The Department of Labor has announced the final rule that
will increase the minimum salary for certain exempt white collar employees. The
final rule is very close to the proposed rule we reported on in March. The new
minimums will take effect January 1, 2020.
Salaried exempt EAP employees must be paid at least $684 per
week on a salary basis (an increase from the current minimum of $455 per week).
This is the equivalent of $35,568 per year.
Up to 10% of this minimum may come from non-discretionary
bonuses, incentive payments, and commissions (collectively, “incentive pay”),
so long as these payments are received on at least an annual basis. If an
employee does not earn enough incentive pay to meet the minimum by the end of
the year, the employer has two options: pay the difference with a “catch-up”
payment within one pay period after the end of the 52-week year or
retroactively remove the exemption and pay the employee for any overtime worked
during that same year.
Teachers, practicing lawyers, practicing doctors, and
outside salespeople are exempt from these minimums under federal law, though
may be subject to state minimums.
The HCE exemption is intended for employees who don’t quite
qualify for the EAP exemptions due to their job duties, but who happen to be
paid extremely well. This exemption is used much less commonly than the others
and most exempt employees will fall under the EAP exemptions.
Employees classified as exempt under the HCE exemption must
make at least $107,432 per year. Of that amount, at least $684 per week must be
paid on a salary or fee basis, with no reduction for future incentive pay. The
remainder of their income, however—nearly 67% if they make $107,432—may come
from incentive pay. If the employee does not earn enough in incentive pay to
meet the minimum by the end of the year, the employer has the same two options
as with EAP employees. They can make a catch-up payment (in this case within
one month) or retroactively remove the exemption and pay the employee for any
overtime worked during the previous year.
California, New York, and soon Washington, have laws in
place that make the minimum salary for exempt employees higher than the new
federal thresholds. Since employers must follow the law that is most beneficial
to employees, the new federal minimums would not affect employers in these
Employers will need to evaluate anyone who they currently
classify as exempt from overtime and pay less than $684 per week or $35,568 per
year. Once these employees are identified, employers will need to choose
between giving them a raise to meet the new minimum to maintain the exemption
or reclassifying them as a non-exempt and paying overtime.
We have created numerous resources to help employers navigate this decision-making process and implement changes—just search FLSA Changes in the search bar of the HR Support Center. If you are a PAYDAY client and don't have access the HR Support Center, contact your dedicated Account Manager for more information.
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