The U.S. Department of Labor (DOL) has announced a rule change that will impact the exempt/nonexempt status of employees. Upon publication in the Federal Register the rule will be made final and, based on the effective date of January 1, 2020, employers won’t have much time to fall into compliance. Cities must review employee classifications now and determine which employees, if any, will be impacted by the change.
Exempt versus Nonexempt
The Fair Labor Standards Act (FLSA) defines the federal minimum wage, employee time record-keeping requirements, and jobs required to receive overtime compensation after forty (40) hours have been worked in a workweek. If an employee is classified as “nonexempt” under the FLSA, the employee is covered by the overtime provisions of the FLSA. A nonexempt employee must record each hour worked and if the employee works more than forty (40) hours in one workweek, the employee is paid time and one-half. If an employee is classified as “exempt” under the FLSA, the employee is not covered by the overtime provisions of the FLSA and is paid an agreed amount for the whole job, regardless of the amount of time or effort required to complete the work.
To be classified as exempt, an employee must meet all of the standards in the following "tests": Read more on the standards.
Be paid over a minimum salary;
Be paid on a salary basis as opposed to an hourly basis; and
Perform certain duties as outlined in one of the duties tests.
DOL Final Rule Change
The final rule raises the minimum salary standard listed in number one, above. The current salary threshold is $23,660 or $455 per week. This means an employee must make at least $23,660 in addition to meeting the other requirements to be classified as exempt. The rule raises the threshold to $35,568 or $684 per week. Beginning January 1, 2020, any currently classified exempt employee making a salary between $23,660 and $35,568 would need to be reclassified as nonexempt (hourly subject to overtime or compensatory time).
City’s Next Steps
This is a great opportunity for cities to review all employee classifications and ensure compliance with the FLSA. Here are some suggested next steps for cities:
1. Review all positions and ensure compliance with current standards for exempt versus nonexempt.
2. Identify any exempt positions that fall between the current threshold ($23,660) and the new threshold ($35,568) to determine which positions will need to be reclassified as hourly on January 1, 2020.
3. For any positions that fall between the old and new thresholds, determine whether the duties typically require the employee to work more than forty (40) hours. Cities may want to consider any cost for newly required overtime pay versus the cost of a salary increase above the new threshold. If overtime costs will place the employee above the $35,568 threshold, consider raising the employee’s salary to at least $35,568.
4. Cities should start preparing now, but do not implement until January 1, 2020. In addition, until the Final Rule is published in the Federal Register there could be additional small changes made.
5. Call KLC’S Andrea Shindlebower Main, Personnel Services Manager or Courtney Risk Straw, Personnel Services Attorney, if you have any questions and for additional resources on determining exempt versus nonexempt classification.