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U.S. Department of Labor Issues Final Rule to Update Salary Level for Executive, Administrative, and Professional Employees

The long-awaited final rule on the salary threshold for exempt employees is here. The final rule updates the salary level necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements and allows employers to count a portion of certain incentive pay, such as bonuses or commissions towards meeting the salary level.

Current Rule

The current federal rules provide an exemption from both the minimum wage and overtime pay requirements of the FLSA for bona fide executive, administrative, and professional employees who meet certain job duties tests and who are paid on a salary basis at not less than $455 per week ($23,660 per year) and “highly compensated employees” (HCEs) who are paid total annual compensation of $100,000 or more.

New Rule

The updated final rule takes effect on January 1, 2020 and will:

  • Raise the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
  • Raise the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;
  • Allow employers to use non-discretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices;
  • Revise the special salary levels for workers in U.S. territories and the motion picture industry; and
  • Require “Computer Employees” to be compensated either on a salary or fee basis at a rate not less than $684 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour.

While the DOL has made changes to the salary level, the job duties tests for each exemption will remain unchanged.

Next Steps

In preparation for compliance with the new rule employers should:

  • Use this time to start evaluating not just whether changes will be necessary, but how best to make those changes including a review of job descriptions, budgets, timing, and communications to impacted employees.
  • Conduct a classification analysis to review those employees for whom your organization currently claims overtime exemptions and decide whether to:
    • Convert them to non-exempt and pay overtime for hours worked over 40 in a workweek; or
    • Raise the employee’s salary to at least the new salary level.
  • Review, update, and communicate applicable wage and hour processes to employees who have been treated as exempt but who no longer will be, such as:
    • Overtime approval procedures;
    • Timekeeping, including reporting interrupted meal breaks and recording all time worked.
  • Develop a clear timeline and communication plan for reclassifying positions. Reclassification, when not communicated and executed clearly, can result in administrative burdens and morale problems. In addition, if there is any concern that a position was previously misclassified, work with legal counsel when reclassifying the position to non-exempt.

New York employers should keep in mind that state law currently requires employees who are exempt under the executive or administrative exemptions to be paid a weekly salary that current exceeds $684 per week as follows:

  • Upstate employers must currently pay a salary of no less than $832 per week. On December 31, 2019 the minimum salary will increase to $885.00 per week.
  • Salary levels for NYC employers vary based on employer size.
    • NYC employers with 11 or more employees are currently required to pay a salary of no less than $1,125.00 per week. There is no announced increase for December 31, 2019.
    • NYC employers with less than 11 employees are currently required to pay a salary of no less than $1,012.50 per week. On December 31, 2019 the minimum salary will increase to $1,125.00 per week.
    • Downstate employers in Nassau, Suffolk, and Westchester counties are currently required to pay a salary of no less than $900.00 per week. On December 31, 2019 the minimum salary will increase to $975.00 per week.

Employers with employees in other states, such as California and Maine should review state specific laws on salary levels. Where state law requires a higher salary level, employees must be compensated based on which is most beneficial to the employee.

HR Works Can Help

Subscribers to the HR Works Virtual Helpline may contact a Compliance Specialist for questions related to exemptions and the salary level.

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