On September 24, the U.S. Department of Labor issued a Final Rule changing the minimum salary requirements for the Fair Labor Standards Act’s “white-collar” overtime exemptions. The new minimum salary is not as bad as many had feared.
Effective January 1, 2010, the key provisions of the Final Rule are:
- Minimum salary is raised from $455 per week ($23,660 annually) to $684 per week ($35,568 annually);
- Total annual compensation for Highly Compensated employees is raised from $100,000 to $107,432; and
- Employers may use non-discretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10% of the new salary requirement. (Do not be tempted to use discretionary bonuses for this purpose.)
Unfortunately, the new Rule does not change the duties tests for white collar exemptions. Many of us who practice in this area of the law were hoping that the DOL would offer some additional guidance; especially regarding the oft over-used Administrative exemption. The Final Rule also does not contain the requirement for automatic review/increase of the minimum salary thresholds every four years that was contained in the proposed Rule. Any changes in the Final Rule and increases in the minimum salary will now have to be initiated by the DOL and follow the standard rulemaking process.
In preparation for this new salary threshold, employers should:
For those employees who will not meet the new minimum salary:
- Raise the employee’s salary to maintain exempt status, or
- Convert the employee to non-exempt and begin tracking their hours and paying them overtime.
- This is also a good time for employers to “clean house”: ensure that your exempt v. non-exempt classifications are correct; verify that your written job descriptions are still accurate (If you do not have written job descriptions, create them.); review your time-tracking practices; ensure that you are using the proper regular rate of pay when computing overtime (are you including non-discretionary bonuses, excess per diem payments, etc…?).
- Prepare to roll this out to your affected employees. Not everyone that is converted from exempt to non-exempt will be happy about the change. Remember, an employee cannot “agree” to be exempt if they do not meet both the salary and duties tests. If they “agree” or consent to the misclassification, or even ask for it, they can still sue later for not compensating them properly.
- Resist the temptation to convert a formerly salaried-exempt employee to an independent contractor in order to avoid overtime payments. You will eventually be caught and it will be both painful and expensive.
Employers located in Louisiana should keep in mind that violating the FLSA is especially expensive in Louisiana because a successful plaintiff will not only recover their attorney’s fees and liquidated damages (100%) under the FLSA, they may also be entitled to ninety (90) day’s wages as a penalty under our state payday statute.