Minimum Salary to be Overtime ExemptA 2020 change to the federal overtime rules under the federal Fair Labor Standards Act ("FLSA") made an estimated 1.3 million workers across the country will become newly eligible for overtime pay effective January 1, 2020. This is important for employers who may not have updated their exempt classifications in a number of years to understand.
How the Overtime Rules ChangedUnder the old rules, employees were exempt from overtime if they met all of the following criteria:
(i) They were paid on a salary basis. (ii) They earned at least $455 per week, or a little over $23,000 per year. (iii) They performed duties considered “exempt” under overtime law. The “salary basis” and “exempt duties” requirement has not changed. The major change is to the salary threshold to be exempt from overtime, which has risen from $455 a week to $684 a week. Where previously anyone making over $23,660 annually could qualify as exempt, starting January 1 if they earn less that $35,568 a year they cannot be exempt from overtime even if they meet the other tests. The second change allows an employer to bring employees up to the minimum salary level through non-discretionary bonuses and incentive payments. This will count toward the threshold so long as those payments do not represent more than 10% of the employee’s salary. Why the New Overtime Rules Are ImportantPreviously, virtually every employee in Massachusetts met the salary minimum to be considered exempt from overtime. This is because $455 per week for a 40 hour week is less than $12 per hour, the minimum wage in Massachusetts in 2019.
The new minimum salary level is the equivalent of a little over $17 per hour. This means there are many workers in Massachusetts who earned enough to be exempt from overtime in 2019 but may not currently be exempt if they make minimum wage or just above. If they are earning less than the minimum amount, these employees must be paid overtime for hours worked over 40 in a workweek no matter what their salary arrangement and no matter what kind of job they do for your company. Why the Old Overtime Rules Still MatterThe duties test under federal and state law has not changed. Even if your employees are salaried and even if they make the minimum salary, they may or may not be exempt from overtime.
The list of specific exemptions under Department of Labor regulations is lengthy, but in broad strokes someone is exempt if they are a licensed professional, executive, or high level administrative employee. If you are in doubt about your employees’ duties and whether they are exempt, it is important to consult a lawyer because the lines are not always clear between “exempt” and “non-exempt” duties. |
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The True Cost of Overtime Misclassification
If an employee files a lawsuit claiming they should have been paid time and a half for overtime hours and wins, you could be liable for t two or three times the unpaid amounts, as well as both your legal fees and your employee's attorneys' fees. This can literally transform saving $500 in overtime pay into a five figure expense for your business. So it is important that you understand the rules- old and new- and how they could affect you and your business.
What Business Owners Can Do
The very first thing is to review the pay for everyone who works more than 40 hours a week in your business. If their regular salary is less than $684 per week, without doing any further overtime analysis, you already know that you will have to either increase their base salary (or catch them up with non-discretionary bonuses or incentive pay), find a way to control whether and when they are working more than 40 hours a week, or resign yourself to paying time and a half for hours worked over 40.
The change in rules is also a good opportunity to take a look at all employees who work more than 40 hours a week, even if they meet the salary threshold. Applying the law on exemptions to employees can be very fact-specific, and we find a lot of employers get this wrong.
Finally, you can use one time payments to bring people up to the required minimum salary. Because this rule is so new, there is little guidance on how it will be interpreted, but typically a “non-discretionary bonus” is something that is tied to an objective metric- commissions, or specific amounts paid out when a person, team or department meets certain milestones in the business. This may enable you to bring employees up to the minimum amount at some point during the year when your cash flow permits.
The change in rules is also a good opportunity to take a look at all employees who work more than 40 hours a week, even if they meet the salary threshold. Applying the law on exemptions to employees can be very fact-specific, and we find a lot of employers get this wrong.
Finally, you can use one time payments to bring people up to the required minimum salary. Because this rule is so new, there is little guidance on how it will be interpreted, but typically a “non-discretionary bonus” is something that is tied to an objective metric- commissions, or specific amounts paid out when a person, team or department meets certain milestones in the business. This may enable you to bring employees up to the minimum amount at some point during the year when your cash flow permits.
Meet Our Employment Lawyers
Emily Smith-Lee is the owner and founder of slnlaw. She is a 1996 graduate of Boston College Law School. She was previously a partner at the Boston office of a large international firm, where she worked for thirteen years before starting the firm that became slnlaw in 2009. She has been recognized as a Massachusetts Superlawyer each year since 2013, and in 2018 earned recognition as one of Massachusetts Lawyers Weekly's Lawyers of the Year. She has written a book on employment law: Rules of the Road, What You Need to Know About Employment Laws in Massachusetts, and helped thousands of clients on both the employee and employer side with issues relating to wage and hour laws, including overtime pay, late or unpaid wages or commissions, employee misclassification, and retaliation against employees asserting rights under the wage and hour laws.
Rebecca Rogers: Rebecca is a 2006 graduate of Boston College Law School, and has worked with slnlaw since 2013. She previously worked as an intellectual property litigation attorney for Fish & Richardson in Boston, Massachusetts, and clerked for the Massachusetts Supreme Judicial Court. Rebecca has helped clients with wage and hour disputes, including employee misclassification, late or unpaid wages or commissions, retaliation under the Wage Act, and advice to both employees and employers about wage and hour law compliance.
Jenna Ordway: Jenna is a 2013 graduate of Quinnipiac Law School, and also earned an LLM in Taxation from Boston University in 2015. She has been affiliated with slnlaw since 2011, first as a law clerk and then as an attorney. Jenna has been recognized since 2019 as a "Rising Star" by Massachusetts Superlawyers. Jenna has helped clients assess their rights under the wage and hour laws, including employee misclassification, untimely payment of final wages, late or unpaid commissions, retaliation, and advice to small business owners about wage and hour law compliance.
Elijah Bresley: Eli is a 2014 graduate of Seton Hall Law school, and has worked with slnlaw since 2020. He previously worked for a boutique employment law firm outside of Boston, and then for the Labor and Employment department of a large Boston firm. He also spent a year clerking for the judges of the Superior Court in Hartford, Connecticut. Eli has helped clients with wage and hour claims, including late or unpaid commissions, retaliation, employee misclassification, and overtime, and litigated these claims in state and federal courts. He also advises employers about employment policies and wage and hour compliance.
Sharleen Tinnin: Sharleen is a 2010 graduate of Northeastern University School of Law, and has been with slnlaw since 2023. Prior to joining slnlaw, she worked with King, Tilden, McEttrick & Brink, P.C. on complex civil litigation matters. She previously worked for the United States Department of Justice, and received an "Excellence in Justice" award in 2017. Sharleen has helped clients with multiple wage and hour issues, including retaliation, misclassification, and late or unpaid wages or commissions, and litigated these claims in state and federal courts.
How We Can Help
We can help you navigate these issues and get clarity on your rights and obligations as an employer or an employee. Read more about some example overtime law cases we have handled. You can use the button below to schedule a call back from a member of our team, give us a call at 781-784-2322, or fill out our web form to let us know a little more about your situation.
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