DOL Final Rule Updated Regulations on Exemptions for Executive, Administrative, and Professional Employees
Effective January 1, 2020, the United States Department of Labor (“DOL”) issued a final rule increasing the earnings thresholds necessary to exempt white-collar executive, administrative, or professional employees from the minimum wage and overtime pay requirements of the Fair Labor Standards Act (“FLSA”). The DOL anticipates an estimated 1.3 million additional workers will become eligible for overtime as a result of these rulemaking changes.
The final rule updated the salary and compensation levels needed for workers to be exempt by doing the following:
- Raising the “standard salary level” from $455 to $684 per week (equivalent to $35,568 per year for a full year of work). The standard salary level accounts for wage growth since the latest 2004 rulemaking and was calculated by reviewing the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (then, and now, the South region).
- Setting the total annual compensation level for “highly compensated employees” (“HCEs”) at $107,432 per year. Importantly, 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).
- Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices. 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 DOL 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.
- Revising the special salary levels for workers in U.S. Territories and in the motion picture industry. The DOL is maintaining a special salary level of $380 per week in American Samoa because minimum wage rates there have remained lower than the federal minimum wage. The DOL 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 DOL is also maintaining a special “base rate” threshold for employees in the motion picture industry. The DOL 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).
Our Firm is experienced in handling a variety of wage and hour issues, including but not limited to whether an employee is properly classified as exempt under the executive, administrative, and professional exemptions. If you have any questions about these exemptions or seek a better understanding of the DOL’s final rule, please contact our attorneys to set up a confidential consultation today.