Updated Overtime Rules

Posted on Wednesday, October 16, 2019

The U.S. Department of Labor announced an update to the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements that are effective January 1, 2020. 

Changes include the following:

• Raising the standard salary level from $455 per week to $684 per week (equivalent to $35,568 per year for a full-time worker)
• Raising the total annual compensation requirement for highly compensated employees from $100,000 per year to $107,432 per year
• Allowing employers to use nondiscretionary bonuses and incentive payments paid at least annually to satisfy up to 10% of the standard salary level
• Revising the special salary levels for workers in U.S. territories and the motion picture industry

The FLSA is the federal labor law that provides basic workplace protections to most workers in the U.S. and guarantees them at least the federal minimum wage and overtime, at one and-one-half times their regular rates of pay, for hours worked beyond 40 in a workweek. 

In general, the FLSA applies to employees of entities that have an annual gross volume of sales made or business done totaling $500,000 or more, and to employees individually covered by the law because they are engaged in interstate commerce or in the production of goods for commerce.  Employees of certain entities are covered by the FLSA regardless of the amount of sales or business, including hospitals, businesses providing medical or nursing care for residents, schools, and public agencies.  Just because your nonprofit has less than $500,000 in gross sales, it does not mean that your employees do not fall under the FLSA requirements. 

There are exemptions from FLSA requirements for certain employees who meet specific criteria.  Individuals exempt from both minimum wage and overtime requirements under the exemption for executive, administrative, professional, and outside sales employees, as well as certain employees in computer-related occupations.  In order to meet this exemption, the employee’s specific job duties and earnings must meet all three of the following requirements.  Only requirement 2 changes with the new update effective January 1, 2020.  Neither the payment on a salary basis nor the duties test has or will be changed with the update

1. Payment on a salary basis.  The employee must be paid on a predetermined and fixed salary on a weekly, or less frequent basis, that is not subject to reduction because of variations in the quality or quantity of work performed.
2. Payment of a minimum salary level.  The amount of salary paid must meet a specified minimum amount.  Effective January 1, 2020, this minimum amount must be at least $684 per week or $35,568 per year for executive, administrative, professional or computer positions and $107,432 per year and at least $684 per week for highly compensated employees.  The salary level test does not apply to outside sales employees, teachers, and employees practicing law or medicine.
3. A duties test.  The employee’s job duties must be primarily that of an exempt executive, administrative, professional, outside sales or computer employee.
   • Executive – primary duty must be managing the enterprise or a customarily recognized department or subdivision of the enterprise; must regularly direct the work of at least two or more other full-time employees; must have the authority or have the ability to recommend hiring and firing of other employees.
   • Computer employee – employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field; primary duty must consist of the application of systems analysis techniques and procedures, developing or creating systems or programs, or other specified computer related duties.
   • Outside sales – primary duty must be making sales; must be regularly engaged away from the employer’s place of business
   • Professional – included learned professionals, creative professionals, teachers and those practicing law or medicine.
   • Administrative – primary duty must be office or non-manual work directly related to the management or general business operations; must exercise discretion and independent judgement with respect to matters of significance.

Beginning January 1, 2020, employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary level (i.e. $68 of the $684 per week threshold).  These payments are forms of compensation to induce employees to work more efficiently or to remain with the company and must be paid on an annual or more frequent basis.  Discretionary bonuses (ex. unannounced year end bonuses) cannot be used to satisfy any part of the salary level.

Your organization should review its payroll records now to be ready for the January 1, 2020 change.

For more information on the FLSA and overtime rules, visit our previous posts

Nonprofitis and the FLSA

DOL Overtime Changes

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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