Department of Labor Issues “Final Rule” to Raise Exempt Salary Rate 50% to $35,568/Year
Employers will need to work fast this fall to prepare for the “Final Rule” on overtime pay, raising the minimum salary required to meet exemptions for overtime pay under federal law.
The hike in the minimum salary from $455 per week to $684 per week (or $35,568 per year) takes effect January 1, 2020, and is expected to affect the pay of 1.3 million workers nationwide. While the increase is not nearly as high as the Obama administration originally proposed in 2014 (raising the base rate to roughly $47,000 per year), this new rate could have a dramatic impact on employers and industries with lower-paid exempt managers and administrators, including those in retail, the restaurant industry, non-profits, and some healthcare jobs.
The Final Rule and the Department of Labor’s guidance on same are linked here.
The most common overtime exemptions covered by the Fair Labor Standards Act and this Final Rule are those for managers, professionals and administrative employees.
The Final Rule also will raise the “highly compensated employee” exemption level from $100,000 to $107,432. The Final Rule, unlike the original, does not include annual cost of living increases in these rates.
Employers also may benefit from a new provision that allows 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 required. For example, an employer could pay an exempt manager a base salary of only $32,068, if the employer also paid a year-end bonus of $3,500 (bringing the employee’s total pay to the base rate of $35,568).
For employers with currently exempt employees who are making less than $35,568 per year, the next three months will be critical in planning for the transition. Among the questions that employers will need to consider:
- How many currently exempt employees will need their standard base rate increased to meet the new minimum?
- Are there ways to realign the workforce to minimize the cost impact of this change in the law – such as making currently exempt employees hourly, but limiting their work time to under 40 hours per week?
- Should the employer conduct an internal review or “audit” of its payroll practices to ensure it is complying with the Fair Labor Standards Act and related wage payment laws in all respects, not just as to this change in the law?
- Does this change present an opportunity for the employer to address wage payment compliance issues that have been otherwise unaddressed?
The lawyers at HomansPeck have extensive experience guiding employers and employees through difficult wage and hour issues, as well as litigating these disputes in court. Please contact us if we can be of any assistance to you or your employer.
Michael Homans is an employment lawyer and litigator, based in Philadelphia. He can be reached at mhomans@homanspeck.com or 215-419-7477.