The Construction Advantage
New Overtime Rule Effective January 1, 2020
The Department of Labor’s (the “DOL”) final rule increasing the salary-level threshold from $455/week to $684/week for white-collar exemptions under the Fair Labor Standards Act (the “FLSA”) becomes effective on January 1, 2020. As a result, approximately one million workers will soon be eligible for overtime pay under federal law.
Under the FLSA, an employer is required to pay employees at least minimum wage and overtime pay. However, an exception applies to employees who are properly classified as “exempt.” There is significant litigation surrounding whether certain employees are properly classified as “exempt” or “non-exempt,” and employers should take the classification of employees seriously because a misclassification could have dire consequences for a business.
The new overtime rule likely does not affect the classification of manual laborers or other “blue-collar” workers. The FLSA explicitly states that manual laborers and other “blue-collar” workers are considered “non-exempt,” so such employees are entitled to overtime protections. A blue-collar worker is defined as an employee who performs “work involving repetitive operations with their hands, physical skill and energy.” Similarly, “non-management employees in production, maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers” are considered “non-exempt.” Therefore, the classification of such employees will likely not be impacted by the DOL’s increase in the salary threshold, so such employees should continue to receive overtime.
However, an account manager, draftsmen, superintendent or project manager may be considered “exempt” under the new overtime rule.
The FLSA provides common statutory exemptions, such as:
- Administrative Employees;
- Executive Employees;
- Professional Employees;
- Computer Professionals;
- Outside Sales Employees; and
- Highly Compensated Employees.
At first glance, it may appear that an employee could easily satisfy one of the common statutory exemptions. For example, it would seem that an employee with the job title of “Administrative Assistant” should qualify for the “Administrative Employee” exemption. However, the determination of whether an employee qualifies as “exempt” is not so simple.
To qualify for “exempt” status under one of the common statutory exemptions, an employee must satisfy the following criteria:
- The “Salary Basis Requirement”: We often refer to the first factor as the “Salary Basis Requirement.” To satisfy the Salary Basis Requirement, an employer must:
- Pay the employee a predetermined salary (rather than an hourly rate) each pay period, which is not reduced based upon the quality or quantity of work performed; and
- The predetermined salary must satisfy the “predetermined salary threshold” set by the Department of Labor (“DOL”). As of January 1, 2020, the predetermined salary threshold will be $684/week (raised from $455/week). Therefore, any employee who receives a predetermined salary of less than $684/week may satisfy the “salary basis requirement” for exemption status.
- The “Duties Test”: We often refer to the second factor as the “Duties Test.” To satisfy the Duties Test, the employee must perform certain duties and responsibilities in his/her position. The duties and responsibilities that must be performed are specific to each exemption.
Based on the foregoing, you may have employees who are currently classified as exempt but, as of January 1, 2020, will be considered non-exempt under the new DOL rule. For example, a project manager who satisfies the duties test and receives a salary of $500/week would currently be classified as exempt. However, the project manager will no longer be classified as exempt with a salary of $500/week when the predetermined salary threshold of $684/week goes into effect on January 1, 2020.
We recommend reviewing the classification status of each employee before January 1, 2020 to ensure that your company is in compliance with the new DOL rule.