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DOL Issues New Salary Limits for Overtime Exemptions

Tuesday, September 24, 2019
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HIGHLIGHTS

  • The final rule increases the standard salary level for the EAP exemptions to $684 per week ($35,568 per year).
  • The final rule increases the HCE salary level to $107,432 per year.
  • The final rule permits using 10 percent of nondiscretionary bonuses to calculate an employee’s salary level.

IMPORTANT DATES

  • September 24, 2019 – Final 2019 overtime rule is announced.
  • January 1, 2020 – Final overtime rule becomes effective.

OVERVIEW

On Sept. 24, 2019, the U.S. Department of Labor (DOL) announced a new final rule that updates the salary thresholds that some individuals must meet in order to qualify for a minimum wage and overtime exemption under the federal Fair Labors Standards Act (FLSA). The final rule becomes effective on Jan. 1, 2020.
The final rule affects the exemptions for executive, administrative and professional (EAP) employees, highly compensated employees (HCEs), employees in the motion picture industry and individuals who work in various U.S. territories.

ACTION STEPS

The final rule’s Jan. 1, 2020 effective date leaves little time for employers to prepare for the changes. Employers should:

  • Determine which currently exempt employees have salaries below the new threshold; and
  • Decide whether to increase salaries for these individuals or reclassify them as non-exempt employees.

The 2019 Overtime Final Rule

As expected, this final rule includes updates to the standard salary level for the EAP and HCE exemptions and allows employers to count up to 10 percent of an employee’s nondiscretionary bonuses and incentive payments (including commissions) as part of the employee’s standard salary level.
The rule also makes changes to the standard salary level for the exemption that applies to employees in the motion picture industry and some U.S. territories. 
The table below shows the salary levels for the EAP and HCE exemptions that will apply on Jan. 1, 2020. The final rule’s salary levels are different from the 2016 rule and the 2019 proposed rule.

 

Current Levels

2016 Final Rule

2019 Proposed Rule

2020 Levels

Standard Salary Level (per week)

$455

$913

$679

$684

HCEs (per year)

$100,000

$134,004

$147,414

$107,432

Nondiscretionary Bonuses

The final overtime rule will allow employers to use up to 10 percent of an employee’s bonuses to satisfy his or her salary level requirements if:

  • The bonus, commission or other incentive pay is nondiscretionary; and
  • The employee receives this incentive pay at least once during any given year (or 52-week period).

The final rule also contains a “catch-up” provision that enables employees to remain exempt when their nondiscretionary bonuses aren’t enough to meet the salary level required by an FLSA exemption. Under this new rule, employers must make a “catch-up payment” within one pay period at the end of the 52-week period to avoid losing that employee’s exempt status. The DOL has warned that any catch-up payment “will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.”

Additional Updates

The final rule maintains the current salary level of $380 per week for American Samoa, but sets a new salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Northern Mariana Islands.
The rule also sets a new base rate threshold for employees in the motion picture producing industry of $1,043 per week. This new threshold can be prorated based on the number of days the employee has worked.
The DOL intends to update the standard salary and HCEs total annual compensation levels more regularly in the future through notice-and-comment rulemaking.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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