The Department of Labor has finalized its new salary thresholds applicable to an employer’s obligation to pay overtime and minimum wage. Beginning on January 1, 2020, white collar employees who earn less than $684 per week will not qualify for the executive, administrative, or professional employee exemption, and therefore will be entitled to those protections. The Department estimates that the higher salary thresholds will create approximately 1.3 million additional eligible employees.

As we described here previously, the Department acknowledged earlier this year that the current thresholds are outdated, and sought to expand the eligibility for overtime to additional employees. The Department has long used a salary level test, as well as a duties test, to define who is a bona fide executive, administrative, or professional (“EAP”) employee who is exempt.

Effective January 1, 2020, the standard salary level for the EAP exemption will be $684 per week ($35,568 per year), with special salary levels applicable to employees in U.S. Territories. The final rule will allow employers to satisfy up to 10% of the standard or special salary levels with nondiscretionary bonuses or incentive payments, including commissions, provided that such payments are paid no less frequently than on an annual basis. Employers may meet the salary level requirement by making a catch-up payment within one pay period of the end of the 52-week period.

“Highly compensated” employees (“HCEs”), who receive a certain (higher) amount of compensation and meet a less-stringent duties test, also are exempt from federal overtime and minimum wage requirements. The Department’s final rule establishes the new HCE total annual compensation level at $107,432. While highly compensated employees still must receive at least the standard salary amount, described above, each pay period, without regard to the payment of nondiscretionary bonuses and incentive payments, those amounts may still be counted toward the HCE total annual compensation requirement. As above, final catch-up payments continue to be permissible.

The Department intends to update these thresholds “more regularly” in the future, in response to economic conditions and through notice-and-comment rulemaking. However, the Department declined to commit to a strict schedule. (It had considered committing to update the thresholds every four years.)

As a reminder, the current standard salary threshold is $455 per week ($23,600 per year), and the current HCE annual threshold is $100,000. Under the previous presidential administration, the Department sought to raise the thresholds higher than the recent final rule, but that attempt was blocked by the courts.

Some states may impose higher standards for an exemption from their wage/hour laws, and in those states an employer must comply with those higher standards.