Employment Update: Exempt or Non-Exempt – That is the Question: The Updates to the Fair Labor Standards Act (FLSA) and How They Affect Employers

 

From the Desk of John Kreutzer: The US Department of Labor recently updated the regulations governing the exemption of executive, administrative, and professional employees from the minimum wage and overtime pay protections of the Fair Labor Standards Act (“FLSA”). This exemption from the FLSA is sometimes referred to as the “white collar” exemption.  For this exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”).

This recent update to FLSA, mostly focused on the “salary level test,” increased the required salary for exempt employees from $23,660 per year to $47,476 per year. This change is expected to affect an estimated 4.2 million workers who are now misclassified.

Here is how FLSA works, and how this update will affect employers:

FLSA: This Act establishes minimum wage, overtime pay and recordkeeping standards for employees in the private sector and in Federal, State, and local governments. Almost all employees in the US are covered by this Act.

 Overtime: Unless specifically exempted, employees covered by the FLSA must receive pay for hours worked in excess of 40 in a workweek at a rate not less than one and one-half their regular rates of pay. These are commonly called non-exempt employees.

“White Collar” Exemption to Overtime: As previously mentioned, for an employee to be exempted from overtime that employee must pass three tests, the “salary basis test,” the “salary level test,” and the “duties test.” Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers)....

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