The U.S. Department of Labor (DOL) recently issued a final rule amending the Fair Labor Standards Act (FLSA) regulations. The amended regulations, effective January 1, 2020, increase the salary amount an employee must earn to meet the administrative, executive, and professional exemptions from the FLSA’s minimum wage and overtime pay requirements. This is known as the “salary level test.” School officials should take steps to ensure compliance by January 1, 2020.
New Salary Level Test
The FLSA generally requires employers to compensate all employees at least at the federal minimum wage of $7.25 per hour worked and at a rate of time-and-a-half for each hour the employee works in excess of 40 hours per week. Michigan’s minimum wage is currently $9.45 per hour and will increase to $9.65 per hour on January 1, 2020.
The FLSA provides “exemptions” from the federal minimum wage and overtime pay requirements for employees who perform certain duties (the administrative, executive, and professional exemptions). To be exempt, these employees currently must receive annual compensation on a salary basis above $23,660. The salary level test will increase to $35,568 annually on January 1, 2020. Because of this significant increase, it is likely that as of January 1, 2020, some school employees who currently are treated as exempt will no longer meet the increased threshold.
Exemption for Teachers and Academic Administrators
Generally, teachers who have a primary duty of “teaching, tutoring, instructing or lecturing in the activity of imparting knowledge” are exempt from the FLSA’s minimum wage and overtime pay requirements, even if the teacher earns a salary less than the threshold amount. Administrators whose primary duty is “performing administrative functions directly related to academic instruction or training” also are exempt from the FLSA’s minimum wage and overtime pay requirements if they earn a salary equal to the starting salary for teachers at the school.
In contrast, school employees who perform roles related to operations, transportation, accounting, or general administration must meet the salary level test and fit within a specific FLSA exemption or the employee will be entitled to minimum wage and overtime pay.
Monetary liability for unpaid minimum wage and overtime pay can add up quickly, especially if a class of employees is involved. Accordingly, school officials should know which employees are being treated as exempt, whether those employees actually qualify for the exemption claimed, and whether those employees are non-exempt and entitled to overtime compensation. This information should be included in an employee’s personnel file because the FLSA has strict recordkeeping requirements for exempt and non-exempt employees.
Duties Test Unchanged
In addition to satisfying the amended salary level test, school officials also must ensure that an employee’s job duties meet the “duties test” for any claimed exemption. Generally, non-academic school employees who are exempt from overtime pay must satisfy the executive, the administrative, or the professional exemption.
To qualify for the executive exemption, an employee’s primary duties (i.e., what the employee spends more than 50% of his or her time performing) must include: (1) managing the school in which the employee is employed or of a customarily recognized department or subdivision of the school; (2) directing two or more employees; and (3) having the authority to hire or fire employees, or the employee’s hiring or firing recommendations are given particular weight.
The term “management” generally includes activities such as interviewing, selecting, and training employees; setting and adjusting pay rates and work hours; directing employee work; and disciplining employees. Operations directors and transportation directors are examples of school employees who may meet the executive exemption.
For an exempt employee under the administrative exemption, school officials should confirm that the employee’s primary duties include: (1) performing office or non-manual work directly related to school management; and (2) exercising discretion and independent judgment with respect to significant matters. This exemption may include a business manager or other central office staff members, depending on the specific job duties performed.
Employees classified as exempt under the professional exemption must have a primary duty that involves performing work requiring advanced knowledge, defined as work that is predominantly intellectual in nature which includes consistently exercising discretion and judgment. The advanced knowledge must be in a field of science or learning and acquired through a prolonged course of specialized intellectual instruction. School psychologists or speech pathologists are among the school employees who may qualify for this exemption.
To avoid potentially expensive minimum wage and overtime pay claims from employees, school officials should identify all employees who do not serve in an academic role and who are classified as exempt employees. School officials then should scrutinize whether each employee classified as exempt meets both the duties test and the salary level test. If not, school officials must either reclassify those employees as non-exempt or adjust salaries and duties as necessary to maintain exempt status.