Effective January 1, 2020, a new federal overtime threshold will make millions more Americans eligible for overtime pay for working more than 40 hours per week. The federal white-collar exemption currently tied to $455 per week ($23,660 annually) will be raised to $684 per week ($35,568 annually). Any employee under the $35,000 limit will be deemed a non-exempt, hourly wage earner eligible for overtime. Further, the threshold for the exemption for highly compensated employees – which provides an exemption for well paid employees who do not meet all of the executive, administrative or professional (white collar) exemptions – has been raised from $100,000 to $107, 432. For example, paralegals were recently deemed exempt employees by the Department of Labor. Opinion Letter FLSA2019-8.
Although the new Rule allows employers to count non-discretionary bonuses and incentive payments paid at least annually to satisfy up to 10 percent of the new salary threshold, discretionary bonuses cannot be applied. Further, the Rule does not alter the “duties” tests for determining a white collar exemption, nor give any additional guidance in that regard, as some had hoped would come with the amendment.
Employers should annually audit the classification and compensation of their employees. Misclassifying an employee can have numerous negative consequences, including draconian audit findings by, among others, the New York State Department of Labor. Worse, the employer faces potential liability for a wages and hours federal lawsuit carrying triple damages and attorneys’ fees.
Employers now should either raise salaries to meet the new threshold or convert the affected exempt employees to hourly with the necessary hours tracking. In order to conform with the changes to the overtime rules as well as the expanded New York Pay Equity Law which went into effect October 8, 2019, we recommend that employers review all job titles, job descriptions and job duties, rates of pay and manner of calculating overtime, preferably with counsel to shield the review under the attorney-client privilege, before the end of 2019.