We Are Open (With Safety Precautions) & Ready To Help:  Click Here To Watched Our Covid-19 Webinar — What Employers Need to Know

New Salary Threshold Proposed for Overtime Exemption

Written on .

After what must be record-setting deliberations, the U.S. Department of Labor (DOL) has published plans to raise the salary threshold – the amount a salaried administrative, executive, or professional employee must be paid in order to qualify as exempt from overtime – from $455 per week ($23,660 annually) to $679 per week ($35,308 annually). This is the minimum amount an employee must be guaranteed as a weekly salary, not subject to deductions for missed days or hours of work, in addition to satisfying other job-duty criteria to qualify as exempt from the Fair Labor Standards Act (FLSA) general obligation to pay 1.5 times an employee’s “regular rate” for every hour worked over 40 in any work week.  DOL is soliciting yet more comment from the public, but the change is estimated to take effect January 1, 2020.

Regular readers may recall that in 2016, during the waning days of the Obama Administration, DOL proposed a much larger increase – to $955/week or $47,500/year – which would be indexed for inflation and would have fundamentally changed the FLSA so that any employee earning less than that amount would automatically be entitled to overtime pay regardless of their job duties.  As employers scrambled to comply, the regulations to carry out this change were successfully challenged, and a District Court in Texas enjoined them, finding that they were inconsistent with the FLSA’s architecture for exemptions which was focused on job duties, not pay amounts. There were also legal problems with DOL’s proposed automatic formula to index the rates for inflation.

DOL’s new proposal is not indexed for inflation but will be reviewed every four years.  DOL calculated the new dollar amount by applying the same methodology used in 2004, looking at earnings of full-time salaried workers in the lowest-wage census region (then, as now, the South) and in the retail sector. The proposed rule also would raise the threshold for “highly-compensated employees” from $100,000 annually to $147,414 per year, also determined by examining current pay levels.  There are a few other changes: 

  • Employers will be allowed to include certain nondiscretionary bonuses (such as those tied to productivity or profitability) and incentive payments like commissions that are paid annually or more frequently towards up to 10 percent of an employee’s salary to meet the threshold;
  • Employers can make an annual “catch-up” payment to bring an employee’s compensation up to the required level;
  • There are special (lower) salary thresholds for US territories and possessions such as Puerto Rico, the Virgin Islands, Guam, and American Samoa;
  • And special daily and weekly pay rules for the motion picture industry.

Comment:  The current salary threshold, $455/week, has been in place since 2004, when it was raised from $225/week, at the time barely more than minimum wage.  Some state and local governments have increased the salary requirements for the white-collar exemption.  In California the 2019 salary requirement is $45,760 for small employers and $49,920 for large employers (26 or more employees) and in New York depending on the counties, the salary requirement ranges from $832 a week to $1,125 a week.  Please check your local state requirements.

Many believe the new proposed rule is a sort of compromise between those favoring higher or lower salary requirements.  Reports indicate that the new salary level will affect around 1 million persons, while the earlier and higher salary requirement would have affected about 4 million.  The proposed rule will be open for public comment for sixty (60) days, and legal challenges can be expected once the final rule is published.  The plan is that the final rule will be published sufficiently before the 2020 election that the regulation will be difficult to overturn if a Democrat wins the White House.

Various strategies to meet the new salary requirement when it goes into effect include increases in salary in order to meet the new exempt salary requirements, or reclassification as hourly resulting in approximately the same hours worked and the same total pay, even with overtime hours.  Of course, employers may reduce non-exempt employees' hours, but care should be given to any reclassifications where they could also result in a loss of fringe benefits related to salary status.  Remember also that even if the salary is sufficiently high for the executive exemption to apply, the employees' primary duties must be to manage the enterprise or a department or subdivision of the enterprise, and to customarily and regularly direct the work of at least two employees, and the employee must have the authority to hire or fire, or his or her suggestions and recommendations as to hiring, firing or changing the status of other employees must be given particular weight. 

Questions? Need more information?  Call Larry Stine or Jim Wimberly at (404) 365-0900

Get Email Updates

Receive newsletters and alerts directly in your email inbox. Sign up below.

Recent Content

medical healthcare, indoors

Supreme Court Again Upholds Affordable Care Act

California v. Texas, the Supreme Court has again upheld the provisions of the Affordable Care Act (ACA), often known as ObamaCare. A fede...
sticky notes, wall, indoors

No-match Social Security Letters Discontinued

In the past, the Social Security Administration (SSA) during periods of time has issued so-called "no-match letters" to employers with "a...

Supreme Court Allows Catholic Group to Exclude Foster-care Rights

The public and the courts continue to debate whether there should be religious exemptions to LGBT anti-discrimination laws. In other word...
restroom neon light

EEOC Addresses Controversial LGBT Restroom Policies

A year ago the U.S. Supreme Court ruled in Bostock v. Clayton County that Title VII outlawed workplace bias based on sexual orientation a...
buttons on a table, indoor

Labor Board to Reconsider Employer Restrictions on Wearing Buttons and Other Insignia in the Workplace

Many employers do not like the idea of employees wearing pro-union shirts or buttons on the job. In the past, however, and particularly d...
monopoly houses on a wooden table indoors

Supreme Court Rejects Union Access to Employer's Property in California

A strong ruling for employers' private property rights was issued by the U.S. Supreme Court in June in Cedar Point Nursery v. Hassid, No....
  • Home
  • Alerts
  • 2019
  • New Salary Threshold Proposed for Overtime Exemption

Wimberly, Lawson, Steckel, Schneider & Stine

3400 Peachtree Road, Ste 400 / Lenox Towers / Atlanta, GA 30326 /404.365.0900

Where Experience Counts

Thank you for visiting the firm's website. Please note that this website is intended for general information purposes only and does not constitute an offer of representation or create an attorney-client relationship with the firm. The firm welcomes receipt of electronic mail but the act of sending electronic mail alone does not create an attorney-client relationship. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include the firm's copyright notice.

© 2020 Wimberly, Lawson, Steckel, Schneider & Stine P.C. | Site By JSM