Changes to Minimum Wage & Overtime Pay
Louisiana REALTORS • February 13, 2020
DO YOU KNOW WHO YOUR EXEMPT EMPLOYEES ARE?
RECENT CHANGES TO MINIMUM WAGE AND OVERTIME PAY REQUIREMENTS UNDER THE FLSA
By: Patricia B. McMurray, JD, and Melissa M. Grand, JD
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
450 Laurel Street, Chase Tower North, 21st Floor
Baton Rouge, Louisiana 70801
There are many jobs in the real estate industry. Within a real estate company, there are, for example, brokers, agents, office managers and assistants. Although generally, company owners may set compensation levels as agreed to by the employer, there are some federal and state requirements that govern, including the Fair Labor Standards Act (“FLSA”).
The Fair Labor Standards Act: Are your employees “exempt” or “non-exempt”?
The FLSA is a federal law that governs wage and hour issues for employers. Under the FLSA, most employees must be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.1 However, the FLSA provides an exemption from the minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees, and also certain computer employees.2
Why are employee classifications as “exempt” or “non-exempt” important?
In the real estate context, you may have employees that are “exempt” or “non-exempt” under the FLSA. Properly classifying those employees for purposes of payroll is critical. If an employer incorrectly classifies an employee as “exempt,” who is in fact “non-exempt,” the employer may be liable for unpaid overtime owed to that employee, plus penalties. Further, employers who willfully violate these laws may face potential criminal charges. In short, misclassifying an employee can be costly and may lead to litigation.
Determining whether an exemption applies to allow an employer to avoid paying overtime requires a fact-intensive analysis. Employers should use extreme care in making classification decisions. Even an innocent misclassification could potentially result in the employer facing liability for unpaid wages, with monetary penalties, plus attorney’s fees.
How do I determine if an employee is “exempt” under the FLSA?
A position’s title does not determine whether that position is “exempt” or “non-exempt.” Rather, to be considered “exempt” under the FLSA, an employee must generally satisfy all three of the following tests:3
- Duties test: The employee’s “primary duty” must be the performance of exempt work, as defined by the FLSA regulations.4
- Salary-level test: An employee must be compensated on a salary basis at the minimum weekly rate set forth in the FLSA regulations.5 Effective January 1, 2020, the minimum salary requirement increased from $455 per week to $684 per week (equivalent to $35,568 per year) for the administrative, professional, and executive exemptions.
- Salary-basis test: With very limited exceptions, the employer must pay employees their full salary in any week they perform work, regardless of the quality or quantity of the work.6
New DOL Rules Effective January 1, 2020
The Department of Labor (“DOL”) announced a new final rule effective January 1, 2020 which updates the earnings thresholds necessary to exempt executive, administrative and professional employees from the FLSA minimum wage and overtime pay requirements, and allows employers to count a portion of certain bonuses/commissions towards meeting the salary level.7 Key provisions of the DOL’s final rule are outlined below.
- Minimum Salary for Administrative, Professional, and Executive Exemptions
Effective January 1, 2020, the minimum salary requirement for the administrative, professional, and executive exemptions increased from $455 per week to $684 per week (equivalent to $35,568 per year). This means that in order to qualify for one of these overtime exemptions, employees must be paid a weekly salary of at least $684 and continue to satisfy the applicable duties tests. - Inclusion of Nondiscretionary Bonuses in Minimum Salary Requirement
Effective January 1, 2020, employers are allowed to use nondiscretionary bonuses, incentive payments, and commissions to satisfy up to 10% of the minimum salary requirement for the administrative, professional, and executive exemptions, as long as these forms of compensation are paid at least annually. Such bonuses include, for example, nondiscretionary incentive bonuses tied to productivity or profitability (e.g., a bonus based on the specified percentage of the profits generated by a business in the prior year).8 - Highly Compensated Employee Exemption
Effective January 1, 2020, the total annual compensation requirement for the "highly compensated employee" exemption raised from $100,000 to $107,432 per year (at least $684 must be paid on a weekly salary basis). So, highly compensated employees performing office or non-manual work and paid total annual compensation of $107,432 or more (at least $684 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee.9
What happens if an “exempt” employee’s salary falls below the new threshold in the DOL’s rule effective January 1, 2020?
If your employees’ previously classified as “exempt” salaries now fall below the new threshold under the DOL’s rule effective January 1, 2020, you generally will have to either:
- Raise the exempt employees’ salaries to meet the new salary requirement; or
- Reclassify the employees as non-exempt and pay them overtime when they work more than 40 hours in a workweek.
You will need to consider which of these options makes financial sense for your business. It is important to consider the number of hours the employees typically work in a workweek as well as the employer’s ability to manage potential overtime hours.
Failure to properly classify employees as “exempt” or “non-exempt” under the new requirements could expose an employer to liability for unpaid wages, together with monetary penalties and attorney’s fees and possible criminal penalties.
1 See 29 U.S.C. §§ 207(a)(1), 213(a)(1).
2 See 29 U.S.C. § 213(a).
3 See generally Ford v. Lincoln Par. Fire Prot. Dist. No. 1, 52,067 (La. App. 2 Cir. 8/15/18), 254 So. 3d 44, reh'g denied (Sept. 20, 2018), writ denied, 2018-1737 (La. 1/8/19), 259 So. 3d 1026; Baden-Winterwood v. Life Time Fitness, Inc., 566 F.3d 618, 626-27 (6th Cir. 2009); see also 29 C.F.R. § 541.700 (duties test); 29 C.F.R. § 541.600 (salary-level test); 29 C.F.R. § 541.602 (salary-basis test).
4 29 C.F.R. § 541.700(a).
5 29 C.F.R. § 541.600(a).
6 See 29 C.F.R. § 541.602(a).
9 See https://www.dol.gov/whd/overtime/fs17a_overview.pdf
(DOL guidance discussing the duties of an exempt executive, administrative or professional employee.
To qualify for the executive exemption, 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.
To qualify for the administrative exemption, 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.
To qualify for the learned professional exemption, 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. See id.)
DISCLAIMER:
These materials are to be used for informational purposes and should not be construed as specific legal advice. These materials are not designed to cover every aspect of a legal situation for every factual circumstance that may arise regarding the subject matter included.
This publication is for reference purposes only and association members or other readers are responsible for contacting their own attorneys or other professional advisors for legal or contract advice. The comments provided herein solely represent the opinions of the authors and is not a guarantee of interpretation of the law or contracts by any court or by the Louisiana Real Estate Commission.
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