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FLSA and Wage & Hour – New Minimum Salary For Exempt Employees Takes Effect January 1, 2020

Margherita M. AlbarelloBy:  Margherita M. Albarello

On September 24, 2019, the U.S. Department of Labor issued a new Final Rule raising the minimum salary requirements for “white collar” (executive, administrative, and professional) overtime wage exemptions.  The Final Rule goes into effect on January 1, 2020. Here are the highlights:

1.     The minimum annual salary is $35,568.00, or $684.00 per week.  The current minimum is $23,660.00, or $455.00 per week.

2.     The annual minimum compensation for “highly compensated employees” (HCEs) also increases.  The new minimum for HCEs is $107,432.00 (up from $100,000.00).  Also, the Final Rule has a less rigorous duties requirement relating to HCEs.  HCEs need only perform any one of the exempt duties of the executive, administrative, or professional employee to qualify for the HCE exemption.

3.     Employers still are permitted to use nondiscretionary compensation, including commissions, to satisfy up to 10% of the new minimum salary level.  But, under the new Final Rule, nondiscretionary compensation may be paid annually, rather than quarterly.  This gives employers more flexibility in paying exempt employees nondiscretionary bonuses and commissions to satisfy the minimum salary requirement.

4.     The new Final Rule also allows a “catch-up” payment at years-end, up to 10% of the minimum salary level (that is, $3,556.80 – 10% of $35,568.00), if the employee has not earned enough nondiscretionary pay to meet the $35,568.00.

5.     By contrast, the employer must pay an HCE no less than $35,568.00, or $684.00 per week, without including nondiscretionary pay, although nondiscretionary pay can be included in meeting the $107,432.00 annual HCE pay requirement.

Employers with exempt employees who currently earn more than $455 per week but less than $684 per week, and who satisfy the duties tests, may comply with the new Final Rule by:  (1) increasing employee salaries to the new level; (2) limiting hours to preclude overtime work; and/or (3) reclassifying the employees as overtime non-exempt.

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