More employees may soon qualify for overtime. In newly proposed rules under the Fair Labor Standards Act (FLSA), the Obama Administration aims to substantially increase the minimum salary requirements for qualification as an “exempt” employee. The new limits should concern both nonprofit and for-profit employers alike, as the current salary threshold is $23,660 and the proposed rules more than double this amount. Under the proposed rules, an employee must earn at least $50,440 per year to qualify as “exempt” and therefore not be subject to otherwise mandatory overtime requirements. Exclusions may apply for certain nonprofit activity, but all employers need to understand the proposed rules’ implications and remain attentive to further developments.
Background: FLSA Employee Classification – Exempt Versus Non-Exempt
The proper classification of employees for FLSA purposes is an ongoing consideration for many nonprofits. The FLSA imposes significant requirements for non-exempt employees, including minimum hourly wage requirements, “time-and-a-half” overtime pay obligations for more than 40 hours worked per week, and recordkeeping requirements to comply with the foregoing. An employer’s misclassification of its employees as exempt can result in serious liability under the FLSA when an employer fails to properly pay overtime wages and related penalties. Under the Department of Labor’s (DOL) longstanding rules, the test for determining whether an employee is exempt is three-fold.
First, an exempt employee must perform a specific type of work. Exempt employees include only executives, administrators, professionals, and certain computer or outside sales employees. However, title alone does not classify the worker as exempt; the DOL maintains guidelines for exempt classification under each of these types of work. While factors differ for each, the guidelines generally focus on the employee’s primary duty.
Second, an exempt employee must be salaried. Workers paid by the hour are generally treated as non-exempt. An exception occurs only if an employee is highly compensated – that is, receiving compensation of over $100,000 per year when considering certain bonuses and other compensation, with at least $455 per week of this compensation being salary or fees. In that case, the type of work and salary requirements do not apply.