New Salary Minimum for Exempt Employees

The U.S. Department of Labor announced a final rule effective January 1, 2020, updating the earnings thresholds necessary to exempt executive, administrative, and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements.

Key Changes

• Raises the “standard salary level” from $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker).
• Raises the total annual compensation requirement for “highly compensated employees” from $100,000 to $107,432 per year.
• Allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level. Discretionary bonuses cannot be used toward meeting the salary threshold.
• Permits catch-up payments within one pay period of the end of the year if an employee does not earn enough in nondiscretionary bonuses or incentive payments to retain exempt status.

Duties Test

Exempt status requires meeting both the salary threshold and the “duties test,” which applies to the following categories:

• Executive Employees
• Administrative Employees
• Learned Professionals
• Creative Professionals
• Computer Employees
• Outside Sales Employees
• Highly Compensated Employees

Employers should review exempt employees to ensure compliance with the new salary threshold and duties test. No automatic updates to the salary threshold will occur.