DOL-FLSA Exemption Rules

DOL Issues New Federal Overtime Rules.

Effective January 1, 2020

The U.S. Department of Labor released new Federal overtime rules.

The rule revises the Fair Labor Standards Act (FLSA) from 2004 to account for growth in employee earnings. The DOL estimates that 1.2 million additional workers will be entitled to overtime pay as a result of the increase to the standard salary level. The final rule will be published on September 27, in the Federal Register.

Key Provisions

  1. raising the “standard salary level” from the currently enforced level of $455 to $684 per week.
  2. raising the total annual compensation level for “highly compensated employees (HCEs)” from the currently-enforced level of $100,000 to $107,432 per year.
  3. allowing employers to use non-discretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices
  4. revising the special salary levels for workers in U.S. territories and in the motion picture industry

Hospitality and the new overtime rules

How do these new provisions and rulings effect the hospitality industry and what should you be on the lookout for?

  • Ensure that you classify your exempt employees properly
  • Examine potential costs

Compare the cost of raising an exempt employee’s salary to reclassifying the employee as non-exempt and paying them overtime.

If the employee rarely works overtime and earns a salary under Key Provision # 1, then it may be worth reclassifying them as a non-exempt employee.

Vice versa, if the employee is earning close or at the salary under Key Provision # 1, and works a lot of overtime, it will be more cost effective to keep them classified as exempt.

National Restaurant Association notes.

For full details, visit here.

Bonus and Incentive Payments

“The Association argued that bonuses are critical components of an employee’s total compensation package and should be counted toward meeting the salary threshold. The Association argued for a higher percentage rate and longer window for an employer to make catch-up payments.”

No Automatic Increases to Salary Level

“The Association argued that the Department does not have the statutory authority to do automatic increases outside of the formal federal rule making process, allowing for an assessment of market conditions and input from the regulated community.”

No Changes to the Duties Test

“The Association had argued against changes to the duties test stating that any attempt to artificially cap the amount of time that exempt managers can spend on nonexempt work would place significant administrative burdens on restaurant owners, increase labor costs, cause customer service to suffer and likely result in an increase in wage-and-hour litigation.”

Rejects regional Variations in Salary Level

“The Association argued that such a provision would make compliance more difficult for national employers.”

Keep an Eye on State Rules

Some states have their own salary requrements that are higher than the new Federal ruling.

States have the option to go above the Federal  ruling in Key Provisions # 1.

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