Employees classified as exempt from overtime (OT) under the Fair Labor Standards Act (FLSA) must be paid a salary of at least the threshold amount and meet certain duties tests.
The Department of Labor (DOL) announced the final overtime rule that will increase the minimum salary for certain white collar exemptions. These new minimums took effect January 1, 2020.
“White collar” salaried exempt employees must be paid at least $684 per week on a salary basis (an increase from the current minimum of $455 per week). This is the equivalent of $35,568 per year. Up to 10% of this minimum may come from nondiscretionary bonuses and incentive payments (including commissions), so long as these payments are received on at least an annual basis.
Teachers, practicing lawyers, practicing doctors, and outside salespeople are exempt from these minimums under federal law, though may be subject to state minimums.
With the new rules, exempt Highly Compensated Employees must now make at least $107,432 per year. Of that amount, at least $684 per week must be paid on a salary or fee basis, with no reduction for future incentive pay. The remainder of their income, however—nearly 67% if they make $107,432—may come from incentive pay.
Employers should note that the rule doesn't make any changes to the duties tests, and doesn't call for automatic adjustments to the salary threshold.
Further, employers in the states of California, New York, and Washington, have laws in place or nearly in place that make the minimum salary for exempt employees higher than the new federal thresholds. Remember, employers must follow the law that is most beneficial to employees.
Employer Action Items
Employers now need to evaluate anyone who they currently classify as exempt from OT, but pay less than $684 per week or $35,568 per year. Once these employees are identified, employers will need to choose between raising pay to meet the new minimum and maintain the exemption, or reclassifying as non-exempt and paying OT.
“Remember: meeting the salary cutoff is just one requirement for classifying workers as exempt, so employers should also take the time to review workers' job duties to ensure that they satisfy the applicable exemption's criteria," says Carly Fallon, Director of Human Resources at CheckWriters.
“As ongoing best practice and for the new rule, employers and HR pros should be reviewing budgets, considering positions that may need to be restructured, evaluating exemption classifications and potential pay equity flags, and determining a strategic, meaningful, and reasonable plan for implementing necessary changes.”
CheckWriters customers who have the HR Resource Center turned on in the CheckWriters Platform can access numerous resources to help navigate this decision-making process and implement changes. Search "FLSA Changes" in the HR Support Center.