DOL Issues Final Regulations for Salary Cutoff Amount for Overtime Exemption
- The U.S. Department of Labor (DOL) issued its final overtime rule as it relates to the salary amount that employees must be paid in order to meet the salary basis requirements for exemption from overtime pay.
- Effective Jan. 1, 2020, exempt white-collar employees must be paid a guaranteed salary of at least $684 per workweek.
- Effective Jan. 1, 2020, the highly compensated employee exemption is raised to $107,432 per year of which $684 must be paid weekly on a salary or fee basis.
The U.S. Department of Labor (DOL) on Sept. 24, 2019, issued its final overtime rule as it relates to the salary amount that employees must be paid in order to meet the salary basis requirements for exemption from overtime pay. (See Holland & Knight's previous alert, "Be Prepared for New Federal Overtime Rule Regarding Salary," Sept. 12, 2019.) Through the end of 2019, most white-collar exempt employees must be paid at least $455 per workweek, which annualizes to $23,660. The new rule, which will take effect on Jan. 1, 2020, raises this minimum salary threshold to $684 per workweek, which annualizes to $35,568. Thus, any exempt employees who are currently being paid less than $684 per week will need to have their salaries adjusted to meet this new threshold if the employer wishes to maintain the employee's exempt status.
As for highly compensated employees, the new DOL salary threshold has been increased from $100,000 to $107,432 per year of which $684 must be paid weekly on a salary or fee basis. This is dramatically less than the $147,414 that the DOL initially had proposed. Highly compensated employees will meet a reduced duties test if the following are met:
- The employee's primary duty must be office or nonmanual work.
- The employee must "customarily and regularly" perform at least one of the bona fide exempt duties of an executive, administrative or professional employee.
Notably, the new rule does not call for automatic adjustments to the salary threshold. The new rule also makes no changes to the existing duties test that employees must also fulfill in order to meet any of the white collar exemptions.
Employers should immediately begin compiling data for their exempt workers earning below the new threshold of $35,568 or $684 per week to determine whether to keep these employees below the new salary threshold and thus become nonexempt and eligible for overtime pay, or whether it makes more economic sense to raise the employee's salary to meet the new salary threshold thus keeping these employees as exempt. Employers may make these decisions on an employee-by-employee basis.
Employers should give thought to developing strategies and protocols for controlling overtime for employees who will be reclassified as nonexempt (that is, entitled to overtime pay). In conjunction with those strategies and protocols, employers should consider whether to maintain these newly reclassified employees as salaried nonexempt workers or convert them to hourly staff. And if they elect to keep the employees as salaried nonexempt, employers must determine whether the fluctuating workweek method of calculating overtime is appropriate. Finally, consideration also should be given to developing a communication strategy to ensure that reclassified employees know that they are not being demoted, but that these changes are based on new government rules.
For more information or questions regarding the new DOL regulations, contact the author or another member of Holland & Knight's Labor, Employment and Benefits Group.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.