Employers May Need to Increase Exempt Employees’ Salary in 2019

Employers May Need to Increase Exempt Employees’ Salary in 2019

Employers may need to prepare to raise the salaries of their exempt employees this year due to the recent changes in the Fair Labor Standards Act (FLSA). This also prompted certain states to increase minimum wage rates.

Here’s an overview of what you’ll learn from this trend of exempt employees possible salary increase:

Background of Employees’ Rates

The Fair Labor Standards Act (FLSA) requires employers to pay employees, classified as non-exempt, at least the minimum wage for every worked hour and rendered overtime (which is 1.5 times regular rate of an employee) whenever they complete more than a 40-hour workweek. Several jurisdiction permit overtime in many circumstances such as in Chicago, Illinois.

Most of your employees may be classified as non-exempt. However, there are certain exemptions from these requirements when it comes to your bona fide executive, administrative, and professional employees who are generally classified as exempt under federal legislation:

  • Employees who are receiving a weekly salary of at least $455;
  • Such salary must be a fixed weekly amount despite of the worked hours and the work quality.
  • Specific responsibilities must be well-stated in the employee’s main post duties and these vary for each exemption.
  • Tests for exempt status are acquired by various states and these are normally difficult to satisfy.

For instance, these states may have a more limited duties test yet higher income thresholds. Therefore, if you have employees in these states, you are required to apply both federal and state tests to become certain of your employees’ status under both jurisdictions.

Now, if the employee qualifies in the federal test but did not meet the requirements in the state test, such employee is determined as non-exempt under federal legislation yet qualifies to overtime situations covered by the law of the state.

On the other hand, if your employee qualifies in the state test but did not qualify in the federal test, the employee is classified as non-exempt under federal legislation and is entitled to overtime for every extra hour worked in a 40-hour workweek.

Effectivity of State Increases in 2019

When the minimum wage increased, the minimum salary requirement for overtime exemptions also increased in several states this year.

For instance, jurisdictions in California and Alaska required employers to pay exempt employees at least twice the minimum wage of the state.

As a consequence, jurisdictions in New York, Colorado, and Maine have followed suit - exempt salary thresholds were increased this year because their state minimum wage have also increased this 2019.

We highly recommend that if you have exempt employees working in these states, make sure that these particular employees meet the new requirement for minimum salary.

Please take note that for your employees to be classified as exempt, they should qualify for both salary and applicable duties tests.

Other State Changes in Salary Rates

Federal Regulation:

The minimum salary requirement may increase under federal law as the United States Department of Labor (DOL) works on this rule proposal which is anticipated to include other changes.

This proposal is recently sent to the Office of Management and Budget by DOL. It is under review and is expected to be released to the public this month of March 2019.

Then, the public will be given a timeframe to comment after the rule is proposed. The Department of Labor will then draft the final rule considering the comments from the public and this whole process may take many months.

Also, the DOL has sought to revise the existing rules twice. Throughout the Obama regime, the Department of Labor delivered a final rule that would have the minimum salary requirement increased to $913 from $455 weekly.

However, the DOL was blocked by a federal judge from implementing the new rule just before it was scheduled to take effect. The required minimum salary is still expected to increase in the new rule but not as much as the blocked rule would have increased it. Additional changes are expected even to the duties tests but minimal.

State Regulation:

In Pennsylvania, a proposed rule was issued in 2018 aiming to change the duty and minimum salary tests of the state. The rule is expected to be finalized in 2019.

In Washington, a “pre-draft” proposed rule was issued in October 2018 aiming to change the duty and minimum salary tests of the state and comments from the public are sought. A proposed rule is expected to be released.

In Oregon, the minimum wage rate of the state is scheduled to increase by July 1, 2019 and this may affect several employers who have exempt employees. Currently, the minimum salary in Oregon is equal to (2080 x minimum wage)/12 months. This is another state that binds the minimum salary requirement to the minimum wage.

To Wrap it Up:

Your exempt employees must continue to qualify to the applicable tests for exemption under federal and state laws. If their salaries go below the new required minimum, you generally have to either: reclassify them as non-exempt and pay them overtime or raise their salaries based on the new requirement demanded by the state law and/or federal law.

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