[USA] Minimum Salary Requirement For Salaried Employees Adjusted In OT Rules Update

A new regulation which will increase the minimum salary level that salaried employees must be paid in order to be exempt from overtime has been made official by the United States Department of Labor (DOL), JD Supra reports on the regulation and details its key points.

From January 1, 2020, if a salaried employee earns less than $684 per week - or $35,568 per year - the employee will be entitled to overtime for the hours worked over 40 hours in one week.

For overtime wages, an employee is paid one and one-half times their regular hourly rate for time worked over 40 hours in one working week. The Fair Labor Standards Act (FLSA) has a number of exemptions to this general rule. The exception most commonly used is the "white collar exemption." To qualify for it, an employee must be paid a minimum amount of salary per week and also meet a minimal duties test. 

The qualifying duties are usually categorised as administrative, professional, executive, outside sales, or computer duties. But employees cannot be exempt from overtime wages if they are paid below the salary threshold, even if they do perform the specified duties. As stated by the final rule, the DOL "has long used the salary level test as a tool to help define the white collar exemption on the basis that employees paid less than the salary level are unlikely to be bona fide executive, administrative, or professional employees, and, conversely, that nearly all bona fide executive, administrative, and professional employees are paid at least that much."

The thresholds in the new final rule are not indexed to inflation, additionally, the rule increases the total annual compensation threshold for "highly compensated employees" from $100,000 to $107,432. These employees are subjected to a less stringent duties test to be found exempt because of their high compensation levels. The final rule will also let employers include annual (or more frequent) nondiscretionary bonuses, incentive payments, and commissions in their calculations to satisfy up to 10 per cent of the salary threshold.

This announcement from the DOL is the last part of an ongoing series of federal overtime regulations (link via original reporting). The journey to this conclusion has included higher thresholds being blocked by a federal court, a change in the presidential administration and the reissuing of a revised, lower threshold. All were part of a continued drive to update regulations under the FLSA to accommodate changes in pay practices and inflation. The revised rules finalised by the announcement were first proposed back in March (link via original reporting).

To account for the new salary minimum Employers can take several actions before January 1, 2020. Employers can pay employees a wage instead and always pay overtime when it occurs, they can have better control of the use of overtime and increase pay to ensure that the employee earns above the new threshold.