On March 7, 2019, the United States Department of Labor released the long-awaited adjustment to the salary level that is the first hurdle to claiming an employee is exempt from being paid overtime. This movement toward a new salary level began in the Obama administration which had proposed a new salary level of $47,476 per year as the minimum salary level for exempt employees. That was stopped by a Federal judge in December of 2016 and then we changed presidential administrations. The Secretary of Labor under the Trump administration then had control of what was to happen. As I wrote in The decision on what salary level is appropriate to be considered exempt is delayed, Alexander Acosta agreed that the threshold salary level needed to be changed, but to a level more palatable to businesses. That decision has now been rendered.
$35,308 per year
According to the press release:
This new proposal would update the salary threshold using current wage data, projected to January 1, 2020. The result would boost the standard salary level from $455 to $679 per week (equivalent to $35,308 per year).
This means that any employee you have that is currently considered exempt must be paid at a minimum $679 per week to continue to be considered exempt. That is the threshold salary level. Of course, they still have to past the duties test to be considered exempt, but even if they pass that they have to be paid at the new level.
Several years ago I wrote the following advisement, which I have now altered to match this new salary level.
What to do
There are a number of things that should be done to prepare for the inevitable changes that will occur.
First, this would be a good time to review whether or not people you have classified as exempt are really exempt. Too many employers make the mistake of improperly classifying employees as exempt solely on the basis of the fact that they pay them a salary. Salary is a method of wage payment not a classification of overtime eligibility. There are numerous companies that have people classified as non-exempt yet they pay them a salary. Non-exempt employees do not have to be exclusively hourly employees. So even if you have an employee who is going to make the $35,308 salary level they may not be properly classified based on the nature of the duties required to be classified as exempt.
By the way, titles don’t count. It is all based on the job description and the actual duties performed. If you have not updated your job descriptions lately then you may want to do so by having an incumbent participate in the process.
Here are the preparation steps that need to occur:
- Identify all current employees that are classified as exempt (not currently eligible for overtime) that are making less than $35,308 per year.
- Determine how close these employees are to that threshold level.
- Determine how many potential overtime hours that employee worked in the past year.
- Calculate the cost of that overtime based on time and a half calculations.
- Determine if it is more cost effective to increase the employee to the $35,308 level or to pay the calculated or anticipated overtime.
- For those employees where it does not make economic sense to raise them to $35,308, it will become necessary for you to determine how you will actually record their time worked, because once these employees are declared non-exempt employees (eligible for overtime) you will have to ACCURATELY track their ACTUAL time worked.
- You will need to institute a system of checks and balances to insure that the behavioral change of tracking time has actually occurred.
- Monitor the annual index to insure the exempt employee remain exempt or whether further adjustments need to be made.
Tracking time accurately of newly re-classified employees will also be important. You can do it old school using paper time sheets or you can do it using new technology, even including mobile devices. The important consideration is finding something your employees will adapt to most easily.
This change is estimated to make over 1 million workers eligible for overtime pay. It is incumbent on you to make sure you have people properly classified to avoid difficulties.