On September 24, 2019, the Department of Labor (finally) issued the final rule on the minimum salary threshold required for employees to qualify for the Fair Labor Standards Act’s “white-collar” exemptions.

The final rule:

  • Raises the new minimum salary threshold to $35,568 per year ($684 per week). The previous salary threshold, which had been in place since 2004, was $23,660 ($455 per week).
  • Raises the “highly compensated” employee salary threshold from $100,000 to $107,432 per year.
  • Allows employers to count certain non-discretionary bonuses, incentives, and commissions to satisfy up to 10% of an employee’s salary level.
  • Does not impact the job duties test.
  • Is estimated to make an additional 1.3 million more workers eligible for overtime.
  • Will take effect quickly — on January 1, 2020.

In addition to all of the other year-end tasks, employers should take a look at their employees to see who now falls under the new threshold. For any employees who meet the duties tests and make between $26,660 and $35,568, companies must decide whether to increase their salary or change their exempt status to non-exempt, making them eligible to receive overtime. While on its face, it seems like a fairly simple determination, changing exempt status may have unintended consequences such as: lower morale for employees who are reclassified; salary compression at certain levels of the business; and more unpredictable payroll costs for overtime hours. If employees are reclassified as non-exempt, companies should be sure to inform the employees of their new status and appropriately train the employees on how to track their time and the company’s policies regarding working overtime. Employers also have to consider the interaction of state overtime laws as well.

Contact your Baker McKenzie lawyer to assist with getting into compliance with the new rule by the first of the year.