What’s The Final Rule?
The Final Rule is an update to the federal Fair Labor Standards Act (FLSA) rules governing which white-collar employees are eligible for overtime pay. For our purposes here, it determines whether your salaried employees should be receiving overtime pay.
You read that right — your salaried employees might be eligible for overtime pay.
What Does “Exempt” Mean?
The term “exempt” means your employee is exempt from — that is, does not qualify for — overtime pay if they work more than 40 hours in one week.
What makes an employee exempt? In general, all three of these “tests” must be passed:
- The employee receives a salary rather than an hourly wage (the salary basis test)
- The weekly salary amount is paid above the standard salary level required by the FLSA (the salary level test)
- The employee’s duties meet the FLSA description of an executive, administrative, professional, or outside-sales position
In other words, if your salaried employees’ pay or duties don’t fall within the FLSA rules, they will be considered nonexempt — they will qualify for overtime pay.
What Does The Final Rule Change?
The new rule, which went into effect January 1, 2020, does the following:
- Increases the standard salary level from $23,660 per year ($455/week) to $35,568 per year ($684/week)
- Allows employers to use nondiscretionary payments paid at least annually, such as bonuses and incentives, to account for 10% of the standard salary level
- Increases the total annual compensation level of highly compensated employees (HCEs) from $100,000 to $107,432 per year
- Updates special salary levels for those in U.S. territories and the motion-picture industry
For example, suppose your salaried office manager meets the FLSA definition of an administrative employee and she makes $30,000 per year, including bonuses. Before the Final Rule, she was exempt from overtime pay. After the Final Rule, she qualifies for overtime pay.
What Now?
For some employers, it will make more sense to increase an employee’s salary to above the standard salary level, thereby avoiding overtime pay. For others, they might be in a position to leave an employee’s salary alone and increase their yearly bonus to hit the standard salary level. Still others might find it a better business decision to make an employee nonexempt.
FLSA rules can seem daunting, but our HR experts can help you navigate regulatory compliance with confidence and clarity. For every aspect of your business, we offer tailored, data-driven strategies to help you and your team thrive and succeed.