2020 FLSA Changes Just Around the Corner

If you want to mess yourself up, ignore the Fair Labor Standards Act. That statute is a minefield even for those treading carefully. For the unaware and careless, the disaster potential really should be causing you to lose sleep.

Two FLSA changes are right around the corner, so read up. The first sets a new minimum for the salaries that must be paid to employees in some exemption categories, while the second clarifies ways in which employers can, yes, be nice to their employees without increasing their regular hourly rates for overtime purposes. Hurrah!


NEW MINIMUM SALARY THRESHOLD TAKES EFFECT ON JANUARY 1, 2020

Reminder: the new minimum salary threshold for the white collar exemptions takes effect on January 1, 2020. The standard minimum salary level rises from $455 per week to $684 per week. If you have employees whom you classify as exempt under one of those exemptions, be sure you adjust their compensation to meet the new minimums or reclassify them to non-exempt by January 1, 2020.

Back in 2016, the Department of Labor (DOL) proposed a $913 weekly salary threshold. The rule-wrangling went dark for quite a while, but on September 24, 2019, the DOL issued a final rule updating the earnings threshold necessary to exempt executive, administrative, professional, outside sales, and certain computer employees from minimum wage and overtime pay requirements under the Fair Labor Standards Act (FLSA).

Under these “white-collar exemptions,” the FLSA exempts employees from overtime pay requirements if they both perform certain types of job duties and meet a minimum weekly pay threshold. Highly compensated employees are also subject to exemption based on a test comprised of a higher compensation level coupled with a less stringent job duties test.


The final rule makes these significant changes:


• The standard minimum salary level rises from $455 per week to $684 per week (equivalent to $35,568 per year for a full-year, whereas the current threshold equates to $23,660 per year); • The total annual compensation requirement for highly compensated employees rises from $100,000 per year to $107,432 per year ($684 of which must be paid weekly on a salary or fee basis); • Employers are permitted to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10 percent of the standard salary level. If an employee does not earn enough in nondiscretionary bonuses or incentive payments in a given 52-week period to retain exempt status, the DOL permits the employer to make a “catch-up” payment within one pay period of the end after the 52-week period; and, • The rule revises the special salary levels for workers in U.S. territories and the motion picture industry.

The thresholds will be updated periodically, though not at set intervals or with set increases, so stay tuned.


The new rule does not change the primary duties of these exemptions, nor does it amend the salary basis test or apply new compensation standards to doctors, lawyers, teachers, or outside sales employees.

Between now and January 1, 2020, employers should identify all employees impacted by the rule (i.e., employees currently classified as exempt under a white collar exemption who earn between $455 per week ($23,660 per year) and $684 per week ($35,568 per year)). Determine whether to reclassify the employees as non-exempt or raise salaries to maintain exempt status. Consider whether another FLSA exemption that does not require the employee to meet the new salary thresholds may apply. Employers may be able to avoid the burdens of anticipated additional overtime generated by newly non-exempt roles by restructuring those positions or reassigning work. Of course, carefully instruct employees whose classifications are being changed to non-exempt regarding new expectations for tracking all time worked, limiting overtime work hours without advance approval, and the like.

PROVIDING PERKS WITHOUT BEING PUNISHED

Sometimes I really do think that no good deed goes unpunished. However, the DOL has carved out a group of perks that employers can provide without the expense (and, perhaps worse, the calculation headache) of thereby ratcheting up non-exempt employees’ regular hourly rates. The Final Rule takes effect on January 15, 2020, so let the good deeds begin as the new year gets started.

According to the DOL, the new rule clarifies the current regulations to confirm that employers may exclude the following from a non-exempt employee’s regular rate of pay:

• The cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance; • Payments for unused paid leave, including paid sick leave or paid time off; • Payments of certain penalties required under state and local scheduling laws; • Reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit. Reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments”;

• Some sign-on and longevity bonuses; • The cost of office coffee and snacks provided to employees as gifts; • Discretionary bonuses (with examples clarifying the meaning of “discretionary”); • Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

The final rule also includes clarification about compensation for bona fide meal periods and changes existing regulations regarding inclusion of “call back” pay in the regular rate. You can read up on these new allowances in the DOL’s summaries and FAQ resources or, if you are inclined, take a dive into the 162-page rule.


Happy holidays, everyone! If I can help you in any way in the new year, please let me know.


Nothing in this blog post constitutes legal advice. Content is provided for general informational purposes only. Always consult the statutes, regulations, and legal counsel to secure answers to your questions abased on your unique factual picture.