U.S. Department of Labor Increases the Minimum Salary Level for Overtime Exempt Employees

(September 25, 2019)

On September 24, 2019, the U.S. Department of Labor (USDOL) published a final rule on the “white collar” employee exemptions from overtime under the Fair Labor Standards Act (FLSA). The new rule, which increases the minimum salary level for exempt employees, will take effect on January 1, 2020 (a little more than 3 months from now).

By way of background, in 2016, under President Obama, the USDOL issued a rule which would have raised the minimum salary level to $913/week ($47,476/year). That rule was invalidated by the federal courts in 2017. In March 2019, under the Trump administration, the USDOL proposed to rescind the 2016 rule and increase the minimum salary threshold from $455/week ($23,660/year) to $679/week ($35,308/year). The proposed rule would also allow employer to pay certain nondiscretionary bonuses and incentive payments for up to 10% of the new $679 per week salary level.

The final rule announced by USDOL on September 24, 2019 increases the minimum salary level from $455/week to $684/week (equivalent to $35,568/year for a full-year worker), slightly higher than was proposed 6 months ago. This final rule will also allow employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the salary level for exempt employees. This will allow an employer to “catch up” an employee’s earnings at year end so that an employee qualifies for the overtime exemption.

During the 3+ months of 2019 that still remain before the effective date of this rule, employers with salaried exempt employees should evaluate their exempt employees’ salary levels. Those salaried exempt employees that are slated to be paid less than $684/week in 2020 may become non-exempt and eligible for overtime if they work more than 40 hours a week. If an employee’s initial salary level will be less than $684/week, then an employer may be able to make it up to them at year end (December 2020) with a bonus, rendering them exempt throughout the year.

Employers with questions about how to classify and pay salaried exempt employees after the new year are encouraged to contact a Wimberly Lawson attorney.