New Salary Threshold for Exempt White-Collar Employees

The U.S. Department of Labor (DOL) recently announced the long-awaited final rule increasing the minimum salary that white-collar employees must be paid in order to qualify as exempt from federal law’s overtime requirements.  This final rule increases the current minimum salary level for exempt employees from $455 per week (or $23,660 annually) to $684 per week (or $35,568 annually).  This change is significant as the DOL estimates that 1.3 million additional workers will become eligible for overtime compensation and that workers will receive an additional $298.8 million in pay each year once the final rule is implemented.  The final rule takes effect on January 1, 2020.

The federal Fair Labor Standards Act exempts certain “white collar” employees (i.e., executive, administrative, and professional employees) from federal minimum wage and overtime requirements. Currently, to qualify for one of these exemptions, an employee must (1) primarily perform executive, administrative, or professional duties as provided in the DOL’s regulations; and (2) receive a guaranteed salary of at least $455 per week or $23,660 annually.  The new rule announced by the DOL changes the minimum salary requirement only.

Main takeaways of the new rule:

• The salary level for white collar exempt employees will be raised from $455 per week (or $23,660 annually) to $684 per week (or $35,568 annually);

• Employers may now use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level;

• The total annual compensation requirement for exempt “highly compensated employees” will be raised from $100,000 per year to $107,432 per year;

• The final rule sets forth no automatic updates to the salary thresholds. The final rule provides that the thresholds will be updated more regularly in the future after notice and an opportunity to comment on any proposed changes.

More details on these changes can be found at the DOL’s website: https://www.dol.gov/whd/overtime2019/.

In order to comply with these changes, employers should review and audit their workforces to determine what changes, if any, may be necessary for preparation for January 1, 2020, effective date.  Those employees most affected by this final rule are those “exempt” executive, administrative, and professional employees currently making between $23,660 and $35,568 annually.  Although all employers should review their workforces to ensure that employees are properly classified, what to do after that will depend entirely on their individual business needs.  Possible options for employers include raising the salary of certain white collar employees who meet the duties test to at least $35,568 annually in order to retain their exempt status under the new rule; re-classifying certain employees to non-exempt status and paying them overtime compensation going forward; re-classifying certain employees to non-exempt status and eliminating or reducing the amount of overtime hours worked by such employees; or hiring additional employees to reduce the need for overtime work.  Regardless of which option employers may choose, it is important to communicate any changes in status to affected employees and arrange training on time-keeping protocols and policies. 

Employers are encouraged to consult with legal counsel to discuss their options and strategies for implementing these changes, if necessary.