Minimum Salary Level for Exempt Employees Set to Increase on 1/1/2020
On September 27, 2019, the United States Department of Labor (“DOL”) published a new final rule (the “2019 Final Rule”) revising regulations under the Fair Labor Standard Act (“FLSA”). The 2019 Final Rule comes three years after the DOL’s previous attempt to increase minimum salary levels to $913 per week or $47,476 per year, which was blocked by a federal court.
The 2019 Final Rule takes effect on January 1, 2020, and contains the following key provisions:
- it sets a new standard minimum salary level for exempt workers at $684 per week, or $35,568 per year (formerly, $455 per week; or $23,6660 per year);
- it creates special lower salary levels applicable to the U.S. territories;
- it allows nondiscretionary bonuses and incentive payments (including commissions), if paid annually or on a frequent basis, to satisfy up to 10% of the standard salary level or the special salary levels for US territories;
- it sets the total annual compensation requirement for highly compensated employees (“HCE”) subject to a minimal duties test at $107,432.00, of which $684 must be paid weekly on a salary or fee basis; and
- it reaffirms the DOL’s intent for regular updates to the earnings thresholds (standard salary level and HCE total compensation threshold) by using notice-and-comment rulemaking.
Any employer with an exempt employee whose salary is below $35,568 per year may be affected by the 2019 Final Rule. As of January 1, 2020, for any executive, administrative, and professional exempt employee whose salary falls below this threshold, employers covered by the FLSA will either need to: (i) raise the employee’s salary so they may still qualify for the exemption; or (ii) reclassify the employee as non-exempt, and thus be required to pay the employee an overtime premium for any hours worked over 40 in a workweek. We note that the 2019 Final Rule does not revise in any way the duties tests for exempt employees under the FLSA.
How Our Firm Can Help
- We can assist with implementation, training, and communication related to the 2019 Final Rule;
- We can perform an FLSA classification review; and
- We can revise agreements with employees for compliance with updates in the law.