13 December 2019

Important Updates Taking Effect in January: Higher Salary Threshold for White-Collar Workers and Clarification Regarding Overtime Calculations

The U.S. Department of Labor regulations increasing the salary threshold for employees who are exempt from overtime pay under the so-called “white-collar” exemptions of the Fair Labor Standards Act (FLSA) go into effect on January 1, 2020.  The new salary minimum for these “white-collar” employees (i.e., employees subject to the Executive, Administrative, and Professional exemptions) will be $684 per week, or $35,568 per year.  The annual salary threshold for “highly compensated employees” will increase from $100,000 to $107,432.

The new regulations allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary threshold, provided that such payments are made at least annually.

As a reminder, the new rule makes no changes to the “duties test” for the white-collar exemptions. Thus, unless an employee’s job duties satisfy the duties requirements in the current rules, the employee will be entitled to overtime pay no matter how much the employee earns each year.

The new regulations face no legal challenges.  Thus, there is no reason to expect that a court will nix these rules, like a court did several years ago when the DOL attempted to raise the minimum salary.  Employers should make final preparations to comply with the rule by January 1, 2020.

In addition, another new DOL rule will take effect on January 12, 2020.  The new rule clarifies what benefits need to be included when calculating an employee’s “regular rate” of pay.  Under the FLSA, an employee’s “regular rate” is used as the basis for determining an employee’s overtime rate.  Previous DOL guidance regarding how to calculate the regular rate left many unanswered questions as it related to various “perks” offered by employers.  For example, it was unclear whether employer tuition benefits, mobile phone plan reimbursements, and club membership dues needed to be included when calculating an employee’s regular rate.  The new rule answers those questions and makes it clear that several commonly-provided benefits can be offered to employees without creating a risk of additional overtime liability, including:

  • Parking benefits;
  • Wellness programs, onsite specialist treatment, gym access and fitness classes;
  • Employee discounts on retail goods and services;
  • Certain tuition benefits;
  • Adoption assistance;
  • Various reimbursed expenses, including cellphone plans, credentialing exam fees, organization membership dues, and a certain amount toward travel fees even if not incurred “solely” for the employer’s benefit; and
  • Limited sign-on bonuses and longevity bonuses.

If you have any questions about properly calculating the regular rate or the new rules, please contact the authors or your Miller Johnson Employment and Labor attorney.