FLSA: New Minimum Wage and Overtime Rule

[Pages:4]FLSA: New Minimum Wage and Overtime Rule

Introduction

The Fair Labor Standards Act (FLSA) requires school districts to pay "nonexempt" (i.e., hourly) employees at least the federal minimum wage. In addition, districts must pay overtime or provide compensatory time to nonexempt employees who work over 40 hours per week. The FLSA includes exemptions from overtime requirements for certain "white-collar" employees, including those who fall within the executive, administrative, and professional categories. An employee's white-collar exemption status depends on a minimum salary level and the types of duties performed. An overview of these white-collar exemptions is available on the Department of Labor's website: DOL Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA).

Importantly, however, the FLSA specifically provides that teachers are exempt from FLSA's overtime requirements. As a result, the minimum salary thresholds do not apply to teachers' exemption status under the FLSA.

This memo is intended to provide an overview of the FLSA's new rule concerning overtime and salary thresholds for exemption. This memo is for informational purposes only and does not constitute legal advice. Specific questions should be referred to the school district's legal counsel.

2020 Updates

In the fall of 2019, the U.S. Department of Labor (DOL) announced a final update to the FLSA's rule concerning the earning thresholds necessary to exempt executive, administrative, and professional employees from minimum wage and overtime pay requirements. The new rules went into effect on January 1, 2020. The new changes raised the minimum "standard salary level" threshold from an annual salary of $23,660 to $35,568, so that more workers are eligible for overtime pay. The minimum salary level for the "highly compensated" employee exemption increased from an annual salary of $100,000 to $107,432. The new rules also allow employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices.

The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004. The DOL intends to update these salary levels more regularly in the future through notice-and-comment rulemaking. Information on the new thresholds may be accessed here: DOL FLSA Final Rule: Overtime Update.

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Highly Compensated Employees

The change to the "highly compensated" category will have the least amount of impact on school districts, as there are very few district employees who fall into the "Highly Compensated Employee" (HCE) exemption. The HCE exemption only is applicable when the employee's annual compensation is $107,432 or more effective January 1, 2020, AND the employee customarily and regularly performs at least one of the exempt duties of an executive, administrative, or professional employee. As a result, even if the school district employee's salary does not meet the proposed new HCE salary threshold, the employee will most likely remain exempt under another "whitecollar" exemption. An example helps illustrate this issue:

Question: What happens to the school district's Chief Financial Officer (CFO), whose salary is $106,000/year, now that the new HCE salary threshold is in effect? Is the CFO now eligible for overtime?

Answer: No, because the CFO will almost certainly qualify for one of the other "white collar" exemptions, such as the executive and administrative exemptions.

To qualify for the executive employee exemption, all of the following tests must be met:

? The employee must be compensated on a salary basis at a rate not less than $684/week; ? The employee's primary duty must be managing the district, or managing a customarily

recognized department or subdivision of the district; ? The employee must customarily and regularly direct the work of at least two or more other

full-time employees or their equivalent; and ? The employee must have the authority to hire and fire other employees, or the employee's

suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

To qualify for the administrative exemption, all of the following tests must be met:

? The employee must be compensated on a salary or fee basis at a rate not less than $684/week;

? The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the district; and

? The employee's primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

While the specific duties of the CFO or similarly situated employee may vary from district to district, it is likely that such an employee would qualify for either the executive or administrative exemption.

Specialized Service Professionals

The changes to the minimum standard salary level may impact districts, specifically regarding specialized service professionals/providers (SSP) such as social workers, counselors, and

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psychologists. While the FLSA specifically exempts educators and teachers under the learned professional exemption, other school personnel may not qualify for the learned professional exemption.

To qualify for the learned professional exemption, all of the following tests must be met:

? The employee must be compensated on a salary or fee basis at a rate not less than $684/week;

? The employee's primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring consistent exercise of discretion and judgment;

? The advanced knowledge must be in a field of science or learning; and ? The advanced knowledge must be customarily acquired by a prolonged course of

specialized intellectual instruction.

Whether an SSP qualifies for the learned professional exemption depends on the specific facts on an employee-by-employee basis. However, the DOL guidance explains that fields of science and learning include "other occupations that have a recognized professional status and are distinguishable from the mechanical arts or skilled trades where knowledge could be of a fairly advanced type." See DOL, Fact Sheet #17D: Exemption for Professional Employees Under the Fair Labor Standards Act (FLSA).

The DOL also clarifies that the requirement of specialized intellectual instruction, or specialized academic training, is most clearly met by attaining an appropriate academic degree. An employee who does not have an appropriate academic degree but who possess a similar level of advanced knowledge to a degreed employee and who has attained their advanced knowledge through a combination of work experience and intellectual instruction may also qualify for the exemption. However, the exemption does not apply to occupations in which most employees acquire their skill by experience rather than by advanced specialized intellectual instruction. An example helps illustrate this issue:

Question: What happens to the school district's social worker, whose salary is $35,107/year, now that the new minimum standard salary threshold is in effect? Is the social worker now eligible for overtime?

Answer: Possibly. If the social worker holds an appropriate degree, such as a master's degree in social work or is a licensed clinical social worker, and performs the level of social work that requires a master's degree or further licensure, the social worker will likely qualify for the learned professional exemption.

If the social worker holds a bachelor's degree in the social sciences, this may not constitute the specialized academic training necessary to qualify for the exemption. However, as most schools require that school social worker's hold a master's degree, it is more likely that this type of employee would qualify for the exemption.

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Conclusion The final FLSA rule went into effect on January 1, 2020. To prepare for these changes, CASB encourages districts to consult with their legal counsel, familiarize themselves with the final rule, and identify exempt employees (e.g., school administrators) who may no longer meet the new salary threshold and will become nonexempt employees subject to overtime/compensatory time. To avoid unpleasant mid-year surprises, school boards and districts may consider reclassifying or modifying compensation for the positions potentially affected and/or make allowances in their 2020-21 budgets for additional expenditures.

COLORADO ASSOCIATION OF SCHOOL BOARDS (303) 832-1000 or (800) 530-8430 | Revised February 2020

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