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REMINDER: New Salary Level Goes Into Effect 1/1/2020—Are You Prepared? REMINDER: New Salary Level Goes Into Effect 1/1/2020—Are You Prepared?

REMINDER: New Salary Level Goes Into Effect 1/1/2020—Are You Prepared?

Following a contentious legal battle that began at the tail-end of the Obama administration, the United States Department of Labor (“DOL”) issued its final rule updating the amount of money a salaried employee must earn in order to be exempt from minimum wage and overtime requirements set forth by the Fair Labor Standards Act (“FLSA”). The final rule, which is set to take effect on January 1, 2020, brings with it an increase to the salary threshold for the first time in over 15 years—an increase that will result in nearly 1.3 million Americans becoming newly-eligible for overtime pay. With the holidays upon us, it is important to prepare for any changes you need to make as you enter the new year.

While certain types of employment are exempt from minimum wage and overtime requirements by way of specific language within the FLSA or other labor laws, whether or not an employee is entitled to minimum wage and overtime pay will often be subject to a two-part test, which includes an inquiry into the employee’s annual earnings. Under the current rule, exempt “white-collar” employees must earn a salary of at least $455 per week ($23,600 per year) to be considered exempt—assuming, of course, they also satisfy the second prong of the test related to job duties for executive, administrative, and professional positions. Come January 1, 2020, however, exempt employees must earn at least $684 per week ($35,568 per year) to satisfy the salary level of the two-part test.

The updated rule now also permits employers to use nondiscretionary bonuses and other incentive payments in satisfying up to 10 percent of the newly-raised salary threshold, provided said bonuses and other payments are rendered at least annually. What that means is this—if an employee, who otherwise satisfies the job duties prong of the two-part test for exemption, earns a salary of $34,000 per year but receives a $2,000 annual bonus based on longevity, the employer may factor that annual bonus into calculating whether the threshold for exempt status has been met. In the example at hand, the employee’s total compensation amounts to $36,000, exceeding the salary threshold set forth in the new rule.

With rare exception, employees earning an annual salary of $100,000 or more are currently considered highly compensated and exempt from minimum wage and overtime requirements under the FLSA. However, beginning January 1, 2020, an employee will need to earn at least $107,432 per year to be considered highly compensated under the FLSA. Again, the employer may rely on nondiscretionary bonuses and other incentive payments to account for up to 10 percent of that threshold.

The DOL has no intention of slowing its rulemaking in 2020—comments on the Department’s proposed revisions to the rule on computing overtime based on the “fluctuating workweek method” are open through December 5, 2019. As it stands, the rule allows employers to pay certain nonexempt employees a fixed salary regardless of how many hours are worked in the week, which may routinely fluctuate. While traditional overtime is computed at time-and-a-half of an employee’s regular rate of pay, an employee with a fluctuating workweek earns overtime based upon a regular rate that must be determined each week depending upon the number of hours actually worked. This method, sometimes called the “half-time” method, can result in substantially less overtime liability. Proposed revisions to the rule include examples to illustrate calculation of overtime as well as clarification that bonus payments, premium payments, and other additional pay may be included in the calculation of the employee’s regular rate. Changes to the rule are highly anticipated as the fluctuating workweek method for computing overtime has long been a source of confusion for many.

Stay tuned! If you have any questions, please contact Abigail Barr or another member of our Labor, Employment and Immigration team.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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