January 1, 2020 Is The Date: “White Collar” Overtime Exemptions Go Into Effect
by David B. Walston, Partner
December 19, 2020
We have written in the past about the changes coming to the “white collar” exemptions to the minimum wage and overtime requirements of the Fair Labor Standards Act (“FLSA”). After much legal and regulatory wrangling, the changes are settled and will go into effect on Jan. 1, 2020. Here are the basics:
To qualify for a “white collar” exemption, employees generally must meet three tests:
- Be paid a minimum salary of $684 per week ($35,568 per year).
- Be paid on a “salary basis.”
- Perform certain duties.
A common misconception is that any employee who is paid a salary of $35,568 per year is exempt from the minimum wage and overtime requirements of the FLSA. This is not true. ALL three tests must be satisfied for a “white collar” exemption to apply.
1) Minimum salary: A “salary” is a predetermined salary paid on a weekly or less-frequent basis. In a change from past law, employers may use non-discretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis, to satisfy up to 10 percent of the standard salary level. The keyword is “non-discretionary.” A gratuitous holiday or end-of-year bonus does not qualify. If an employee does not meet the $35,568 threshold, the analysis ends here.
2) “Salary basis”: If the salary amount is satisfied, the employer must proceed to the second stage – is the employee paid on a “salary basis”? To be exempt, with certain exceptions, the salary must be paid for any week in which the employee performs any work and without regard to the number of days or hours worked. In other words, unless an exception applies allowing a reduction, an employee who works even one-half hour during a week must be paid the entire amount of the weekly salary to maintain a white collar exemption. However, certain reductions from a salary are allowed:
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- Absences of a full day or more for personal reasons.
- Absences of a full day or more for sickness or disability (provided the employer has a paid sick leave policy).
- Family and Medical Leave Act absences (either full- or partial-day absences).
- Disciplinary suspensions of a full day or more.
- To offset amounts received as payment for military pay.
- The first or last week of employment (pro-rated on hourly or daily basis.
- Any full work week in which the employee does not perform any work.
Absent one of these circumstances, a reduction in salary eliminates the exemption.
3) Job Duties: In order for an exemption to apply, an employee’s specific job duties the employee actually performs must meet all the requirements of the Department’s regulations. Job titles do not determine exempt status.
a) Executive Exemption: The duties test for the executive exemption requires:
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- The employee’s primary duty must be managing the enterprise or managing a customarily recognized department or subdivision of the enterprise;
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
- The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
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b) Administrative Exemption: The duties test for the administrative exemption requires:
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- The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
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Please be aware that many states have statutes governing minimum wage and overtime, and employers should consider the FLSA as bare minimum requirements. Employers are wise to seek legal advice regarding the wage and hours laws in states in which it conducts business.
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