I am been saying it since 2016 that the US Department of Labor would be issuing new rules for who was to be paid overtime and who was not. Since the Obama administration’s attempt to update the overtime rules was killed in 2016 we have been waiting for the Trump Department of Labor to administer new rules. Well, they finally have given us the definition of who is to be eligible for overtime and who is not.
In a press release dated September 24, 2019, the Wage and Hour Division announced the changes, which were different from what they had announced last spring. In this iteration, they announced the new wage level to be considered exempt was $684 per week. The announcement specifically said:
“…the Department is:
- raising the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
- raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;
- allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and
- revising the special salary levels for workers in U.S. territories and the motion picture industry.
In addition to the press release the Wage and Hour division also release an FAQ. Some of the details from this FAQ are:
Standard Salary Level
The Department is setting the standard salary level at $684 per week ($35,568 for a full-year worker). The salary amount accounts for wage growth since the 2004 rulemaking by using the most current data available at the time the Department drafted the final rule. The Department is updating the standard salary level set in 2004 by applying to current data the same method and long-standing calculations used to set that level in 2004—i.e., by looking at the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (then and now the South), and/or in the retail sector nationwide.
HCE Total Annual Compensation Requirement
The Department is setting the total annual compensation requirement for HCEs at $107,432 per year. This compensation level equals the earnings of the 80th percentile of full-time salaried workers nationally. To be exempt as an HCE, an employee must also receive at least the new standard salary amount of $684 per week on a salary or fee basis (without regard to the payment of nondiscretionary bonuses and incentive payments).
Special Salary Levels for Employees in U.S. Territories and Special Base Rate for the Motion Picture Producing Industry
The Department is maintaining a special salary level of $380 per week for American Samoa because minimum wage rates there have remained lower than the federal minimum wage. Additionally, the Department is setting a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands.
The Department also is maintaining a special “base rate” threshold for employees in the motion picture producing industry. Consistent with prior rulemakings, the Department is increasing the required base rate proportionally to the increase in the standard salary level test, resulting in a new base rate of $1,043 per week (or a proportionate amount based on the number of days worked).
Treatment of Nondiscretionary Bonuses and Incentive Payments
In the final rule, in recognition of evolving pay practices, the Department also permits employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.
If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the Department permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such 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.
Experience has shown that fixed earning thresholds become substantially less effective over time. Additionally, lengthy delays between updates necessitate disruptively large increases when overdue updates finally occur. Accordingly, in the final rule, the Department reaffirms its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking.
What this means for employers
Just as it did in 2016, this salary revision sets a new level for an employee to be considered exempt from being paid overtime. It sets a starting point. As of January 1, 2020, an employee will have to be paid $35,568 per year to even be considered possibly exempt. Some employers will have to look at employees that make less than that and are currently classified as exempt. If it does not make financial sense to increase what they earn to the new level then they will have to be classified as nonexempt and will earn overtime every time they exceed 40 hours in a week. I covered much of this in The New Proposed FLSA Regulations and What They Mean for Employers. Ignore the stated money, but pay attention to the steps.
This is a big deal and will cause much stress and work for some employers. Others already pay above this level and will not have to make any adjustments.
It is prudent to remember that being exempt from overtime is not just a matter of being paid a salary. Nor is it a matter of the title the employee has. It is also dependent on the duties they perform. Those duties are found in Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA) and must be followed. Failure to do so will cost you a great deal of money.