Nearly three years after employers scrambled to review and adjust worker salaries ahead of anticipated increases in the required weekly salary for exempt employees, only to have the new rule stayed at the last minute, the U.S. Department of Labor has adopted a new final rule again increasing white collar exemption salary rates. The increases, however, are much smaller than those that came close to becoming effective in 2016.
The following are the key changes made by the final rule, which will go into effect January 1, 2020:
- To meet the salary test for a white collar exemption, an employee must earn at least $684 per week ($35,568 per year).
- Employers can use nondiscretionary bonuses, incentives, and commissions to meet up to 10% of the new standard weekly salary level, provided that the payments are made at least annually.
- Employees exempt under the Highly Compensated Employee exemption must earn at least $107,432 annually.
- The rule sets a special salary rate of $455 per week for Puerto Rico, the Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands; $380 per week for American Samoa; and $1,036 for the motion picture production industry.
- The rule commits DOL to reevaluating the exemption regulations on a more regular and frequent basis through notice-and-comment rulemaking, but the agency declined to commit to a specific timeframe for evaluation.
- The new rule does NOT make any changes to the duties tests.
The weekly salary increase is far less than the increase to $913 per week proposed in 2016. DOL estimates that 1.2 million employees currently classified as exempt under the executive, administrative, professional, computer, or outside sales exemptions will become eligible for overtime when the new rule becomes effective. The agency anticipates that more than 100,000 employees currently exempt as highly compensated employees will no longer earn enough to qualify for the exemption.
As a reminder, the Highly Compensated Employee exemption applies to individuals earning at least the minimum weekly salary and performing office or non-manual work and customarily performing one or more of the exempt duties of an executive, administrative, or professional employee. Therefore, when the rule becomes effective, an employee is exempt as a Highly Compensated Employee only if he or she meets the duties test and earns at least $107,432 per year, $684 of which must be paid weekly on a salary or fee basis.
As part of the new rule, DOL formally rescinded the 2016 rule (which was invalidated by a federal district court in Texas, ultimately leading to the rule being stayed).
WHAT SHOULD EMPLOYERS DO?
Employers have only three months to prepare for the new rule. Employers should immediately identify any employees in their organizations whose exemption status may be impacted by the new rule and create an action plan for ensuring that those employees are properly classified when the new rule becomes effective. At minimum, employers must determine whether they will raise salaries to comply with the new rule or convert currently exempt employees to non-exempt status if they will not meet the salary test in January.
Please contact a Sherman & Howard Labor and Employment Attorney for guidance and advice regarding the new rule.