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FLSA Update - Round 2

Frequently Asked Questions (FAQ)

Since the Department of Labor’s (DOL’s) announcement of the changes to the Fair Labor Standards Act (FLSA) white collar exemptions on May 18, we have fielded a variety of questions. We published a first round of FAQs on May 18. Here is round two:

Q: What are some of the other exemptions?

A: There are a wide variety of white collar exemptions—from the relatively common executive, administrative, and professional exemptions, to more obscure and specialized exemptions. For example:

  • Teachers, doctors, and lawyers (no salary requirement)
  • Computer professionals (may be paid hourly—above $27.63/hour; if salaried must comply with the new rate of $913/week)
  • Outside sales employees (no salary requirement)
  • Employees of seasonal amusement or recreational establishments
  • Employees of small-circulation newspapers

This is just a sampling of exemptions. Note: do not go by the name of the exemption alone, as the employee must also perform the duties referenced for each in order to qualify.

Questions?

Call 414-446-8800, or email us at adam@goldsteinsc.com for more information or to schedule a consultation.

Q: How do non-discretionary bonuses and incentive payments work relative to the new salary threshold?

A: A non-discretionary bonus (typically commissions, bonuses related to efficiency or production, etc.) is a bonus often based on a company formula or merit program. An example of a discretionary bonus (not applied toward salary) is a holiday bonus.

Non-discretionary bonuses and incentive payments may satisfy up to 10% of the salary requirement. This means that at least 90% of the salary must be paid as salary. In order to credit these bonuses and other payments toward salary, they must be paid quarterly (or more frequently).

If the employee does not earn enough in bonuses or incentives in a quarter to meet the salary threshold, employers are permitted to make a “catch-up” payment at the end of the quarter. If the employee’s total compensation does not meet the new salary threshold, the employee is non-exempt for the quarter (and eligible for overtime pay).

Q: Is my business exempt from the FLSA?

A: The FLSA covers employees of businesses with a $500,000 annual volume of business (though some businesses—hospitals, schools, nursing care, etc.—must comply with the FLSA regardless of annual volume). Calculating this figure is more complicated than it might appear. See: DOL FAQs. If the business is not a covered enterprise, it may still employ individually covered workers relative to employee job duties. For instance, employees who regularly spend time performing work relating to people or goods moving across state lines are considered to be involved with interstate commerce, and therefore covered by the FLSA. This includes employees who regularly communicate (via email, telephone, etc.) with out-of-state vendors, customers, donors, etc.

Q: Does the FLSA apply to non-profits?

A: The FLSA does not distinguish between for-profit and non-profit, and none of the recent revisions change how the FLSA applies to non-profits.

To determine whether the non-profit organization must comply with the FLSA, the organization must meet the enterprise coverage test ($500,000 annual volume of business). See: DOL FAQs.

If the non-profit organization is not a covered enterprise, it may still employ individually covered workers relative to employee job duties. For instance, employees who regularly spend time performing work relating to people or goods moving across state lines are considered to be involved with interstate commerce, and therefore covered by the FLSA. This includes employees who regularly communicate (via email, telephone, etc.) with out-of-state vendors, customers, donors, etc.

Q: What is new for highly compensated employees?

A: The FLSA has always provided an exemption for “highly-compensated” employees. To qualify for this exemption, employees must be paid $134,004 annually (up from $100,000 previously) and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee. This exemption equates to a considerably lower bar than the traditional white collar exemptions which require that all elements be met. Highly compensated employees must be paid at least $913/week on a salary or fee basis. The remainder of their compensation may be made up of commissions, non-discretionary bonuses, and other non-discretionary compensation. Note: various states (e.g., Wisconsin and Illinois) do not provide an exemption for highly compensated employees, so the exemption may not be available to such employees working in those states.

Q: What is new for computer professionals?

A: The computer professional exemption is unusual in that it allows an employee to be paid on either a salary or hourly basis. As with the other exemptions, the salary threshold for exempt computer professionals (if paid by salary) will increase to $913/week ($47,476/year). If paid on an hourly basis, the rate remains at $27.63/hour. If you rely upon this exemption, be sure you are applying it properly. It is meant only for high-level computer professionals, e.g., computer systems analysts, computer programmers, software engineers, and other high-level technology employees.

Q: What is new for outside sales employees?

A: The outside sales exemption has no salary requirement, meaning the change in salary threshold had no impact on this exemption. Note: this is a difficult exemption to meet, narrowly applied, and often misunderstood.

Q: Do the white collar exemptions apply to business owners?

A: If one holds at least a 20% equity interest in the business and is actively engaged in the management of the business, he/she comes within the FLSA’s executive exemption regardless of how or at what level he/she is compensated. Conversely, if one owns less than a 20% interest in the business or is not actively engaged in the management of the business, he/she is non-exempt unless he/she meets one of the FLSA white collar exemptions.

Q: How do I calculate overtime for salaried, non-exempt employees?

A: Remember that salaried employees are not automatically exempt employees. A salary is simply one method of paying an employee for work performed.

Overtime pay for salaried, non-exempt employees is calculated at 1½x the employee’s “regular rate” of pay. The employee’s regular rate of pay is his or her total remuneration in a given workweek (minus discretionary bonuses), divided by the total number of hours worked in that workweek.

A crucial, but often overlooked, element of calculating a salaried employee’s overtime pay is how many hours the employee’s salary is intended to cover. If, for example, the employee’s salary is intended to cover up to 50 hours per workweek, the employee is entitled only to the “overtime premium” (i.e., ½ the employee’s regular rate of pay, not 1½ times the regular rate of pay) for hours worked above 40/week. If there is no such agreement in place, the employee is entitled to 1½x his or her regular rate of pay for hours worked over 40. Thus, a necessary condition of paying any employee a salary is coming to an agreement with the employee, in advance (and preferably in writing), about how many weekly hours the salary is intended to cover.

In certain situations, it may be beneficial (to one or both parties) for the employee to be paid a salary under the “fluctuating workweek method” (i.e., where the employee’s hours typically fluctuate from week to week). Contact Michael at (414) 446-8800 or michael@goldsteinsc.com for assistance in determining whether this may be advisable in your particular situation.

Q: How was the new salary threshold calculated?

A: The new salary threshold is equal to the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region (currently the South). The threshold number will be recalculated every three years. This raises a new issue – in 2020 the pool of salaried workers may have grown substantially. If you are undecided on whether to bump an employee up to the new salary level of $47,476/year, consider whether you are willing to keep up with additional increases down the road.

Q: How do I begin deciding which employees to transition to exempt or non-exempt?

A: This is a decision unique to each business and to each qualifying employee, involving some math as well as the issue of precise job duties and hours of work (and whether those job duties or hours of work can be modified).

Answering the math question requires knowing how many hours per week the employee works - which may present a challenge if the currently exempt employee does not keep detailed time records. You may have to quiz your managers, or even consider polling employees themselves. Also consider whether reconfiguring work (e.g., grouping exempt duties) or avoiding overtime (e.g., hiring additional personnel) might be effective solutions. If your employees were not keeping accurate time records, consider keeping track over the next few weeks to study work patterns (but do not forget to factor in any work fluctuations, e.g., peak periods or seasonal periods of increased work).

If you decide to transition an employee from salaried and exempt to hourly and non-exempt status, such that they do not see a decrease in total compensation, follow this formula: hourly rate = weekly salary / (40 + [overtime hours x 1.5]).

Q: Where can I go for more information on the white collar exemptions?

A: The Department of Labor (DOL) has provided a variety of useful tools and links:

General:

Small businesses and non-profits: