On September 24, 2019, just as independent schools were settling into the rhythm of a new academic year, the Department of Labor announced its new Final Rule, which increases the salary threshold for exempt employees from $23,600 per year to $35,568 per year under the federal Fair Labor Standards Act. Effective January 1, 2020, employees who earn less than the new salary level of $684 per week ($35,568 per year) will be entitled to overtime pay at a rate of one and one-half times the employee's regular rate of pay for all hours worked beyond 40 hours in a workweek. Remember, to be exempt from overtime, employees must meet both a duties test and a salary basis test. The Final Rule only changes the salary basis test and has left the duties test unchanged.
For independent schools, teachers are not required to meet the salary basis test in order to qualify for the FLSA's exemption from overtime; they need only meet the duties test. The September 24, 2019 Final Rule makes no changes in that regard, and employees who have the primary duty of teaching will still be considered exempt from overtime, regardless of their salary. However, some states set their own overtime exemption thresholds that exceed the federal requirement, even for teachers.
The September 24, 2019 Final Rule also raises the salary level for highly compensated employees to $107,432 per year. In addition, the Final Rule permits schools to account for any nondiscretionary bonuses and incentive payments in determining whether a given employee meets the new salary threshold. To the extent your school makes such payments, you can count those toward the employee's salary – however, they may account for only 10% of the salary threshold. Unlike the Obama administrative rule, this Final Rule is a one-time change and does not include automatic updates to the salary level every three years.
Remember, in any wage and hour dispute, the school will be responsible for proving that the employee was properly classified as exempt. Misclassification can be a costly error. Schools are encouraged to proactively and periodically review how they have classified their employees to ensure they are in compliance with both the FLSA and any applicable state or local laws.