According to the US Department of Labor, a final rule to the minimum earnings threshold necessary to exempt certain employees was announced September 24, 2019. The final rule is effective on January 1, 2020 and is purported to make another approximately 1.3 million American workers now eligible for overtime pay.
The new earnings threshold has been discussed, blocked, and changed since the 2016 announcement that the current salary minimum, established 15 years ago, would increase. The final rule updates the earnings thresholds necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements, and allows employers to count a portion of certain bonuses/commissions towards meeting the salary level.
The ruling is:
- raising the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
- raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;
- allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level.
Discretionary bonuses cannot be used toward meeting the salary threshold. The Department of Labor will allow employers to make catch-up payments to employees who do not earn enough in nondiscretionary bonuses or incentive payments in a given 52-week period to retain exempt status, provided that the catch-up payment is made within one pay period of the end of the year.
Keep in mind that neither salary nor job title in and of themselves make an employee “exempt”. In addition to meeting the minimum salary threshold, an employee must meet the “duties test” and fall under one of the applicable categories:
- Executive Employees.
- Administrative Employees.
- Learned Professionals.
- Creative Professionals.
- Computer Employees.
- Outside Sales Employees.
- Highly Compensated Employees.
There will also be no automatic updates to the salary threshold, as set in the prior blocked 2016 rules. All employers should examine their exempt employees and verify that the employees will remain exempt under the new 2020 rules based on salary, but an overview of the duties test as it matches up with Job Descriptions and actual duties should be an ongoing exercise. All InTANDEM HR clients took steps to ensure compliance with the 2016 ruling at the time, so this lower threshold is a good time to revisit your exempt employee’s job duties as well as salaries. Contact InTANDEM HR with any questions regarding this new ruling or to obtain an “FLSA Test”.