half of their regular rate of pay. There is no limit in the Act on the number of hours employees aged 16 and older may work in any workweek. The Act does not require overtime pay for work on Saturdays, Sundays, holidays or regular days of rest unless overtime is worked on such days.
A common misconception is the use of the term “exempt”, which can often be confused with “salaried”. When an employee is salaried, it simply means that an employer has chosen to pay that person a fixed amount per week or year. When an employee is exempt, it means that the employee meets a specific definition under the labor laws and is not entitled to overtime and other benefits that apply to non-exempt employees only.
These exemptions, known as white-collar exemptions because they apply to individuals or executives in professional settings, group employees under three categories of exempt job duties: administrative, professional and executive. If an exempt employee does not meet the salary level or basis test, they need to meet the performance of an exempt job duty in order to be considered exempt.
The administrative exemption applies to employees who perform work that keeps the business up and running and who are authorized to make relatively important decisions. To qualify, all of the following requirements must be met:
The learned professional exemption applies to employees who work in professions that typically require an advanced degree (college, CPA, MBA). For the learned professional exemption to apply, all of the following must be true:
The executive exemption is usually reserved for high-level managerial employees. For an employee to qualify, all of the following requirements must be met:
These rule changes will cause business owners to reevaluate their current staff, employee-by-employee, and assess the amount of overtime that a particular employee works versus the amount that the employee’s salary would need to be increased to meet the new threshold. Businesses can use certain measures and make decisions to place limitations on the amount of overtime it will allow any non-exempt employee to work in order to avoid increased payroll costs but it will have to consider necessity, productivity and forecasted growth of their current businesses. Finally, business owners will have to invest the time need to ensure that employee time and pay is tracked appropriately to ensure these new rules are met come January 1, 2020, to avoid FLSA violations and potential penalties.