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  • Jody McLeod

Are your Exempt Employees ready for a change ?

The overtime exempt salary level under the Fair Labor Standards Act (‘FLSA’ or ‘Act’) is set to increase effective January 1, 2020. The FLSA outlines the criteria necessary for an employee to be correctly classified as ‘exempt from overtime’ and an important one, salary level, is set to change and impacting many employers.

It is estimated that under this salary threshold increase, approximately 1 million employees currently classified as ‘exempt’ will need to be re-classified as ‘non-exempt’ and therefore, eligible for overtime pay. Some employers may also decide to raise the salaries of some of the impacted workers in order to maintain the role’s exempt status. Either way, employers can expect this new rule increasing the salary level to increase their future wages.

The Old salary level is $455/week or annualized at $23,6660/ year. The New level about to take effect is $684/week or annualized at $35,568/ year. Employers should be aware of a few other details contained in the rule:

o Nondiscretionary bonuses and incentive payments (including commissions) may be used to satisfy up to 10% of the threshold level;

o FLSA’s Executive, Administrative and Professional duties criteria must also be met.

Now, as before, employers must also meet the exemption criteria as well as meeting the salary level. The following is a good reminder of those exemption requirements:

o Executive: In order to be exempt under this category, an employer must demonstrate the following:

§ The employee is managing the enterprise or a department or a subdivision of the enterprise;

§ the employee customarily and regularly hire and fire (or take other employee’s recommendations/ suggestions around hiring, firing or promoting.

o Administrative: In order to be exempt under this category, an employer must demonstrate the following:

§ The employee’s primary duty is performing office or nonmanual work directly related to the management or general business operations;

§ The employee duties must also include the exercise of discretion and independent judgment with respect to matters of significance.

o Professional: In order to be exempt under this category, an employer must demonstrate the following:

§ The employee’s primary duty must be to perform work requiring advanced knowledge in a filed of science or learning that is customarily acquired by prolonged specialized, intellectual instruction and study.

As you review your workers’ salaries and duties to ensure they are correctly classified as a nonexempt employee not entitled to overtime, it is also a good idea to make sure that you have accurate job descriptions and that they reflect the current duties for that role. It is the job duties, not the job title, that are important if an investigator comes calling.

Important: Michigan employers should be aware that Governor Whitmer is proposing an administrative rule that sets a salary threshold level higher than the U.S. Dept. of Labor threshold level and effective on January 1, 2020. Under Whitmer’s proposal, the stating point for the overtime salary threshold is $51,000. If t his administrative rule is enacted all Michigan employers would have to follow this state regulation. Several business organizations and chambers have been lobbying against this rule’s enactment.

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