Tag: highly compensated employees

Federal Overtime Rules

Federal Overtime Rules Won’t Change Much in New York

On September 24, 2019, the U.S. Department of Labor finalized long-awaited changes to the federal overtime rules. The rules increase the salary requirement for the most common overtime exemptions. The higher threshold applies throughout the United States, but it does not trump most state overtime requirements. New York already has higher salary requirements for most of its overtime exemptions. Thus, the federal changes won’t force most New York employers to raise wages.

“White Collar” Exemptions

The Fair Labor Standards Act (FLSA) is a federal law requiring employers to pay minimum wage and overtime. Most employees must receive overtime for working over 40 hours in a week. Some exceptions apply. The most prevalent ones are the “white collar” exemptions.

The “white collar” exemptions include the administrative, executive, professional, and outside sales exemptions. All but the outside sales exemption have minimum salary requirements.

To qualify for the administrative, executive, and professional exemptions, most employees must satisfy both duties and salary requirements. (There is no salary requirement for doctors, lawyers, and teachers under the FLSA professional exemption.)

2020 Federal Overtime Rules

Beginning January 1, 2020, the weekly salary requirement for the FLSA administrative, executive, and professional exemptions will increase from $455 to $684. The new threshold is slightly higher than the $679 level first proposed earlier this year. However, it is much lower than the $913 level that the DOL tried to implement under President Obama in 2016.

Nondiscretionary Bonuses and Incentive Payments

Although the salary requirement has always been measured on a weekly basis, there is now a slight exception. For the first time, the new federal overtime rules will allow employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the salary requirement. Employers can review compliance on an annual basis and make a year-end “catch-up” payment if necessary.

Employers can determine the relevant 52-week period (measured consecutively), but must do so in advance. Otherwise, the calendar year is the default. They must make any necessary catch-up payment within one pay period after the end of the chosen 52-week period.

The total 52-week “salary” requirement is $35,568. Of that, up to $3,556.80 could be satisfied by bonuses or other incentive compensation.

Employers may pro-rate the requirement for employees who do not work the entire 52-week period. If an employee leaves employment the employer would need to ensure compliance and make any catch-up payment within one pay period after the end of employment.

Highly Compensated Employees

The FLSA’s special “highly compensated employee” exemption currently requires that the employee receive at least $100,000 in total compensation in a year.

The new federal overtime rules increase that to $107,432 in total annual compensation. The employee must receive at least $684 in salary on a weekly basis.

Earlier this year, the U.S. DOL proposed increasing this threshold much higher to $147,414. By comparison, the 2016 rule would have required annual compensation of at least $134,004.

The “highly compensated employee” exemption applies where the employee meets the compensation threshold and also performs at least one of the duties of an exempt executive, administrative, or professional employee. Most employees who qualify for this exemption would also be eligible for the full executive, administrative, or professional exemption anyway. So there may be relatively few situations where employers really need to increase compensation to maintain this special exemption.

New York’s Overtime Exemptions

The minimum wage varies throughout New York State based on geographic location, among other factors.

Click here for complete charts on the various New York minimum wage rates and overtime exemption salary levels.

For most occupations, the current New York minimum hourly wage ranges from $11.10 for Upstate workers to $15.00 for some employees in New York City.

New York has overtime pay rules that are similar to those found in the FLSA. These include similar exemptions, such as the administrative, executive, and professional exemptions.

New York’s administrative and executive exemptions already require that employees receive a salary higher than $684 per year. However, unlike the FLSA, New York’s professional exemption does not have a salary requirement. That means that some exempt professionals might need a raise to stay exempt in 2020.

A Caveat for Public Employers in New York

Most New York employers are subject to both the federal FLSA and the similar New York State laws.

However, the New York minimum wage and overtime rules don’t apply to governmental entities in the State, with limited exceptions. But the FLSA does.

So, public employers in New York will need to review the federal overtime rules to evaluate the potential impact on their workforces. Most public employees in New York eligible for exemptions already make more than $684 per year. But some, including part-time exempt employees, do not. (The FLSA salary requirement does not decrease for part-time employees.) Preserving exemptions for part-time employees may or may not be important, depending on whether they ever work over 40 hours in a week, which would trigger FLSA overtime obligations.

Act Soon, If Necessary

If you have employees in states where the new federal salary requirement exceeds the applicable state exemption threshold, then you need to be prepared to make changes by January 1, 2020. You will either need to increase compensation or remove the exemption and pay overtime where earned.

In New York, the new federal overtime rules only affect some public employers and professional employees. Most private-sector employers, including non-profits, will just need to focus on maintaining exemptions under New York law.

 

The full notice of the new FLSA regulations is available here:

Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees

2019 Overtime Rule

2019 Overtime Rule Proposes $35,000 Salary Level

On March 7, 2019, the U.S. Department of Labor released new proposed rules regarding FLSA overtime exemptions. The 2019 overtime rule differs substantially from the one pursued by the Obama administration in 2016. The $35,000 threshold falls almost exactly between the current federal requirement ($23,660) and the 2016 proposal ($47,476). The DOL has not proposed changes to the duties test for the “white collar’ exemptions, but did modify other aspects of the existing regulations.

FLSA “White Collar” Exemptions

The Fair Labor Standards Act (FLSA) is a federal law requiring employers to pay minimum wage and overtime. Most employees must receive overtime for working over 40 hours in a week. Some exceptions apply. The most prevalent ones fall into the category of “white collar” exemptions.

The administrative, executive, professional, and outside sales exemptions all fall under the “white collar” rules. Of these, the first three have salary requirements. The outside sales exemption does not.

To qualify for administrative, executive, and professional exemptions, most employees must satisfy both duties and salary requirements. (There is no salary requirement for doctors, lawyers, and teachers under the FLSA professional exemption.)

Many states have separate overtime exemption requirements. Employers generally must satisfy both state and federal exemptions. In some states, the salary requirement already exceeds the new proposal. The overall impact of the FLSA 2019 overtime rule may be less in such states.

Salary Levels

In 2004, the Department of Labor set the salary threshold for the white collar exemptions at $455 per week. This equates to $23,660 annually.

Near the end of President Obama’s second term, the Department of Labor proposed and finalized an increase to the salary requirement. The 2016 rate was $913 per week, or $47,476 per year. Shortly before the increase took effect, a federal court blocked it. That court case is technically still pending on appeal.

Now the Trump DOL is pursuing this new rule to replace the blocked rule and the one that preceded it. The March 2019 proposal sets the weekly requirement at $679, or $35,308 annually. This represents almost exactly the midpoint between the 2004 (current) and 2016 (blocked) salary levels.

The March release by the DOL does not establish a $679 per week salary requirement. There will be a 60-day comment period first. Then the DOL would be able to issue a final rule. The final rule could adopt this proposal or modify it in either direction.

[Along with a salary level test comes a salary basis requirement. For more on that component of the white collar exemptions, click here.]

No Automatic Adjustment in the 2019 Overtime Rule

The 2016 rule not only doubled the salary threshold, but also established a mechanism for automatic adjustments every three years. That approach would have almost certainly increased the salary requirement at large intervals.

Instead of automatic increases, the 2019 overtime rule proposal suggests that the DOL review the salary threshold every four years. The agency could then change the requirement through new notice and comment rulemaking.

Highly Compensated Employees

Surprisingly, there is one aspect of the 2019 overtime rule proposal that is more burdensome on employers than the 2016 regulations.

The FLSA also has a “highly compensated employee” exemption. Right now, it requires that the employee receive at least $100,000 in total compensation in a year. The current proposal increases that almost by half to $147,414. By comparison, the 2016 rule would have only required compensation of at least $134,004 annually.

However, the precise amount of this change might not be a significant concern for most employers. The highly compensated employee exemption is primarily a shortcut to the traditional white collar exemptions. It applies where the employee meets the compensation threshold and also performs at least one of the duties of an exempt executive, administrative, or professional employee. Most employees who qualify for this exemption, whether at the $100,000, $134,004, or $147,414 level, would also be eligible for the full executive, administrative, or professional exemption anyway.

What Does This Mean for Employers?

For now, this is only a proposal. We are at least two months away from the DOL moving to finalize these changes. And most likely the DOL will set the new salary threshold and give employers some lead time to prepare for the increase. Ideally, the DOL might have the new rules apply beginning January 1, 2020, when many employers make annual wage adjustments anyway.

Still, it’s not too early to start planning for the increase. $35,308 might not be the exact new threshold. But it will probably be in that ballpark. If your company has exempt employees making less than that, you might have to pay them more to maintain the exemption. The alternative would be to eliminate their exemption and pay overtime as required. There are many strategies and approaches to implementing these changes. We’ll try to address some of them once the final rule comes out. So, stay tuned!

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