Staying informed about changes in labor laws is crucial but ensuring compliance to avoid potential penalties and litigation can be difficult.
The Fair Labor Standards Act (FLSA) sets standards for minimum wage, overtime pay, recordkeeping, and youth employment in the private sector as well as in federal, state, and local governments. After many years of debate, the FLSA introduced new rules for exempt employees that took effect on July 1, continuing to January 1. New minimum salary standards were set in order to avoid owing overtime pay and the required recordkeeping for non-exempt employees.
However, as of November 15, the new FLSA rules were rejected. A federal court in Texas overturned the new rules based on the belief that the Department of Labor had overstepped its authority. In the event that these rules are appealed, this post will break down what the changes were meant to be and explain who qualifies as an exempt employee.
Proposed Changes Overturned But Subject to Potential Appeal
1. Increase in Minimum Salary Threshold
The minimum salary threshold for exempt employees was raised on July 1. This required employees to earn a higher salary to qualify as exempt from overtime pay, increasing from $684/week to $844/week (or $43,888 per year). This increase was meant to ensure that more workers receive overtime pay protections. However, the miminum has been reverted to the previous amount from before July 1.
2. Further Salary Threshold Adjustment
Another adjustment to the salary threshold was previously scheduled for January 1. This rule would further increase the amount employees must earn to maintain their exempt status. The new rate was set to be $1,128/week which comes out to $58,656 per year.
Should these rules be adapted and appealed, an annual review of the salaries of exempt employees will ensure they meet any newly mandated threshold. This measure was designed to align salaries with inflation and cost of living adjustments. It is possible that this threshold will be updated more frequently than in previous years, but for now no such increase is currently scheduled.
Who Qualifies as an Exempt Employee?
To qualify as an exempt employee under the FLSA, an individual must meet specific criteria regarding both their job duties and salary. Exempt employees are typically not entitled to overtime pay. Here are the main categories and criteria for exemption: dol.gov/agencies/whd/fact-sheets/17a-overtime
1. Executive Exemption:
- Primary Duty: Managing the enterprise or a recognized department or subdivision.
- Supervision: Directs the work of at least two or more full-time employees or their equivalent.
- Authority: Has the authority to hire or fire other employees, or their recommendations on such decisions are given particular weight.
- Salary Basis: Earns a salary that meets the minimum threshold set by the FLSA.
2. Administrative Exemption:
- Primary Duty: Performing office or non-manual work directly related to the management or general business operations of the employer or the employer's customers.
- Discretion and Independent Judgment: Exercises discretion and independent judgment with respect to matters of significance.
- Salary Basis: Earns a salary that meets the minimum threshold set by the FLSA.
3. Professional Exemption:
- Primary Duty: Performing work that requires advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.
- Creative Professionals: In some cases, performing work that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
- Salary Basis: Earns a salary that meets the minimum threshold set by the FLSA.
4. Computer Employee Exemption:
- Primary Duty: Employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field.
- Job Requirements: Engages in systems analysis, programming, software engineering, or a combination of these duties.
- Salary Basis: Earns either a salary that meets the minimum threshold set by the FLSA or an hourly rate of at least $27.63 per hour.
5. Outside Sales Exemption:
- Primary Duty: Making sales or obtaining orders or contracts for services or facilities for consideration paid by the client or customer.
- Workplace: Customarily and regularly engaged away from the employer's place of business.
- Salary Basis: No salary threshold requirement.
What These Labor Law Adjustments Mean for Your Business
While these new FLSA rules are no long in effect, it's essential for small business owners to do the following:
1. Review Salaried Exempt Employees: Ensure that your exempt employees meet the requirements to be exempt. You can still pay employees a salary if they are non-exempt, but you do need to track hours and pay any overtime.
2. Update Policies: Update your payroll and HR policies to reflect the changes in exemption criteria and salary thresholds as they occur.
3. Stay Informed: Keep abreast of future changes to the FLSA and other labor laws to maintain compliance and protect your business from legal issues.
By understanding and implementing these labor law changes, you can ensure that your business remains compliant with FLSA regulations, avoids potential fines, and fosters a fair and legally sound working environment for your employees.
For more information on these new changes visit: dol.gov/agencies/whd/overtime/salary-levels
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