By Dominick Carnicella, SPHR, Senior HR Consultant, East Coast Risk Management
As we ring in 2020, with it brings a start to a new decade as well as a number of new employment laws. If you haven’t added employment law compliance to your new year’s resolution list as of yet, here’s some food for thought.
FLSA Update: Minimum Salary for Exempt Employees
Exempt Executive, Administrative, Professional and Computer employees must be paid at least $684 per week ($35,568 per year), which is an increase from $455 per week ($23,660 per year). Teachers, practicing lawyers, practicing doctors, and outside salespeople are exempt from these minimums under federal law, though may be subject to state minimums.
Employers may pay up to 10% of this minimum weekly amount via incentive pay such as non-discretionary bonuses, incentive payments, and commissions, as long as these payments are received by the employee at least on an annual basis. If an employee does not earn enough incentive pay to meet the minimum by the end of the year, the employer has to either of the following:
- Pay the difference between what the employee earned and the minimum weekly amount with a catch-up payment. This payment must be paid within one pay period after the end of the 52-week year. Or;
- Retroactively remove the exemption and pay the employee for any overtime worked during that year at one and one-half times the regular rate for any hours worked over 40 hours in a workweek.
Exempt Highly Compensated Employees who don’t qualify for the above exemptions due to their job duties, but are paid exceptionally well, are required to be paid a minimum of $107,432 per year to maintain their exemption. At least $684 per week ($35,568 per year) must be paid on a salary or fee basis, with no reduction for future incentive pay. The remainder of the income may come from incentive pay. If the employee does not earn enough incentive pay to meet the minimum salary by year end, employers have the same two options listed for the above employees.
Employers will need to provide the redesigned Form W-4 to new employees and current employees who want to change their withholding’s. Employees who have submitted Form W-4 in any year before 2020 are not required to submit a new form merely because of the redesign. Employers should continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.
We recommend that employers do not provide tax advice to employees, but instead direct them to the IRS’ Tax Withholding Estimator or their tax professional for guidance on completing the W-4.
Reminder: If your state has its own W-4, continue to offer the most current version to employees for voluntary completion to ensure accurate state tax withholding.
Minimum Wage Increase for Federal Contractors
The minimum wage for employees doing work on, or in connection with, federal contracts will increase to $10.80 per hour. The minimum wage for covered tipped employees will increase to $7.55 per hour.
Department of Labor Final Rule: Perks and Benefits for Regular Rate of Pay Clarified
The regular rate is the dollar amount that’s used when calculating time and one-half overtime pay for nonexempt employees. The regular rate requirements stipulate the forms of payment employers must include and may exclude in the calculation when determining workers’ overtime rates. The final rule through the clarifications and changes, should help employers reduce some administrative burden and increase confidence that they are complying with the Fair Labor Standards Act.
Employee compensation, benefits, and perks have evolved tremendously throughout the past few decades. The Department of Labors’ final rule, which is effective January 15, 2020, updated and modernized the items that can be excluded from the regular rate calculation, as listed below.
- Parking benefits, wellness programs, onsite specialist treatments, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits, and adoption assistance.
- Unused paid leave, including paid sick leave and paid time off.
- Certain penalties employers must pay under state and local scheduling laws.
- Business expense reimbursement for items such as cellphone plans, credentialing exam fees, organization membership dues and travel expenses that don’t exceed the maximum travel reimbursement under the Federal Travel Regulation system or the optional IRS substantiation amounts for certain travel expenses.
- Certain sign-on and longevity bonuses.
- Complimentary office coffee and snacks.
- Discretionary bonuses (The DOL noted that the label given to a bonus doesn’t determine whether it is discretionary).
- Contributions to benefit plans for accidents, unemployment, legal services and other events that could cause a financial hardship or expense in the future.
Additionally, the Department of Labor made two substantive changes to the existing regulations.
- Eliminated the restriction in FLSA § 778.221 and § 778.222 that “call-back” pay and other payments similar to call-back pay must be “infrequent and sporadic” to be excludable from an employee’s regular rate, while maintaining that such payments must not be prearranged.
- Second, the Department updates its regulations on “basic rate”, which is authorized under section 7(g)(3) of the FLSA as an alternative to the regular rate under specific circumstances. Under the current regulations, employers using an authorized basic rate may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than $0.50 a week on average for overtime workweeks in the period for which the employer makes the payment. The Final Rule updates this regulation to change the $0.50 limit to 40 percent of the higher of the applicable local, state, or federal minimum wage.
Employers who follow the Final rule can show they made a good-faith effort to comply with the FLSA.
If you are an employer that has questions on any issue relating to human resources, safety, or workers’ compensation, contact East Coast Risk Management by calling 724-864-8745 or emailing us at email@example.com.
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