A few years ago, the Department of Labor (DOL) was set to increase the minimum salary requirement for allowing an employee to be exempt from overtime requirements.  The increase was pretty significant (more than double) – see our infograph on this update from 2016 here.  At the last minute, this legislation was rescinded.  However, the issue has been re-presented and a Final Ruling was announced by the DOL in September, increasing the minimum salary level for exempt employees to $684 per week ($35,568 annualized).  While this is lower than the proposed 2016 increase, the increase (just over 50%) will affect many employers.

This ruling focuses primarily on updating the minimum salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt.  An exempt employee is paid a salary and does not have to be paid overtime for any hours worked past 40 hours.  However, only certain employees qualify to be exempt.  For the Executive, Administrative and Professional exemption, employees must be paid a minimum salary level to qualify.  Prior to January 1st, 2020, the minimum salary requirement is $455 per week ($23,660 annually).

The new Ruling set the minimum salary level to $684 per week; ($35,568 annually).

If you have any employees who are currently exempt employees and make under the minimu $35,568 annual salary, you have a couple of options.

1. You can convert the employee to non-exempt.  This will require that you track their hours worked and pay overtime pay for any hours over 40 hours per week (there are additional state requirements, depending on which state you do business in).
2. You can increase the employee’s salary to the minimum level of $35,568 per year to comply with the new requirement.

You can find the full ruling here, which includes the following:

• Raising the “standard salary level” from $455 to $684 per week or $35,568 per year.
• Raising the total annual compensation requirement for “highly compensated employees” from $100,000 per year to $107,432 per year.
• Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices
• Revising the special salary levels for workers in US territories and the motion picture industry.

You need to make updates by January 1st to ensure you are compliant with the new requirements.

Melissa Herzog, Payroll Manager