The Fair Labor Standards Act (FLSA) requires virtually all employers to pay most employees at least the federal minimum wage for each hour worked, as well as overtime pay for all hours worked in excess of 40 in a workweek. The FLSA allows for exemptions from these overtime and minimum wage requirements for certain employees who work in administrative, professional, executive, highly compensated, outside sales, and computer professional jobs. These employees are known as "exempt" employees. To be considered "exempt," these employees must generally satisfy three tests:
If you have exempt employees who are paid less than the new proposed minimum, you can raise their salaries to meet the new requirement. If you elect this option, it is a best practice to review their job duties to ensure they continue to qualify for an exemption. Additionally, make sure exempt employees' job descriptions accurately reflect current responsibilities.
Note: If you provide your exempt employees with nondiscretionary bonuses, incentive payments or commissions, factor this in when calculating the potential costs of raising their salaries to meet the new requirement. Under the proposal, employers must pay at least 90 percent of the minimum (or $611.10) in the form of salary each week and then would be allowed to apply nondiscretionary bonuses, incentive payments, and commissions toward up to 10 percent of the minimum (or $67.90), provided these types of compensation are paid at least annually. For example, an employer could satisfy the minimum salary requirement by paying an employee a weekly salary of $611.10 and then a year-end productivity bonus of $3,530.80 ($67.90 x 52 weeks).