Wage and Hour: New Salary Levels for White-Collar Exemptions from Overtime Take Effect Jan. 1, 2020

By Lyndel L. Erwin
Lehr Middlebrooks Vreeland & Thompson P.C.

New U.S. Labor Department regulations related to the salary threshold for white-collar exemptions take effect Jan. 1, 2020.

The final rule:

• increases the minimum salary for these exemptions to $684 per week, which is equivalent to $35,568 per year.
• raises the “highly compensated” test from $100,000 to $107,432 per year.
• allows up to 10% of the salary requirements to be satisfied by payment of non-discretionary bonuses, incentives and/or commissions that are paid annually or more frequently.
• allows for the payment of extra compensation (for example extra pay for working extra hours) above the guaranteed salary as well as allowing the employee’s pay to be computed on an hourly, daily or shift basis as long as the employee receives the guaranteed minimum of $684.00 per week.

Section 13(a)(1) of the Fair Labor Standards Act provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $684 per week effective Jan. 1. Under the current regulations, there is a separate duty test for “highly compensated employees,” whose threshold will increase from $100,000 annually to $107,432 effective with the new regulations.

Even though the salary requirements are the primary focus of the new regulations, employers must remember the application of the exemption is not dependent on job titles but on an employee’s specific job duties as well as his salary. In order to qualify for an exemption, the employee must meet all the requirements of the regulations.

>> U.S. Labor Department web page related to rule effective Jan. 1, 2020

EXECUTIVE EXEMPTION
To qualify for the executive employee exemption, ALL the following tests must be met:

• The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $684 (as of Jan. 1, 2020) per week;
• The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
• The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

This exemption is typically applicable to managers and supervisors who are in charge of a business or a recognized department within the business such as a construction foreman, warehouse supervisor, retail department head or office manager. The annual mean wage of first-line supervisors of retail sales workers in Alabama is $40,790 to $43,760, according to the Bureau of Labor statistics (see chart below).

ADMINISTRATIVE EXEMPTION
To qualify for the administrative employee exemption, ALL the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 (as of Jan. 1, 2020) per week;
• The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

This exemption may be applicable to certain management staff positions such as safety directors, human resources managers and purchasing managers. Of the exemptions discussed in this article the administrative exemption is the most difficult to apply correctly due to application of the “discretion and independent judgment” criteria with respect to matters of significance.

PROFESSIONAL EXEMPTION
To qualify for the learned professional employee exemption, ALL the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 (as of Jan. 1, 2020) per week;
• The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
• The advanced knowledge must be in a field of science or learning; and
• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Examples of employees that could qualify for the exemption include engineers, doctors, lawyers and teachers.

CREATIVE PROFESSIONAL EXEMPTION
To qualify for the creative professional employee exemption, ALL the following tests must be met:

•  The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 (as of January 1, 2020) per week;
• The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Typically, this exemption can apply to artists and musicians.

COMPUTER EMPLOYEE EXEMPTION
To qualify for the computer employee exemption, the following tests must be met:

• The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate not less than $684 (as of Jan. 1, 2020) per week or at an hourly rate not less than $27.63 an hour;
• The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below.

The employee’s primary duty must consist of:

1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
2. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
3. The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
4. A combination of the aforementioned duties, the performance of which requires the same level of skills.

This exemption does not apply to employees who maintain and install computer hardware.

OUTSIDE SALES EXEMPTION
To qualify for the outside sales employee exemption, ALL the following tests must be met:

• The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
• The employee must be customarily and regularly engaged away from the employer’s place or places of business.

You will note that this exemption is the only one in this group that does not have a specific salary or hourly pay requirement. Thus, the exemption may be claimed for outside sales employees that are paid solely on a commission basis.

The application of each of these exemptions depends on the duties actually performed by the individual employee, rather on what is shown in a job description, plus the employee must meet each of the requirements listed for a particular exemption in order for it to apply. Further, the employer has the burden of proving that the individual employee meets ALL the requirements for an exemption.

Therefore, it is imperative that the employer review each claimed exemption on a continuing basis to ensure that he does not unknowingly incur a back-wage liability.

Lyndel L. Erwin is a wage and hour consultant for the law firm of Lehr Middlebrooks Vreeland & Thompson P.C., the Alabama Retail Association’s employment law partner. Prior to working with the firm, Erwin was the area director for Alabama and Mississippi for the U. S. Department of Labor, Wage and Hour Division, and worked for 36 years with the Wage and Hour Division on enforcement issues concerning the Fair Labor Standards Act, Service Contract Act, Davis Bacon Act, Family and Medical Leave Act and Walsh-Healey Act. Visit ARA’s Employment Law Resource Center to learn more about your employment law benefits.