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Effective January 1, 2020 a US Department of Labor rule takes effect increasing the minimum salary level required to qualify “white collar” workers for an overtime exemption. The salary requirement will increase from the level set in 2006, $455 per week ($23,600 per year), to $684 per week ($35,568 per year). This change applies to employers seeking to exempt workers in the executive, professional and administrative wage classes. Each of those exemptions have additional requirements (duties test) that must also be met but all share the minimum salary level. Failing to meet this compensation level disqualifies the employee from the exemption and the employer must, in most instances, pay overtime for all hours worked beyond 40 per week. The rule allows up to 10 percent of the standard salary level to be met in the form of nondiscretionary bonuses, commissions, or end of year “catch up” payments. However, miscalculating or mistiming the compensation could result in an employee becoming entitled to overtime for overtime worked for the entire year.

This new rule comes on the heels of a more dramatic minimum compensation level from the previous federal administration. Unlike that rule, overturned by a federal court, this new rule does not contain an automatic escalation clause. Further, this change does not affect workers governed by the U.S. Department of Transportation (such as interstate commercial vehicle motor drivers and loaders) who are mostly exempt from federal Fair Labor Standards Act (FLSA) regulations. It is anticipated that employers will reclassify many employees from exempt to nonexempt status to avoid raising salary levels.

We recommended that employers immediately examine the data of exempt employees who earn less than the new salary threshold and evaluate budgets, position requirements and what changes need to be implemented. Such an evaluation should include the costs, both economic and otherwise, associated with reclassifying employees as nonexempt and paying overtime and be done in consultation with outside counsel to ensure compliance with the new law.

If you have any questions about this exemption, or any other FLSA exemption, please contact Stacey DeKalb at 612.336.9310 / stacey@lommen.com or Mike Glover at 612.336.1269 / mglover@lommen.com.