The U.S. Department of Labor issued its long awaited final rule increasing the minimum salary for overtime exempt employees to $35,568/year ($684/week), effective January 1, 2020. The current salary minimum for exempt employees is $23,660/year ($455/week). This increase follows years of litigation and controversy over the 2016 Obama administration rule to increase the salary minimum to $47,500/year that was blocked by the courts. The current increase is estimated to affect over a million workers whose employers will have to either start paying them overtime or raise their salary to continue to treat them as exempt from overtime pay.
The new rule permits employers to credit non-discretionary bonus or incentive payments (including commissions) given on an annual or more frequent basis up to 10% of the salary minimum.
The minimum annual salary for employees classified as exempt under the “highly compensated executive” exemption is raised by the new rule from $100,000 to $107,432, also effective 1/1/2020.
The new rule does not include any indexing or automatic adjustments of these new minimum salaries based on inflation, which was included in the 2016 rule. The current Department of Labor indicates though that it may seek to make more frequent adjustments to the minimums than has historically occurred.
In addition to reviewing your salary levels to meet this new minimum, be reminded that in order for an employer to exempt an employee from overtime pay, two broad requirements must be met: 1) the employee must be paid on a “salary basis” which means a guaranteed salary without deductions for missing scheduled work time, although there are several exceptions where deductions can be made for time missed; and 2) the employee’s actual job duties (not just what is in a job description) must satisfy one of the limited job duty categories for exemption status—the executive, professional, administrative, or highly compensated executive exemption categories. The job duties tests for exempt status are not changing. Unfortunately, the existing regulations definitions of the job duties exemptions are very subjective and can be difficult to follow. The attention, including likely litigation, that will be generated by this new rule raising the minimum salary will cause some employees (including those paid above the new minimum) to question whether they are entitled to overtime pay (for the past and/or future) based on non-compliance with the salary basis or job duties requirements.
Call your Houston Harbaugh employment law attorney for guidance on overtime pay exemption issues, as well as on other aspects of wage and hour law or employment law in general. We have also prepared employer self-audit questionnaires that are available for a nominal cost ($100) to help employers themselves better review compliance with overtime exemption issues, as well as other general pay issues (e.g., travel time, training time, mealtime, break time, on-call time, child labor, regular-rate calculation, interns, etc.).