In a previous article we provided insight about anticipated revisions to the Fair Labor Standard Act’s rules for white-collar overtime exemption proposed by the Obama administration. While those rules were blocked by a court decision at the last minute and never went into effect, a modification of those rules advanced by the Trump administration will go into effect January 1, 2020. This blog will detail the new changes that will be effective January 1, 2020.
The most widely reported change is that the salary threshold will be increased from $23,660 per year (or, $455 per week) to $35,568 per year (or, $684 per week). When the rule takes effect on January 1st, it will mean that an employee who makes less than $35,568 per year (or, $684 per week) will automatically be entitled to overtime pay. The duties of the employee, or whether the employee is salaried or paid by the hour, are not relevant for employees who fall under the new salary threshold. If the employee is under the salary threshold, they must be paid overtime for any hours worked over 40 hours in a given work week.
Many of our clients come to us with the common misconception that simply paying an employee a salary more than the minimum salary threshold means the employee is not entitled to overtime pay. That is not correct. In order for an employee to be exempt from overtime pay requirements, in addition to meeting the minimum salary threshold, the FLSA also requires that an employee qualify for an exemption which generally requires a detailed examination of the employee’s duties. It is a two-part test to avoid overtime pay: 1) Meet the minimum salary threshold; AND 2) Qualify for an overtime exemption through a careful examination of the employee’s job duties.
Another important part of the new rule going into effect on January 1st is that it will allow employers to count a portion of commissions (and some bonuses) towards meeting the minimum salary level. The rule provides that employers will be permitted to use incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level.
Failure to pay employees overtime wages they are owed can result in serious consequences for the employer. Federal and state law may allow for liquidated damages (for example, wages owed multiplied by three), attorneys’ fees, or punitive damages. The burden of proof for employees to prove they worked overtime may also be lower than you think.
If you are worried about how the new overtime rule may impact your business, call MTSE at (816) 364-6677 and ask to speak to one of our corporate attorneys. We have counseled hundreds of companies in northwest Missouri on these and other similar issues.