Many companies mistakenly believe it is up to them to decide whether to pay their employees on an hourly (non-exempt) or salaried (exempt) basis. Often, they classify employees, such as customer service reps and inside sales professionals, as exempt and salaried when, in fact, the law requires hourly pay and overtime eligibility.

The Fair Labor Standards Act (FLSA), administered by the U.S. Department of Labor (DOL), establishes a duties test and a salary test that employers must consider when classifying an employee as non-exempt or exempt.

Non-exempt employees must be paid at least minimum wage for all hours worked and overtime pay for more than 40 hours worked in a work week. Employers must track and keep record of the exact time worked to ensure all employees are paid correctly.

Employees whose white-collar job responsibilities satisfy the various DOL “duties test” and who earn at least the minimum salary threshold established by the DOL can be classified as “exempt” from the minimum wage, overtime and exact-time-record requirements. To review the various white-collar exemptions, search online for DOL Factsheet #17.

On September 24, 2019, the DOL released the highly-anticipated final rule increasing the minimum salary level for white-collar and highly-compensated exempt employees. No changes were made to the duties test. This is the first time changes have been made to this rule since 2004. These changes went into effect January 1, 2020.

Typical DOL exemptions, commonly referred to as “white-collar” exemptions, are usually classified under the executive, administrative and professional categories. (Again, refer to the DOL Factsheet #17 for more on these exemptions.) What has changed is the minimum salary requirement for these white-collar exemptions—it has increased to $684 per week ($35,568 per year) from the previous $455 per week ($23,660 per year).

Up to 10 percent of this new minimum salary level for white-collar classifications can be satisfied with nondiscretionary bonuses, incentive pay or commissions. And outside sales professionals continue to have no minimum salary threshold, so this change doesn’t affect them.

As a result of increasing this minimum salary, the DOL estimates that:

  • 1.2 million workers will become eligible for overtime pay if employers make no adjustments to their pay; and
  • 2.2 million non-exempt workers will have their non-exempt status strengthened because, even though their duties were close to making them eligible for an exemption, their salary level will now be below the required level.

Highly-compensated employees (HCEs) are those who, even if they do not meet the duties test of other exemptions, are paid a high enough salary to qualify for an exemption. The DOL is increasing the salary requirement for HCEs to $107,432 per year from the current $100,000 per year. This must include a weekly salary of at least $684 that does not include nondiscretionary bonuses, incentive pay and/or commissions.

The DOL estimates that 101,800 current HCEs will be affected by the new ruling unless their salary is increased.

Since this change went into effect January 1, 2020, we recommend that employers take the following steps if they have not already done so:

 - Identify which white-collar and HCE-exempt employees will fall below the new salary levels.

 - Review job duties to ensure exempt employees clearly meet the applicable duties requirement; if they do not, then, regardless of their salary, they should be reclassified as non-exempt.

 - Calculate the costs and consider the options for employees who meet the job duties tests but whose salaries fall below the new $684/week, $35,568 annual salary minimum. Your options include:

  • Re-classifying these employees as non-exempt, tracking and recording their time, paying overtime and minimum wage, and including time as compensable such as travel time, waiting time, etc., or
  • Increasing these exempt employees’ salaries to meet the new exempt salary minimum, or
  • Structuring pay for non-exempt employees so they still receive a salary but track their time and receive overtime for all time worked in excess of 40 hours a week (or your state’s overtime requirements).

 - Communicate your plan with the employees affected so they know what to expect and why the change has occurred.

 - Document everything.

If there is uncertainty when classifying an employee, you must classify the employee as “non-exempt” as it benefits the employee by being eligible for overtime and earning at least minimum wage.

An employee cannot waive his or her right to protection under wage-and-hour law. So even if employees want to be classified as exempt and salaried because they don’t want to track their time or they want to help you out, you are still liable for any misclassifications and underpayment that results from the misclassification. An employee who is okay with the practice now may not be in two years and would be within his or her right to bring a claim against you.

Wage-and-hour mistakes can be time-consuming and expensive as the DOL investigation may go back two years and include back wages, back overtime pay and penalties. And if the violations seem egregious, they can go back three years. Also, if one employee is deemed to be misclassified, the DOL will check all the employees in that job group, meaning you would be responsible to pay back wages and punitive damages for multiple employees even if they did not complain.

After the previous changes in 2004, there was a dramatic increase in wage-and-hour claims from employees thinking they were misclassified and should have been receiving overtime. Chances are, another bump will happen again this year as the administration and media promote the fact that more than a million workers are now be eligible for overtime.

Remember, you’re only as safe as your last bad hire. It is best to make sure you’ve classified your employees correctly before they do. For more details about this rule change, read the DOL Factsheet #17G at or review the full rule at


Paige McAllister, SPHR, is vice president, HR Compliance at Affinity HR Group, Inc., PPAI’s affiliated human resources partner. Affinity HR Group specializes in providing human resources assistance to associations such as PPAI and their member companies. To learn more, visit


Send your human resources-related questions to Select questions will be answered in future issues.

Q We have an employee who would like to bring a service dog to work with her. Do we have to allow this?

A Well, the question of whether you "have to" depends. Under the Americans With Disabilities Act, which applies to companies with 15 or more employees, an employer should attempt to provide a "reasonable accommodation" to a person with a qualified disability. The act defines what types of conditions would qualify as a disability. If the individual is eyesight impaired and allowing her to bring a dog to work does not create an "undue hardship" to your company, then yes, providing that accommodation would be reasonable. It's a slippery slope from there. What types of animals are service animals? What level of mental health ailment would qualify someone as having a disability? Our best advice is to get some validation from a medical provider for the need for the accommodation and the benefit it would provide and allow the accommodation as you deem appropriate.

Q Do we have to pay an employee for time during a disciplinary meeting?

A Yes, you do. Under the Fair Labor Standards Act, employees must be paid for all time working on behalf of an employer. Discussions about performance and other disciplinary discussions are no exception. Essentially, if you require an employee to attend a meeting, whether it’s a disciplinary meeting, a celebration, a meeting about a business situation or even a client holiday party—if their attendance is mandatory—you must compensate them for that time.

Q We have a challenging employee. I've been working with him for two years. He has lost the confidence of his team. I've plotted a course for him to improve his performance, but he just refuses to take advantage of the resources and support that we've provided him. I don't know what else to do. What do you recommend?

A Fire him. As a manager, you have three essential responsibilities. 1) To make sure your employees know what's expected of them at work; 2) To make sure they have the tools and equipment necessary to do the work to your expectations; and 3) To provide ongoing feedback and guidance. It sounds like you've done all of that, and he has not taken advantage of your support. There's one last piece of advice to remember: you can't change anyone who is unwilling to change; you can only change yourself. If, despite your conversations, interventions and efforts, your employee refuses to do what is necessary to satisfy your expectations, there's one course of action we would recommend: fire him.


Claudia St. John, SPHR, SHRM-SCP, is president of Affinity HR Group, Inc.