Mark your calendars for January 1, 2020 for the long awaited update to the salary threshold. If you have employees that you pay a weekly or bi-weekly salary to, you’ll want to audit your payroll records to make sure you’re in good shape.
What Is the Overtime Exemption Anyways?
The Fair Labor Standards Act (FLSA) allows employers to categorize some employees as being exempt from overtime. This means that if they work 40 hours or 52 hours in a work week, they earn the same salary and do not earn overtime pay. The benefit of paying someone as salaried exempt is you can likely save payroll dollars however misclassification of employees is a common mistake amongst small businesses and can lead to big fines in the case of an audit.
Salaried is NOT the Same as Salaried Exempt
Paying someone salaried does not technically mean you have categorized them as “exempt”. In reality, you can pay your employees as salaried exempt OR salaried non-exempt and it’s important to clarify how exactly your classifying the position. If you pay someone as salaried, non-exempt, they earn a weekly salary for 40 hours but would still be eligible for overtime.
There’s a Test
You’ll want to avoid just designating someone as salaried and instead make sure that the position passes all of the tests associated with what are often referred to as “white collar exemptions.” There are exemptions for Administrative, Professional and Executive positions as well as Computer Employees, Outside Sales and Highly Compensated individuals. The Department of Labor has a really helpful fact sheet that can be found here.
The new rule updated a number of things in the existing FLSA law:
The salary threshold for the Administrative, Professional and Executive exemptions is increasing from $455 a week to $684 a week (equivalent to $35,568 per year for a full-year worker).
Employers can now use discretionary bonuses and incentive payments such as commission to satisfy up to 10% of the salary requirements. Bonuses and incentives must be paid at least annually.
The salary threshold for highly compensated employees is increasing from $100,000 to $107,432 per year