On September 24, 2019, the U.S. Department of Labor (DOL) announced its Final Rule, updating the minimum salary necessary for an executive, administrative or professional employee to be exempt from overtime pay requirements. Based on these revisions to the federal overtime rules, the DOL anticipates 1.3 million more employees will now be entitled to overtime pay.
The federal Fair Labor Standards Act of 1938 (FLSA), generally requires covered employers to pay employees a minimum wage and overtime premium pay when an employee works more than 40 hours in a week. However, certain employees in an executive, administrative, or professional position may be exempt from overtime rules if:
- The employee is paid a fixed salary (salary basis test), and
- The employee’s salary is at or above the government-set salary threshold (standard salary level test); and
Effective January 1, 2020. the “standard salary level” will be raised from $455 to $684 per week, which is equivalent to $35,568 per year for a full-time, full year employee.
In addition, “highly compensated employees” performing office or non-manual work may be considered exempt from overtime if they customarily perform the duties of an executive, administrative, or professional employee and they meet the salary basis test; their total annual compensation level is at least $107,432 (previously $100,000). Employers may use nondiscretionary bonuses and incentive payments, paid annually at minimum, to satisfy up to ten percent (10%) of the standard salary level or total annual compensation requirement for highly compensated employees.
To prepare for the final rule’s January 1, 2020 effective date, employers should:
- Determine which currently exempt employees have salaries below the new threshold. HRSource can be used to identify the affected employees.
- Decide whether to increase salaries for these individuals or reclassify them as nonexempt employees.
HRSource users can contact Auxillium West HR Support for help with the analysis, if desired.