January 1st is just around the corner, and no I am not saying this just because I am excited for the New Year. Did you know that the U.S. Department of Labor (DOL) came to a decision to increase the salary threshold, for salaried exempt employees from $23,660 to $35,568 annually, effective January 1, 2020? If not, I will fill you in on all the key details below.
To begin, let me explain a few technicalities, so you will understand which employees will be impacted by the new regulation. According to the Fair Labor Standards Act (FLSA) employees are classified as exempt or nonexempt. “Exempt employees, because of their rate of pay and type of work that they do, are not eligible for overtime pay for hours worked over 40 in a workweek. Nonexempt employees must be paid time and a half for any hours worked more than 40 in a workweek” (SHRM, 2019).
You may be wondering what the criteria is that makes an employee exempt. An employee must be paid at least the minimum threshold salary, and they must pass the duties test. Employers should complete the duties test to ensure that each of their employees are appropriately classified as an exempt or nonexempt employee. “The new rule is expected to prompt employers to reclassify more than a million currently exempt workers to nonexempt status and raise pay for others above the new threshold” (Nagele-Plaza, 2019).
Now that you understand how your employees must be classified, here is what employers need to know about the DOL’s Final Rule for exempt workers:
- Workers who do not earn at least $35,568 a year ($684 a week) would have to be paid overtime, even if they’re classified as a manager or professional.
- Nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may be used to satisfy up to 10 percent of the standard salary level.
- The special rule for highly compensated employees would require workers to earn a total annual compensation of at least $107,432 ($684 of which must be paid weekly on a salary or fee basis).
- Special salary levels would apply to certain U.S. territories and an updated base rate would apply to employees in the motion-picture industry.
- No changes to the duties tests.
- The final rule is effective Jan. 1, 2020.
- The Department of Labor intends to propose updates to the salary threshold regularly to ensure that these levels continue to provide useful tests for exemption. Updates would not be automatic and would continue to require notice-and-comment rulemaking.
Source: FLSA Overtime Rule Resources (SHRM, 2019)
Do not wait to start preparing for new overtime rule changes because January 1st will be here before you know it. Remember, make sure your employees are classified appropriately. Then, assess exempt employees’ compensation to ensure that they meet the salary threshold requirement of $35,568.
For more resources regarding the Final Rule, please visit the DOL’s website here.