The U.S. Department of Labor recently issued its Final Rule regarding new salary thresholds that will apply to certain exempt white-collar employees starting January 1, 2020. Current thresholds were last updated in 2004, and the new regulations more closely reflect growth in employee earnings, including increasing minimum wage requirements.
For workers to be exempt from the overtime requirements of the FLSA based on the executive, administrative, or some professional exemptions, as of January 1, they must be paid at least:
· $684 per week, or $35,568 per year. (The current threshold level is $455 per week, or $23,660 per year.)
The new regulations allow employers to count non-discretionary bonuses, incentives, and commissions toward up to 10 percent of the standard salary level as long as the employer pays those amounts at least annually.
For workers to be exempt from the FLSA overtime requirements based on their status as highly compensated employees, as of January 1, they must be paid at least:
· $107,432 per year, of which at least $684 per week must be paid on a salary or fee basis. The remaining minimum annual compensation may include commissions, non-discretionary bonuses, and other non-discretionary compensation. (The current threshold for highly compensated employees is $100,000 a year.)
The new regulations do not change the “duties tests” or include automatic adjustments to the salary thresholds in the future. The DOL has said, however, that it plans to periodically revisit the minimum salary and compensation levels through future notice-and-comment rulemaking in order to provide for more frequent updates.
According to DOL estimates, 1.2 million employees currently classified as exempt under the executive, administrative, and professional exemptions will fall below the new salary thresholds, making them non-exempt for FLSA purposes, and therefore eligible for overtime, unless employers act promptly. Furthermore, absent employer action, approximately 101,800 employees who are currently exempt as highly compensated employees are expected to become non-exempt, and therefore eligible for overtime in 2020.
While some employee advocacy groups have indicated they intend to challenge the new regulations, employers should assume these thresholds will take effect at the beginning of 2020 and quickly determine which and how many of their employees will be affected by the change. Employers must then evaluate whether to increase the salaries of those employees to retain the exempt classification, or whether to reclassify the employees as non-exempt.
This also provides a good opportunity for employers to audit compliance with the job duties requirements applicable to the white-collar exemptions, as compliance with such duties tests remains a requirement for qualifying for the exemptions.
This blog article is intended for general informational purposes only and should not be construed as legal advice or opinion. Contact myHRcounsel with questions concerning specific facts and circumstances.