Today, as anticipated, the U.S. Department of Labor (USDOL) published its final rule raising the Fair Labor Standards Act (FLSA) salary threshold for the executive, administrative, and professional (EAP) exemptions to $35,568 per year, or $684 per week, effective January 1, 2020. This is an increase from the current $23,660 annual salary (or $455 per week).
Although possible, it appears unlikely this rule will be blocked by Congressional action or by litigation (although litigation by worker advocates has been threatened). Consequently, employers currently paying EAP-exempt employees less than $35,568 per year need to increase their salary levels or convert positions to non-exempt status for 2020.
The final rule includes a provision allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually to satisfy up to 10% of the standard salary threshold. An underpublicized feature of the new federal rule is that it formally rescinds the 2016 final rule that, although enjoined, has remained a part of the official rules published by USDOL.
The formal repeal brings certainty and clarity as to what rule is enforceable.
Significant Revisions Made in Final Rule
While the final rule is mostly consistent with the proposed rule, the USDOL made two significant revisions:
- First, USDOL revised its methodology for adjusting the highly compensated employee (HCE) total annual compensation requirement. The new threshold effective January 1, 2020 will be $107,432 annually (not the proposed $147,000).
- Second, the USDOL scrapped its proposal to update the salary threshold and EAP rules every four years. Instead, the Department simply affirmed its intent to update its EAP regulations more regularly, but without the promise of quadrennial updating.
Here is a link to the USDOL website with the 245-page final rule (including discussion of comments received), fact sheets, and FAQs
State Laws Are Not Always FLSA Identical
The increased FLSA threshold will not have much impact in certain states; for example, California, New York, and Alaska already have higher state salary threshold requirements.
Effective January 1, 2020, the California threshold for employers of 26 or more employees will increase to $54,080 per year (or $1,040 per week). Effective January 1, 2020, the New York threshold for executive and administrative exempts currently ranges from $885 to $1,125 per week ($46,020 annually to $58,500 annually) depending on size and location.
Washington state and Pennsylvania are currently considering salary thresholds in excess of the federal FLSA salary threshold for 2020.
Employers should also be aware that some state minimum wage laws lack an FLSA-identical HCE exemption; so, as a practical effect, the HCE exemption may be unavailable in certain state. Employers need to check their state law before relying solely on the FLSA HCE exemption.
Converting Employees to Non-Exempt Status?
We previously published a blog post, anticipating the FLSA salary exempt threshold increase and providing tips for employers not planning to increase their salaries to meet the federal or state thresholds for exempt positions.