On September 24, 2019, the United States Department of Labor (“DOL”) issued a final rule that, when implemented, will raise the minimum salary threshold that white-collar employees must be paid to qualify as employees exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”). The final rule raises the minimum salary level from $455 to $684 per week, or from $23,660 to $35,568 annually for exempt employees. In addition to meeting the minimum salary requirement, an employee must primarily perform administrative, executive, or professional duties to be considered an exempt employee. The final rule will take effect on January 1, 2020.
Nonexempt employees must receive overtime pay at the rate of at least time and one-half of their regular rate of pay for all time worked over 40 hours in a workweek. The DOL estimates that 1.3 million American workers will be newly eligible for overtime pay when the final rule goes into effect at the start of 2020.
Here are the key provisions of the DOL’s final rule:
- The minimum salary level required for white-collar employees to qualify as exempt employees will rise to $684 per week or $35,568 annually;
- The minimum total annual compensation to qualify as a highly compensated employee will rise from $100,000 to $107,432; and
- The final rule will allow employers to use nondiscretionary bonuses and incentives (including commissions) that are paid at least annually to satisfy up to 10% of a white-collar employee’s required salary level to meet minimum salary requirements. However, nondiscretionary bonuses and incentives cannot be used to meet the salary minimum for a highly compensated employee.
If an employee does not earn enough to achieve the required salary level for his or her exempt status in a given year (fifty-two week period), the employer is entitled to make a “catch-up” payment within one pay period of the end of the fifty-two week period. This payment may only be up to 10% of the required salary level and an employer may not count a catch-up payment towards the employee’s salary for the year in which the payment is made.
Employers should begin preparing now for when the final rule goes into effect on January 1, 2020.
An employer may choose to raise its employees’ salaries to the new minimum salary threshold to ensure that the employees qualify for exempt status. If your employees work more than 40 hours per workweek regularly, and these employees receive compensation near the salary threshold, it may be worth raising the salaries of these employees to $684 per week, or $35,568 annual compensation threshold if the employees primarily perform administrative, executive, or professional duties.
Another option available to employers would be to budget for, and pay employees, the necessary overtime payments for all time worked in excess of 40 hours in a workweek.
A third option available to employers would be to limit nonexempt employees to a 40 hour workweek to ensure that the employer does not need to make any overtime payments to its nonexempt employees. While this would likely be the most cost effective method to comply with the DOL’s final rule, an employer should be diligent in keeping records of all time worked by its employees to ensure that none of the employees work in excess of 40 hours in any given workweek which would entitle said employees to overtime pay as required under the FLSA.
If any of your employees may be effected by the DOL’s final rule, you should consult with an attorney to discuss and determine the best strategy for your business. Employers with questions about the final rule and how they should proceed to ensure that they remain in compliance with the DOL’s final rule should contact one of Conn Kavanaugh’s experienced employment attorneys.