On September 24, 2019, the U.S. Department of Labor announced a new final rule that will, for the first time in 15 years, increase the salary threshold necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. Effective January 1, 2020, the “white collar” salary level will increase from $455 per week ($23,660 annually) to $684 per week ($35,568 annually). In addition, the total annual compensation level for highly compensated employees (HCEs) to be exempt from the FLSA’s minimum wage and overtime requirements will increase from $100,000 to $107,432 per year on the same date. As a result, white collar employees earning less than $35,568 and HCEs earning less than $107,432 will become eligible for overtime under the FLSA on January 1, 2020. The Department of Labor expects that these changes will cause an estimated 1.3 million workers to become newly entitled to overtime protection. In determining whether a white collar employee or HCE meets the salary requirement, the new rule allows employers 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.
Employers should remember that for an employee to qualify as a “white collar” employee exempt from overtime, he or she must not only be paid at or above the applicable weekly salary level, but must also satisfy the applicable duties test. For example, among other things, executive employees must manage the employer’s business or a department or subdivision; administrative employees must exercise discretion and independent judgment; and the work of professional employees must require advanced knowledge in a field of science or learning usually acquired by prolonged, specialized intellectual instruction and study. Employees paid on a salary basis who do not otherwise meet one of these tests, or qualify for another applicable exemption, must be paid overtime for all hours worked over 40 in a workweek.
While significant, these changes will have limited impact on employers in New York and other states that already impose higher salary levels for the “white collar” overtime exemptions. For example, the current exempt salary level for executive and administrative employees in New York is already higher than both the current and the proposed new federal salary levels – ranging from $832 per week ($43,264 annually) to $1,125 per week ($58,500 annually), depending on the employer’s size and location. However, New York does not have a salary level for professional employees and, therefore, the federal salary level requirement applies to professional employees in New York. (Certain professional employees are exempt from the federal salary level requirement, such as teachers, lawyers and doctors.).
In preparation of the scheduled federal salary level increase and to ensure compliance with the New York salary level, employers should review their “white collar” employees’ salary levels, and determine if any adjustments are or will be necessary to meet the applicable current or future federal or State salary level test.