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FLSA Update: The Final Rule on Earnings Threshold for EAP Exemption

FLSA: Executive, Administrative, and Professional Employees Exemption

The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime pay, and other employment standards, affecting both the private and public sectors of employment. There are many “exemptions” within the FLSA that spare employers from compensating their employees both the minimum wage and overtime requirements, thus designating such employees as “exempt.” One such exception is the Executive, Administrative, and Professional employee exemption (“EAP exemption”).

To qualify under the EAP exemption, an employee must be paid on a salary or fee basis and satisfy certain job duties consistent with executives, administrators, professionals, computer employees, or outside sales employees. Generally, these employees’ job duties include things like: managing the business and other employees; performing non-manual work related to management or general business operations; engaging in work that requires advanced knowledge that is intellectual in nature; computer systems analysis or programming; or engaging in sales for the employer away from the place of business. There is another category known as the Highly Compensated Employee exemption, which requires the employee to satisfy the same job duties as mentioned above, but they must be paid a higher minimum annual salary.

EAP Salary Threshold Raise

In March 2019, the U.S. Department of Labor (“DOL”) released its proposed update to the FLSA regulations, which included a proposal to raise the minimum threshold for the EAP exemption to $35,308.00 per year. As of September 24, 2019, the DOL published its final rule, raising the FLSA threshold for the EAP exemption to $35,568.00 per year, or $684.00 per week. The new threshold takes effect on January 1, 2020. This is a major increase from the current salary threshold set at $23,660.00 per year, or $455.00 per week. Additionally, the DOL raised the minimum salary for the Highly Compensated Employee exemption to $107,432.00, which must include at least $684.00 per week paid on a salary or fee basis.

In the revision, the DOL included a provision allowing employers to count nondiscretionary bonuses and incentive payments, including commission, paid on an annual or more frequent basis, to satisfy up to 10% of the salary threshold.

Implications

Due to the new salary threshold, employers currently paying their EAP exempt employees less than $35,568.00 per year will either have to increase their employees’ salaries to meet the new minimum threshold or transform these positions into non-exempt positions before the new year. Beginning in the new year, if an employer fails to pay the new minimum salary to an EAP-exempt qualifying employee, that employer will have violated the FLSA.

If you feel your rights under the FLSA have been violated, or if you have any other questions regarding your employment rights, please contact the experienced Birmingham employment law attorneys at Wrady Michel & King. You can contact us either online or by calling us at (205) 3199724. We are here to serve you!