Overview: The Fair Labor Standards Act (FLSA) was written in 1938, at a time when manufacturing and agriculture dominated the American economy. The law's structure for classifying employees as exempt or nonexempt from minimum wage and overtime requirements reflects that simpler time. Although it has been updated periodically in the decades since, the FLSA's classification scheme is often difficult to apply to more modern service- and information-related jobs.
One type of employee that has proven especially difficult to fit into the employee classification structure – and has also been the plaintiff in hundreds of lawsuits – is managers. Today's lean, flexible workplace often necessitates that managers pitch in and perform nonexempt work, rather than stand around with a clipboard in hand directing other employees. The more nonexempt work they do, the more likely it is they need to be paid overtime.
Complicating matters is the fact that employees' job duties change frequently. Employers often make the mistake of classifying all employees with a particular job title as exempt. When changes in the workplace necessitate changes in an employee's job duties, that classification can be jeopardized. HR is well-positioned to stay on top of these changes, and must remember that employee classification is an ongoing challenge, not a one-time task.
In addition, it's important that employers follow state requirements regarding employee classification.
Trends: Effective January 1, 2020, a final overtime rule from the US Department of Labor (DOL) increased the minimum salary for most overtime-exempt employees from $455 per week (or $23,660 per year) to $684 per week (or $35,568 per year). The rule also allows employers to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level test, as long as they are paid annually or more frequently.
Author: Michael Cardman, Legal Editor
Enhanced with additional FAQs about payroll.
Updated to reflect forthcoming amendments regarding independent contractor classification.
Updated to reflect an emergency exception to child labor permit requirements in Wisconsin.
The US Department of Labor (DOL) has withdrawn a Fair Labor Standards Act (FLSA) regulation listing 134 different types of establishments that lack a "retail concept" and therefore were considered to be categorically ineligible for the classified salespersons exemption.
Updated to reflect amendment to the New Mexico Human Rights Act regarding pregnancy discrimination and accommodations, effective May 20, 2020.
Updated to reflect the withdrawal of regulations listing retail establishments for purposes of the overtime exemption for commissioned salespersons, effective May 19, 2020.
Updated to reflect an amendment to the state veterans preference law, effective May 12, 2020.
HR guidance on complying with the FLSA and state employee classification requirements.