New Federal Overtime Regulations Take Effect January 1, 2020

The U.S. Department of Labor (DOL) has issued its Final Overtime Pay Regulations under the federal Fair Labor Standards Act (FLSA).   Specifically, the DOL:

  • updated the salary thresholds to exempt executive, administrative, and professional employees from the FLSA’s minimum wage and overtime pay requirements, by increasing the “standard salary level” from $455 per week (equivalent to $23,660) to $684 per week (equivalent to $35,568 per year for a full-year worker);
  • increased the total annual compensation level for “highly compensated employees (HCE)” from $100,000 to $107,432 per year (they must be receiving $684 weekly on a salary or fee basis);
  • allows employers to now use nondiscretionary bonuses and incentive payments, including commissions, that are paid at least annually to satisfy up to 10% of the standard salary level*; and
  • revised special salary levels for workers in U.S. territories and in the motion picture industry.

Significantly, 10% of the $684/week can be comprised of nondiscretionary bonuses and commissions to reach the $684/week salary threshold needed to be considered exempt from overtime pay requirements (if the job duties test is also met).

What Should Employers Do Now?  Nonprofits would be well advised to:

  • Review salaries of those classified as “executive” and “administrative” exempt positions to determine whether the employee’s weekly salary needs to be increased to meet the new salary thresholds or determine whether the position should be reclassified as non-exempt.  (The professional exemption does not have a salary threshold under New York State law).  Remember that if the State salary threshold is higher than the federal salary threshold, the organization must exceed the State’s salary threshold for that employee to maintain his/her exempt status.
  • Review primary duties for positions classified under the executive, administrative, and professional exemptions to ensure that those duties are met to qualify for exemption and update job descriptions to ensure the positions are indeed properly classified as exempt.
  • Conduct a regular review of primary duties tests for the executive, administrative, and professional exemptions because meeting the salary threshold alone does not confer exempt status upon employees.

Highly Compensated Employee Standard Updated

The updated regulations contain a special rule for “highly compensated” employees who are paid total annual compensation of $107,432 or more.  A highly compensated employee is deemed exempt under FLSA Section 13(a)(1) if:

  1. The employee earns total annual compensation of $107,432 or more, which includes at least $684* per week paid on a salary or fee basis;
  2. The employee’s primary duty includes performing office or non-manual work; and
  3. The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.  For example, an employee may qualify as an exempt highly compensated executive if the employee customarily and regularly directs the work of two or more other employees, even though the employee does not meet all of the other requirements for the “executive” exemption.

As noted above, the final regulations take effect January 1, 2020.  Employers should be reviewing their worker classifications now and making any needed adjustments to worker classification status.

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