The U.S. Department of Labor (DOL) recently took two actions implicating and potentially implicating, respectively, how employees are paid under the federal Fair Labor Standards Act (FLSA).
A New Rule
First, on September 27, the DOL issued a final rule on implementing the exemptions from minimum wage and overtime pay requirements for executive, administrative, professional, outside sales, and computer employees. In general, the FLSA requires a three-part test to apply an exemption to employees: (1) the employee must be paid a predetermined and fixed salary that may not be reduced due to variations in quantity or quality of work (“salary basis test”); (2) the amount of the salary paid to the employee must meet a specified amount (“salary level test”); and (3) the employee’s job duties mainly must involve specifically-defined executive, administrative, or professional duties (“duties test”).
The new rule modifies the “salary level test” by raising the threshold pay amount from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). Moreover, employers will be able to count nondiscretionary bonuses, incentives, and commissions toward up to 10% of the standard salary level as long as they pay these amounts at least annually, in addition to other changes.
The new rule goes into effect January 20, 2020.
A Proposed Rule
On November 5, the DOL issued a Notice of Proposed Rulemaking (NPRM) regarding FLSA compliance for nonexempt employees with fluctuating workweeks (i.e., work hours that vary each week). The fluctuating workweek method involves payment of a fixed salary for varying work hours and can meet FLSA overtime requirements in certain circumstances. Generally, this entails paying employees a fixed salary as to straight time compensation for whatever hours the employee works in a workweek (whether many or few); employers may satisfy overtime requirements by compensating employees at one-half the regular pay in addition to the salary amount for hours worked in a workweek above 40. But the method requires determination of the employee’s regular rate on a weekly basis based on hours actually worked because of the fluctuating hours.
The proposed rule seeks to clarify that payments in addition to the fixed salary are compatible with the use of the fluctuating workweek method of calculating an employee’s regular pay rate. Specifically, bonuses, premiums, and other pay to employees, would be included in the calculation of the regular rate unless otherwise excluded by the FLSA.
The comment period is set to close on December 5, 2019.