Overtime Adjustments for the New Year

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Overtime Adjustments for the New Year

The federal Fair Labor Standards Act (“FLSA”) contains salary thresholds over which some employees may be “exempt” from some of the Act’s regulations. Employees under this threshold are “non-exempt,” and thus must be granted the Act’s full protections, including the ability to receive overtime pay.

The salary threshold over which executive, administrative, and professional employees will be deemed “exempt” will increase from $23,660 ($455 per week) to $35,568 ($684 per week) as of January 1, 2020. Moreover, the total annual compensation requirement for “highly compensated employees” subject to a minimal duties test will increase from $100,000 to $107,432.

Commissions, nondiscretionary bonuses, and other incentive compensation may satisfy up to 10% of the salary requirement, so long as the payments occur no less frequently than annually, and any “catch-up” payment is paid within one pay period prior to the close of the year.

Dealing with the increase in the minimum salaries for white-collar exemptions can be challenging for employers. The increased exemption thresholds can impact salaries across an organization. Even annual budgets and overall corporate compensation structures can be affected.

In the alternative, converting employees to non-exempt status entails its own difficulties. Salaried employees often resist the timekeeping requirements necessary for non-exempt employment. Moreover, hourly rates may have to reflect longer typical working hours and overtime pay requirements to ensure the employees maintain their compensation level. If the changes are not calculated and implemented carefully, unintended compensation increases or decreases could occur.

Salary changes for single departments can have a ripple effect throughout an organization. For example, converting exempt employees who do not meet the threshold to non-exempt employees could create animosity from employees who remain exempt and are excluded from access to overtime pay. Any changes should be determined with a view towards the impact on the entire organization rather than department by department.

As always, every change in compensation should be made with company culture in mind. If you need help implementing these changes, contact one of our employment attorneys today.