On September 24, the Department of Labor (DOL) released a final rule that will take effect on Jan. 1, 2020, that will increase the minimum salary requirement to be considered exempt from overtime under the Fair Labor Standards Act (FLSA).
“Effective Jan. 1, 2020, the minimum salary requirement for the administrative, professional (including the salaried computer professional) and executive exemptions will increase from $455 per week to $684 per week (equivalent to $35,568 per year),” ADP says online.
This number, Inc.com says, is based on the 20th percentile of salaries, which Inc.com says is the same way the DOL calculated the numbers the last time the limits were changed in 2004.
Inc.com says there are four categories that can allow you to be exempt if you also have a minimum salary:
- Manager: If you manage two or more people and your duties are primarily managerial, then you can be salary exempt. If you have hire/fire power over the staff but spend most of your day doing the same work your staff does, you’re probably not eligible.
- Professional: Doctors, attorneys and certified public accountants fall under this category. Also included are educated professionals who work independently and creative people (again, who work independently).
- Administrative professionals: This refers to administrative functions like IT, finance and HR, not administrative assistants (who are almost all non-exempt and eligible for overtime).
- Outside sales: The “outside” part of this is really important. Two people selling the same product–one sitting in a call center and the other out meeting with clients–would have different exemption statuses. Outside salespeople need to do the majority of their work outside of the office.
According to ADP, covered employees are required by the FSLA to pay “non-exempt” employees at least the minimum wage for each hour worked, as well as overtime pay for all hours worked in excess of 40 in a workweek.
According to The National Law Review, the DOL estimates this rule will make 1.3 million American workers eligible for overtime pay under the FLSA.
According to ADP, to be considered “exempt,” employees must generally satisfy all three of the following tests:
- Salary-level test: Employees must earn a weekly salary that meets the minimum requirements. Until Jan. 1, 2020, the minimum salary requirement is $455 per week for the administrative, professional (including the salaried computer professional), and executive exemptions.
- Salary-basis test: With very limited exceptions, the employer must pay employees their full salary in any week they perform work, regardless of the quality or quantity of the work.
- Duties test: The employee’s primary job duties must meet certain criteria.
For employees who regularly perform at least one of the exempt duties or have the responsibilities of a professional, executive or administrative employee, ADP says there is also an exemption for “highly compensated” employees.
To qualify for one of the overtime exemptions, ADP says employees must be paid a weekly salary of at least $684 and must continue to satisfy the applicable duties tests.
If they are paid at least $23.63 per hour, ADP also says exempt computer employees may also be paid hourly, which won’t change under the new rule.
“For the highly compensated employee exemption, employers are already allowed to include commissions, nondiscretionary bonuses and other nondiscretionary compensation toward meeting the total annual compensation requirement, but there is no 10 percent cap like the other exemptions,” ADP says online. “This won’t change under the new rule. Thus, as long as the employer pays the employee at least $684 on a weekly salary basis, the employer will be able to count these other forms of compensation toward meeting the minimum total compensation requirement ($107,432 per year).”
If you do find that your exempt employees’ salaries fall below this new federal salary requirement, you will either have to raise their salaries to meet this new requirement, or you can reclassify these employees as non-exempt and pay them overtime if/when they work over 40 hours a week.
Keep in mind that some states do have their own salary requirements and duties tests that may already exceed the new federal rule, and other states may decide to increase their salary thresholds based on it.