Now THIS weather feels more like it! While it’s technically been Spring for almost one month (March 20th – look it up … cynic), it’s hard to think of budding flowers when you’re freezing your peonies off. But now that the thermometer broke 80 in the Northeast, we feel much more comfortable using Spring puns in the newsletter. And with that, let’s plant some seeds and bring awareness to a topic that’s just as perennial and ever-evolving: state and federal overtime laws! This edition is all about overtime, specifically, a new bill that proposes to dramatically raise the salary threshold for overtime exemptions to $75,000. Why is this important? What’s a “threshold” requirement? Glad you asked . . .
Exempt vs. Non-Exempt Employees – Let’s Dig Deep
Under wage and hour laws like the Fair Labor Standards Act (the “FLSA”), employees are generally separated into two categories: exempt and non-exempt. Non-exempt employees are eligible for overtime when they work more than 40 hours per week (or in some places *cough California cough* more than 8 hours per day); exempt employees, on the other hand, are not eligible for overtime pay. Classifying an employee as “exempt” isn’t as simple as yelling “I declare you exempt!” Employees must meet certain requirements for exempt status, including getting paid a salary that meets or exceeds the threshold salary requirement.
And, as a quick reminder, “salary” doesn’t just mean that an employee’s overall pay is high. The employee must actually get paid a steady, predictable stream of pay that does not fluctuate. We recently discussed what is meant by “getting paid a salary” by sharing a story of an employee that was deemed non-exempt (and therefore entitled to overtime) even though he was paid over $200,000 per year, in large part because he was paid a daily rate and not a weekly or other minimum guaranteed salary.
Right now, the salary threshold requirement under the FLSA is $684 per week ($35,568 per year), significantly lower than the threshold of some state laws (for example, the salary threshold for exempt status in most areas of New York is $1,125 per week/$58,500 per year). But a new bill introduced into Congress seeks to seriously change that.
Proposed Bill Seeks to Increase Salary Threshold Requirement
A proposed bill was recently introduced that would immediately increase the salary threshold to $45,000 per year, with annual increases until it reaches $75,000 in 2026, and possibly $82,700 by 2027. Based on some predictions, more than half of salaried employees not currently eligible for overtime would become eligible by 2027 if this passes. The bill is still just a bill and is unlikely to pass in its current form given current the political makeup of the House and Senate, but increases to the threshold can also come from the Department of Labor, like when they increased the salary threshold in 2019. Whatever happens in Congress, it is widely anticipated that another threshold hike is coming.
Employers should also be mindful that many states have their own wage and hour laws with different threshold requirements. As mentioned above, most areas in New York have a threshold of $58,500 per year . . . and, of course, as of January 1, 2023 employees in California must earn an annual salary of no less than $64,480 to meet the threshold requirement.
As salary thresholds climb higher, remember the following: reach out if you find yourself in the weeds of understanding wage and hour laws. Bonus stock investment tip: invest in companies specializing in time-tracking software.
Third Circuit Green Lights Employer’s Paid Time Off Deductions for Inefficient Exempt Employees
So now that we’ve discussed pay increases, let’s talk about pay decreases. *New Jersey has entered the chat* In a recent decision, the Third Circuit Court of Appeals tackled the question of whether an employer can legally deduct time from an employee’s paid time off (PTO) bank without violating the FLSA and otherwise turning an exempt employee into a non-exempt one. The Third Circuit clarified that PTO and other fringe benefits are not part of an employee’s salary, meaning employers can reduce these benefits as long as the employee’s base salary remains untouched. While this doesn’t grant employers carte blanche to make any deductions they please – and your mileage may absolutely vary depending on which state you’re located in – this decision does offer some guidance for those navigating the complexities of managing exempt employees.
Speaking of changes to the weather, allow us to extend a WARM welcome to the newest member of our team, Stephanie Doran! Please join us in welcoming Stephanie to the firm. Stephanie is a litigation paralegal who brings multiple years of experience and a passion for excellence and attention to detail to the team. Feel free to connect with Stephanie directly on LinkedIn!
So, as the days grow longer and new and challenging employment laws begin to sprout, it’s an opportune time to cultivate your wage and hour policies, ensuring your business continues to thrive and flourish. Or don’t – we handle litigation, too 😉
As always, if you’ve got questions, you know we’ve got answers.