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New Overtime Exemption Regs Take Effect Jan. 1, 2020

New federal overtime regulations have finally been introduced for non-exempt workers after years of wrangling over the issue.

Under the new rule, employers will be required to pay overtime to certain salaried workers who make less than to $684 per week – or $35,568 per year – up from the current threshold of $455, or $23,660 in annual salary.

The new regulations are a midway point from Obama administration rules that would have seen the salary cap increased to $47,476, a move that was blocked by a court after protests from the employer community in December 2016.

Because the Trump administration took over after that, it decided not to pursue an appeal of the judge’s orders and instead started working on replacement regulations that appeased the employer community, which had protested the doubling of the cap as too costly for businesses.

The Fair Labor Standards Act requires that most employees in the United States be paid at least the federal minimum wage for all hours worked, and overtime pay at not less than time and one-half the regular rate for all hours worked over 40 in a workweek. However, the law includes exemptions for certain workers, as long as they satisfy a certain salary threshold.

Under the final rule issued by the Department of Labor, executive, administrative, professional, computer or outside sales employees who make more than $684 a week are exempt from the FLSA’s minimum wage and overtime pay requirements. The new regulations also allow employers to count a portion of certain bonuses (and commissions) towards meeting the salary level.

The new rule takes effect Jan. 1, 2010.

Here are the tests that must be satisfied to categorize workers as exempt if they make more than the new threshold (remember, merely giving someone a job title without these responsibilities does not make them exempt):

Executive employees

  • Managing the enterprise, or managing a department or subdivision of the enterprise;
  • Directing the work of at least two or more other full-time employees or their equivalent; and
  • Authority to hire or fire other employees, or have significant input in hiring, firing and promotions.

Administrative employees

  • Office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
  • Exercise of discretion and independent judgment with respect to matters of significance.

Professional employees

  • Work requiring advanced knowledge, that is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
  • The advanced knowledge must be in a field of science or learning; and
  • The advanced knowledge must be acquired by a prolonged course of specialized intellectual instruction.

Computer employees

This includes computer systems analysts, computer programmers, software engineers, and other similarly skilled workers in the computer field. To be categorized as exempt if making more than the new threshold, workers must be involved in:

  • Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
  • Design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
  • Design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
  • A combination of the above.

Outside sales employees

  • Making sales or obtaining orders or contracts; and
  • Engaged away from the employer’s place(s) of business.

Highly compensated employees

The overtime threshold for “highly compensated” employees is also rising – to $107,432 per year, from the current $100,000. This means that employees who are not considered exempt as in the above occupations, and who earn less $107,432 starting next year, will be eligible for overtime if they work more than 40 hours a week.

Get current now

Here is a checklist of action items that you should address immediately:

  • Check whether your salaried employees satisfy the duties and salaries components of the FLSA white-collar exemptions (or your state law).
  • Identify all of the positions that will require reclassification under the new rule, and decide whether it is worth it to increase someone’s salary.
  • Analyze the financial impact of reclassifying employees as nonexempt.
  • Consider reassigning certain tasks to reduce the effects of the rule.
  • Make plans to conduct reviews regularly – like every three years for federal law compliance, or more frequently in California ahead of minimum wage changes.

Off-the-clock Work Ban Can Save You from Legal Troubles

Wage and hour lawsuits are on the rise, usually with non-exempt employees claiming they weren’t paid either for overtime or for work they may have performed before or after their shift.

But, if you have ironclad policies in place, you can greatly minimize both the chances of being sued and also losing the case.

One California case illustrates how one employer, thanks to its policies on prohibiting work off the clock, was able to avoid a trial and payment of damages after an appeals court threw out a potential class-action suit by employees claiming they hadn’t been paid for overtime work for which their employer lacked knowledge.

The California Appellate Court dismissed the case, Jong vs. Kaiser Foundation Health Plan, finding that Kaiser could not be held liable for overtime pay because:

  • The company explicitly prohibited off-the-clock work;
  • The employee worked off-the-clock contrary to this policy; and
  • The employer had no actual or constructive notice of the employee’s unapproved off-the-clock work and, thus, could not be liable.

This case illustrates the importance of putting your off-the-clock policy in writing and following through with consistent enforcement.

The case

In 2009, Kaiser reclassified its outpatient pharmacy manager (OPMs) as non-exempt as part of a settlement of an earlier lawsuit in which it had been accused of improperly classifying OPMs as exempt.

After Kaiser had reclassified its OPMs, three OPMs filed suit, alleging that Kaiser refused to pay overtime and that it had not adjusted the responsibilities of OPMs so that they could perform their jobs in 40 hours a week.

OPMs were also required to hit budget targets and Kaiser had disciplined one of the OPMs for going over budget, partly due to overtime that he reported and was paid for. In the lawsuit, the OPM asserted that Kaiser knew or should have known about the off-the-clock hours that he worked and therefore should have paid the unreported overtime.

In dismissing the lawsuit, the court cited the plaintiff’s deposition that he was aware of Kaiser’s overtime rules, including that it would pay for overtime work even if it had not been pre-approved. The OPM had also signed an affirmation acknowledging that off-the-clock work was prohibited.

During his deposition, the OPM also said that he wasn’t sure if any of his managers knew he was working off the clock. He also had not recorded his off-the-clock work and didn’t know how many hours he’d worked off the clock.

The takeaway

This case illustrates the importance of having strong and well-documented policies, including procedures for requesting approval for overtime as well as a prohibition on off-the-clock work.

Kaiser was granted case dismissal thanks to its explicit policies on off-the-clock work and that it had required its employees to sign an acknowledgment that they would not work off the clock.

You may want to consider instituting policies and procedures that are similar to Kaiser’s if you want to avoid any off-the-clock work complaints. Its policies were:

  • All non-exempt employees will be paid overtime for all overtime hours recorded.
  • All non-exempt employees should be clocked in whenever they are working.
  • All non-exempt employees must request approval to work overtime.
  • All non-exempt employees are required to sign an attestation form acknowledging that they will not work off the clock.

You should review your wage and hour policies with an employment attorney and implement policies and procedures that can keep your firm from being sued by employees for overtime, meal break, and off-the-clock violations.

Your last line of defense should be an employment practices liability policy. For more information on such coverage, call us.


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