Overtime laws do not change often. But, this year a change to the Federal Labor Standards Act (FLSA) impacted most employers. Under FLSA, employers must classify employees as either nonexempt (eligible for overtime and subject to other FLSA wage and hour laws) or exempt (not eligible for overtime).
New Salary Requirement for Exempt Employees
To classify an employee as exempt who is in an executive, professional or administrative position requires three things:
- Must pay a minimum salary specified by FLSA; and
- Must meet the job duties test as outlined under FLSA; and
- Must be paid on a fixed salary basis
As of January 1, 2020, employees must be paid a minimum of $684 per week ($35,568 per year) to be classified as exempt. Previously the minimum salary requirement was $455 per week ($23,660 per year).
Employers Have Two Options
If you have an exempt employee who earns less than the new minimum amount above, you have two options –
- Increase the employee’s salary to at least $684 per week ($35,568 per year); OR
- If you do not want to increase the employee’s salary, change the classification to nonexempt.
If you change an employee from exempt to nonexempt, keep in mind –
• Employees must be paid for all hours worked
• Employees must be paid overtime at 1-1/2 times their regular pay for all hours worked over 40 hours in a 7-day workweek
• Employees must report all hours worked and paid leave for each pay period and the employer must maintain these records.
FLSA Exceptions
Outside sales employees: Under the FLSA, there is no minimum salary requirement for outside sales employees. Because they are considered exempt, they are not eligible for overtime pay.
Computer professionals: To be considered exempt under the FLSA, computer professionals must be paid at least $27.63 per hour.
Other states: A few states such as California, New York and Washington have recently implemented laws that require a minimum salary for exempt employees that is higher than the one under federal law. When there are both federal and state laws, employers must comply with the law that provides the greater benefit to employees. Some states may have job duties’ tests for exempt employees that are different than under federal law.
Small nonprofit organizations: Small nonprofit charitable organizations are not covered under the FLSA unless they engage in ordinary commercial activities that result in sales made or business done in excess of $500,000 per year or they have employees who regularly engage in interstate commerce. Refer to U.S. Department of Labor Fact Sheet #14A for more information.
It is important to note that nonprofits are generally covered under state overtime laws.
At LJ Consulting, we provide expertise to small businesses to ensure their overtime and other policies in their employee handbook are compliant with current laws.