On September 24, 2019, the Department of Labor (DOL) announced its final rule to update the minimum salary requirements for the “white collar” (executive, administrative, and professional) overtime exemptions. The new rule will take effect on January 1, 2020.

FLSA Background

The FLSA sets the federal minimum wage and requires the payment of overtime to employees who work more than 40 hours in a workweek. Some employees, however, are exempt from the overtime requirement if they qualify for one of the FLSA’s so-called “white collar” exemptions. To qualify for an exemption, the employee must principally perform certain executive, administrative or professional duties (the “duties” test) and be paid a certain minimum salary (the “salary level” test). An employee may also be exempt from the overtime requirements if he or she is compensated at a high level (the “highly-compensated employee” exemption).

Key Provisions of the Final Rule

The DOL’s new rule includes the following key provisions:

  • Increased Standard Salary Level Requirement: Raises the salary threshold to $35,568 per year or $684 per week. The current salary threshold is $23,660 per year or $455 per week.

  • Increased Threshold for Highly-Compensated Employees: Increases the total annual compensation requirement for highly compensated employees from the currently-enforced level of $100,000 to $107,432 per year.

  • Salary Test: Allows nondiscretionary bonuses (including commissions) to satisfy up to 10% of the standard salary level and allows for nondiscretionary compensation to be paid annually. The new rule also permits a catch-up payment at years end, up to 10% of the standard salary level, if the employee has not earned sufficient nondiscretionary pay to satisfy the required salary.

  • Duties Test: Does not change the duties test.

  • Automatic Updates to the Salary-Level Requirements: Does not implement automatic updates,

    although it anticipates updating the salary level every four years through notice-and-comment rulemaking.

 How to Prepare 

The DOL estimates that approximately 1.2 million currently exempt workers who earn more than $455, but less than $684, per week will be impacted by the new rule, and that 102,000 current highly compensated employees (HCE) will be affected by the increase in the minimum HCE compensation.

Erigo’s PEO clients should work with Erigo to review their current employee classifications. The implementation of the new rule may necessitate reclassifying some employees to nonexempt or increasing the salaries of exempt employees who earn less than $35,568 annually.

If you have any questions about the final rule, please reach out to Erigo by calling (859) 905-0092.