On September 24, 2019, the U.S. Department of Labor released a new rule increasing the salary threshold for employees to qualify for the “white-collar” exemptions from overtime pay. The DOL set the new salary minimum at $684 per week, or $35,568 per year. The annual salary threshold for “highly compensated employees” was raised from $100,000 to $107,432. The new rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary threshold, provided such payments are made at least annually.
The new salary threshold is roughly half-way between the $47,800 minimum proposed by the Obama DOL in 2016 and the $23,660 currently in effect. The DOL estimates that this rule will impact 1.3 million workers across the nation making them now eligible for overtime compensation.
By way of background, the “white-collar exemptions” are exemptions to the Fair Labor Standards Act’s overtime pay requirements. The most common white-collar exemptions are the Executive, Administrative, and Professional exemptions. Employees who fit into these exemptions are not entitled to overtime pay.
To be properly classified as exempt, the employee must satisfy the “duties test” and the “salary basis test.” The salary-basis test simply requires that the employer compensate the employee on a salary basis that amounts to at least $455 per week, or $23,660 per year. The DOL’s new rule increases this amount to $684 per week, or $35,568 per year.
The DOL’s new rule makes no changes to the “duties” test for the white-collar exemptions. Thus, if an employee’s job duties do not satisfy the requirements in the current rules, the employee will be entitled to overtime pay no matter how much the employee earns each year. The duties test is usually the focus of any legal disputes that arise regarding these exemptions.
Employers should take this opportunity to once again review their exempt employees and ensure that they are paid a proper salary and that they meet the duties test. If they do not, these new rules may provide employers with an opportunity to change an employee’s status from exempt to non-exempt without drawing unnecessary attention to the potential misclassification issue.
The new rule is scheduled to take effect on January 1, 2020. Employers who remember the last time the DOL tried to raise the white-collar salary threshold will recall that the rule was enjoined at the last minute by a federal judge. Lawsuits will undoubtedly be filed in federal court once again, and it is possible the rule will be enjoined. We will keep you informed of meaningful developments. In the meantime, we recommend that employers assume the rules will take effect on January 1 and begin taking steps to comply with them.