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White collar employees

What You Need To Know About The FLSA White-Collar Overtime Exemption

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It’s the best feeling in the world when you make a hire, and you finally get the employee that will take your business to the next level. They’ve signed the contract, you’ve set a start date, and all is right in the world.

Now here is the (not so) fun part, compliance. Think of compliance like the unfortunate mistake of dropping your ice cream on a hot summer day – a total bummer. You want to start thinking about their goals and objectives, not the Fair Labour Standards Act (FLSA) overtime exemptions.

Although the word “compliance” can make anyone run for the hills, there are some key elements that you need to know when it comes to compliance and Fair Labour Standards Act (FLSA) overtime for that great new hire you just brought onto the team.

For certain professionals in the business, we usually pay them a salary versus an hourly wage given their profession. These roles can be executive, administrative, professional, and outside sales employees (known as white-collar roles).

Also, most of the time, we don’t pay them nor ask for overtime as their time is not evaluated the same as someone who does manual labor hours. However, according to the Fair Labour Standards Act (FLSA) overtime rules, there can be exemptions, and if specific criteria are met, overtime will need to be paid. When this is the case, that is when we have a “white-collar” exemption.

So how do you know if you fall within the “white-collar” exemption or not?

For an employer to claim an exemption for a particular employee, three tests generally need to be satisfied:

  • The Salary Basis Test: The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
  • The Salary Level Test: The amount of salary paid must meet a specified minimum amount.
  • The Duties Test: The employee’s job duties must primarily involve those associated with exempt executive, administrative, professional, outside sales, or computer employees.

The whole idea of this implies that exempt white-collar employees are paid a salary due to being able to manage their time judiciously, meaning there are no freebies with any payments made when they work or just because they’re spending long hours on tasks. They are paid for the value their services bring, not the number of hours worked. And this is why they are not entitled to overtime.

You’re probably reading this and thinking, “Oh, that’s not too bad,” well, don’t be deceived; it’s a bit more complicated than that. Out of all the three tests, the one that tends to be sidelined the most due to its complexity is the salary basis test.

Companies tend to pay attention to the salary-level and duties tests and don’t remember to consider salary basis rules the way they should. While the exceptions and the rule to salary deductions in the salary basis regulations might seem straightforward, applying the rules in specific situations can be tricky. Don’t be alarmed; even the most non HR professionals can master the law’s twists and turns when navigating the FLSA’s overtime rules.

In September 2019, the U.S. Department of Labor made some key updates to the Fair Labor Standards Act (FLSA) white-collar Exemptions Ruling, which will hopefully help navigate this maze a little better.

Here is what you need to know:

  • To restore the effectiveness of the salary level test, the Department is setting the new standard salary level equal to the 40th percentile of weekly earnings for full-time salaried workers in the lowest­ wage Census Region, which at the moment is the South.
  • In order to prevent the salary level requirements from again becoming outdated and ineffective, the Department is establishing mechanisms for automatically updating the salary and compensation levels every three years to maintain them at the levels set in this rulemaking.
  • For the first time, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level, provided these payments are made on a quarterly or more frequent basis.

To ensure you remain up to date on the white-collar overtime exemptions, continue to:

  • Work with your payroll, HR team, or Outsourcing Partner to ensure you understand any compliance changes to the FLSA overtime rules and know how they can affect you and your staff.
  • Check the Department of Labour website for any changes or upcoming rulings.
  • Evaluate existing employees as well as new hires you bring onto the team. It’s easy only to consider these changes for anyone new you hire, but it can also affect current staff.

It’s easy for the element of compliance to become overwhelming, but it doesn’t need to be. Ensuring you have the right partners with you, providing you and your staff with the latest information will ensure you are covered, protected, and running your business practices like a smooth operator.