This Tuesday (September 24, 2019), the Department of Labor announced the following changes to the FLSA’s white-collar overtime exemptions, to become effective January 1, 2020:
- The minimum salary threshold for exempt status will be $684 per week, annualized to $35,568 per year.
- The highly compensated employee exemption’s total annual compensation requirement will be set at $107,432 per year (to include the new threshold as minimum weekly base salary).
- No change has been made to the various other exemptions (for example, outside sales) that do not specifically include a salary requirement even if the employee happens to earn a salary.
- There will be no “automatic” threshold updates, such as cost-of-living increases.
If you recall, a much higher increase had been set to become effective back in December 1, 2016, but was scrapped by federal and state court actions. While there is no way to guarantee that legal challenges might not delay or alter this latest ruling, we strongly advise our clients to plan for a January 1st implementation. The new threshold formula and guidelines are less flawed are much less contentious, with the majority of the concerns driving the 2016 lawsuits resolved. Overtime Rule 2.0 looks like a solid go.
WHAT SHOULD I DO NOW?
First, evaluate your compensation structure to see if anyone who is currently exempt will fail to qualify under the new threshold. Take a moment to consider whether they might be subject to alternative FLSA exemptions. If not, develop new FLSA compliant pay plans (either applying overtime pay or increasing exempt salaries). Determine the timing, administrative tasks, and communications necessary to meet the January 1st deadline. Then stay tuned to ConsultStu for the updates you need to keep your company on track. NOTE: If you are a ConsultStu retainer client, Stu will be covering this topic at your next monthly HR support call, and we will assist you with any needed preparation!
An investigation by the U.S. Department of Labor’s Wage and Hour Division’s Jacksonville District Office found that Windy City Doc Holding LLC, doing business as Metro Diner, violated minimum wage and overtime provisions of the Fair Labor Standards Act. The Wage and Hour complaint identified three violations. First, Metro Diner made improper deductions from workers’ pay when it charged servers for their uniforms – that resulted in them earning less than the legally required federal minimum wage of $7.25 per hour in the weeks that they paid for those items. Second, the Diner’s practice of sharing the tips of tipped employees with non-tipped workers, such as dishwashers, also contributed to the minimum wage violations for affected servers. Third, the Diner also calculated overtime incorrectly when it based servers’ overtime rates on time and a half of their direct cash wages, rather than basing it on the full minimum wage, as required.
The maximum tip credit that an employer currently can claim under the FLSA is $5.12 per hour ($7.25 – $2.13). The following is a sample calculation for paying overtime to a tipped employee who receives $2.13 in direct cash wages. If a tipped employee works 45 hours in a workweek. The employee’s regular rate of pay is $7.25 per hour, the applicable minimum wage. Step 1: Use the employee’s regular rate of pay to calculate the overtime rate. $7.25 x 1.5 = $10.88 Step 2: Subtract the appropriate tip credit from the overtime rate to achieve the adjusted rate and multiply by the number of overtime hours worked that week. $10.88 – $5.12 = $5.76. Overtime is calculated $5.76 x 5 overtime hours = $28.80 overtime pay. Step 3: Add the employee’s straight pay plus the overtime pay to calculate total pay that week. 40 hours x $2.13 = $85.20 straight time; $85.20 straight time + $57.60 overtime = $142.80 under federal law.
Metro Diner settled the Wage and Hour complaint, agreed to comply with the FLSA and paid 59 employees a total of $154,179 in back wages. For more information on this topic, review the Wage and Hour Division’s Fact Sheet on Tipped Employees.
An Orlando based plastic recycling company agreed to pay $424,000 in back wages to almost 200 employees after a Department of Labor investigation alleged violations of the Fair Labor Standards Act (FLSA). The investigation revealed that Ravago Americas LLC failed to pay overtime to employees and failed to record and track employee work time. The investigation was performed by the Wage and Hour Division, Jacksonville District Office.
The employer paid workers fixed salaries, based upon a 40 hour workweek, without regard to how many hours they actually worked. When employees performed work before their shifts, after their shifts, during their meal breaks, and/or at home, those hours were neither recorded nor paid for. This practice created an overtime violation when the unpaid time pushed workers’ totals beyond 40 hours in a workweek, and no overtime premium was paid. The company also failed to maintain required time and payroll records. After the investigation, the company agreed to: (1) pay $424,537 in back wages to 195 employees and comply with the FLSA in the future; (2) install an accurate time-keeping system to capture daily start and end times of employees; (3) include an accurate record of hours worked on pay stubs for all nonexempt personnel; (4) perform enterprise-wide training with all managers and employees on proper clock in/out procedures on installed time-keeping system, employee rights regarding compensable and non-compensable time; and (5) the proper procedures to correct inaccurate payroll caused by a time-keeping error.
Simply paying an employee a salary does not necessarily mean the employee is not entitled to overtime. Other businesses, who may be paying in the same manner, should take note. Also, it is important to remember that the DOL Salary rule change takes effect on December 1, 2016. An employee is exempt from both minimum wage and overtime pay requirements when they are employed in bona fide executive, administrative, professional and outside sales positions, as well as certain computer employees. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $913 per week (updated by Final Rule) as of Dec. 1, 2016.
Consultstu LLC provides fractional HR services to small/mid businesses to lower operational costs, improve business processes and comply with workplace regulations. We deliver customized HR solutions that provide protection from expensive mistakes and strategies to improve workplace results. Call us at 727-350-0370 or visit http://www.consultstu.com