By the Seay Management Consultants Team

The Department of Labor has announced a final rule updating salary thresholds for exempt employees. The current minimum exempt salary, which has not changed in 15 years, is $455 weekly. The new guaranteed salary level for an employee to be considered exempt from overtime is $684 per week not subject to deduction. Employers may apply a portion of certain bonuses/commissions toward this total.

Some may recall that in 2016, employers braced themselves for a change in the exempt salary level. The 2016 change more than doubled the guaranteed weekly salary threshold. When that final rule was invalidated by the courts, the Department of Labor went back to the drawing board for the process of a proposed change offering listening sessions to obtain public input.

When Does This Change Become Effective? January 1, 2020

What Will Be The Effect Of This Change?

• Exempt employees earning less than $684 per week will become non-exempt and must begin to keep a time record and receive overtime for all hours worked in excess of 40 per week.
• There will be no change to the duties test for classifying an employee as exempt.
• There will be an increase in the total annual compensation level for highly compensated employees (HCEs) from the currently-enforced level of $100,000 to $107,432 per year.
• Employers are permitted to use “nondiscretionary” bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices.
• There will be special salary levels set for workers in U.S. territories and in the Motion Picture Industry.

White-Collar Exemptions
Wage and Hour regulations identify five white-collar exemptions. Employees who meet these qualifications are exempt from timekeeping, minimum wage, and overtime.

• Executive – Employees who perform management responsibilities that involve supervision of other employees.
• Administrative – Employees who perform management responsibilities that may not involve supervision but do involve the management of assets or a specific management function.
• Professional – Employees who are generally regarded as professionals in that they possess extended learning or a specialized degree, such as Physicians, Registered Nurses, and Certified General Engineers.
• Outside Sales – Employees who are engaged in sales activity outside of the workplace.
• Technical – Certain employees who have a degree in Information Technology or Management Information Services.

What Should We Do Now?
This change is going to be effective in approximately three months so here are some things you can do to prepare.

• Review the current salary levels of your exempt employees to determine if they are under or close to the $684 per week salary level. On the effective enforcement date, these employees will need to either (a) keep an accurate record of all hours worked and be paid overtime, (b) be held to under 40 hours per week or (c) have their salaries raised to the new guaranteed salary level of $684 per week ($35,568 annually).
• Review and restructure pay plans for exempt employees paid by a salary plus commission pay plan, such as automobile dealers and pest management companies. Pay plans must guarantee that these employees receive at least $684 per week. There are provisions regarding catch up payments in a 52 week period.
• Review the status of your exempt employees to make sure they meet the current Department of Labor requirements.
• Make sure that you have written job descriptions supporting the exemption and that identify the position as exempt or non-exempt.
• Be prepared to revise your exempt/non-exempt policy in your employee handbook, so that it meets the new requirements.

More information about the final rule is available at the Department of Labor website.

Please contact your Seay Management consultant if you have any questions about the exempt/non-exempt regulations, or if you have any other questions about Human Resources Management.