By Carrie Cherveny

The U.S. Department of Labor's (DOL) Wage and Hour Division has issued the final rules changing the salary basis effective on January 1, 2020.

Currently, the Fair Labor Standards act requires that exempt employees receive a minimum salary of $455 each week ($23,660 annually). Employees that are not paid this minimum salary (and do not otherwise qualify for an FLSA exemption) must be paid overtime for all hours worked in excess of 40 hours each week. (Employers may remember that in May of 2016, the DOL attempted to increase the standard salary level from $455 each week ($23,660 each year) to $913 each week ($47,476 each year). That rule-making was successfully challenged in court on November 22, 2016).

Employees who are paid the minimum salary must also perform job duties that satisfy the exempt employee “job duties test.” The final regulations do not modify the duties test but do impose the following changes:

  • Increases the "standard salary level" from $455 to $684 each week (annualized $35,568).
  • Increases the annualized compensation level for "highly compensated employees (HCE)" from the current level of $100,000 to $107,432 each year.
  • Allows employers to count non-discretionary bonuses and incentive payments toward satisfying up to 10% of the standard salary level or any of the special salary levels applicable to U.S. territories, so long as such bonuses are paid at least annually.
  • There are special salary levels for U.S. territories and an updated base rate for employees in the motion picture producing industry.

The changes to the salary basis level may create a new class of overtime eligible employees. In fact, the DOL estimates that the new salary level will create 1.3 million new non-exempt employees. Employers are faced with essentially two choices:

  • Increase all exempt employees’ salaries that fall below the new minimum salary of $35,568 (annualized) to retain the employee’s exempt status.
  • Make no changes to employees’ compensation for current exempt employees whose salaries fall below the new minimum salary, but on January 1, 2020, reclassify those workers as non-exempt (and overtime eligible).

The department of labor has published a fact sheet and a set of frequently asked questions are also available on the DOL website.

HUB International’s team is available to work with you on a diverse range of HR needs, from risk management and regulatory compliance to benefits strategy, program design, and workplace culture.