On September 24, 2019, the U.S. Department of Labor announced a final rule modifying the earnings thresholds necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. The rule also allows employers to count a portion of certain bonuses/commissions towards meeting the salary level. The thresholds were last updated in 2004, though the DOL briefly adopted more significant changes—which never took effect—in 2015.
The final rule makes the following changes:
- It raises the “standard salary level” from the current level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
- It raises the total annual compensation requirement for “highly compensated employees” from the current level of $100,000 per year to $107,432 per year;
- It allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10 percent of the standard salary level; and
- It revises the special salary levels for workers in U.S. territories and the motion picture industry.
The final rule is effective on January 1, 2020.
California employers will largely be unaffected by this change, since California’s higher minimum wage results in a higher salary threshold for exempt employees in the state ($49,920 effective January 1, 2020 for employers with 25 employees or less; $54,080 for employers with more than 25 employees). Moreover, unlike federal law, California does not recognize a “highly compensated employee” exemption and does not permit bonuses, commissions, and incentives to be counted in reaching the minimum salary thresholds for exempt status. As a reminder, the duties test in California is also more strict than under federal law, since it requires an exempt employee to spend more than 50 percent of the employee’s time performing exempt duties each workweek.
Employers who are not subject to California’s minimum wage will need to review their compensation plans to ensure exempt employees are still properly classified after the final DOL rules takes effect January 1.
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