On March 7, 2019, a proposed rule was issued by the United States Department of Labor to increase the wage threshold for exemptions from the overtime regulations of the Fair Labor Standards Act. On Tuesday, September 24, 2019, these rules were finalized. As a result, there are multiple changes that will go into effect on January 1, 2020. Those changes include the following:
The proposal raises the minimum salary threshold for eligible exempt employees to remain exempt from overtime pay from $455 per week ($23,660 annually) to $684 per week ($35,568 annually) to better reflect growth in wages and salaries since the initial level was established in 2004. Currently, employees with salaries less than $455 per week must be paid overtime calculated at time and one-half of normal wages for any hours worked over 40 in a work week. Under the new rules, employees with salaries less than $684 per week must be paid overtime for any hours worked over 40 in a work week. Employees with higher salaries may be eligible for overtime based on their job duties. Note that the new rules only change the minimum salary threshold for the exemption; it does not change the other requirements for exemption. Consequently, there is no change from the previous job duties test for an employee to be eligible for overtime.
For employees who are considered “highly-compensated employees,” the threshold will be raised to $107,432 from $100,000. If the employee’s primary duty includes performing office or non-manual work, and if the employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee, the employee will be exempt from overtime provisions if he or she earns total annual compensation over $107,432.
Employers will be permitted to calculate certain nondiscretionary bonuses (such as those tied to productivity and profitability) and incentive payments (such as commissions) that are paid annually or more frequently towards up to 10 percent of an employee’s salary for purposes of determining whether the threshold is met. The reason for this provision is the Department of Labor’s recognition that traditionally exempt employees may derive a significant portion of their annual compensation from sources other than base salary.
These new rules, effective, January 1, 2020, will bring multiple changes to who may qualify for overtime pay. As you examine how these new rules may impact you and your business, your WK Advisor is here to help.