FLSA Overtime Exemption Rules Updated: What Small Business Owners Need to Know 

What specific duties qualify for the executive, administrative and professional exemptions?

• Executive Exemption: This exemption includes employees primary duties consisting of managing the business or a department of subdivision of the company. They must customarily and regularly direct the work for at least two or more full-time employees (or equivalents) and have the authority to hire, fire or influence those personnel decisions.
• Administrative Exemption: This exemption applies to employees whose primary duties are performing office or non-manual work directly related to the management or general business operations of the employer or employers' customers. They must also exercise discretion and independent judgment on matters of significance.
• Professional Exemption: This exemption includes two main categories:
  • Learned Professionals: Performing work requiring advanced knowledge in science or learning. This knowledge is usually acquired through prolonged intellectual instruction. Examples include lawyers, doctors, teachers, and accountants.
  • Creative Professional: Performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. Examples include musicians, actors, and writers.

Are there any common misconceptions about the FLSA overtime exemptions?

Yes, several misconceptions exist. Here are a few:

• Job Title Alone: Just because an employee has a managerial title, it doesn't automatically qualify them for exemption. It's the actual duties they perform that matter.
• Highly Compensated Employees: Being highly paid does not guarantee overtime exemption. The salary basis, salary level and duties tests must all be met.
• Non-profit Organizations: FLSA regulations apply to most for-profit and non-profit employers, so non-profits must comply with overtime exemption rules.

What are the potential consequences of misclassifying employees?

Misclassification of employees can lead to severe consequences for businesses, including:

• Back pay: Employers may be required to pay back overtime wages for several years.
• Penalties and fines: The department of Labor may impose penalties and fines for violations.
• Legal costs: Businesses could face costly lawsuits from misclassified employees.

Can bonuses and incentive payments be used to satisfy the salary level test?

Yes, according to the final rule, up to ten percent of the salary amounts in the chart can be satisfied by paying non-discretionary bonuses, incentives and commission payments that are paid annually or more frequently. However, suppose by the end of the year, the amount paid to the employee is less than 52 times the required salary amount. In that case, the employer must make one final payment sufficient to meet the necessary level by the next pay period after the end of the year.

What are the next steps for small business owners and employers to consider?

Take a moment to delve into the additional information and Frequently Asked Questions provided by the DOL. This will equip you with the necessary knowledge to navigate the upcoming changes in labor laws.

• Review the salary amounts paid to employees exempt from the FLSA overtime and minimum wage requirements before July 1, 2024.
• Determine if the compensation employees receive is sufficient to meet the upcoming increase to the salary level test or alternative test amounts.
• If the amounts are not sufficient, you will need to determine whether to increase the employee's salary sufficiently to meet the required amount or begin treating the employee as an FLSA non-exempt employee entitled to FLSA overtime and minimum wage protections.
• Several states have their own tests for exempt status, which are typically harder to satisfy. You should apply state and federal tests to determine an employee's status under federal and state law.
• If you reclassify employees as non-exempt, ensure managers are prepared to manage overtime costs and understand what hours are considered hours worked. For example, under certain circumstances, travel time and time spent performing pre-liminary or post-liminary activities can be deemed compensable work time.
• Remember that an employee's "regular rate of pay" for FLSA overtime calculation purposes is the average hourly rate calculated by dividing the total pay for employment (except the statutory exclusions) by the total number of hours worked. Total compensation includes commissions and non-discretionary bonuses.
• If employees are reclassified as non-exempt, their pay frequency might also need to be changed depending on state law.

Remember, timely and clear communication is key. Be prepared to communicate any changes promptly and comprehensively to your employees, ensuring they are well informed and ready for the upcoming changes in labor laws.

Key takeaways

• The Department of Labor (DOL) releases revised overtime exemption rules effective July 1, 2024.
• The rules primarily change the minimum salary levels that determine if an employee is exempt from overtime pay.
• Employers must review employee salaries and job duties to ensure they’re prepared for the changes.