The Department of Labor (DOL) has officially released a final overtime rule that raises the minimum salary amount to $35,568 to qualify for exemption under the Fair Labor Standards Act (FLSA). Employers can use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of that amount.
When does the new overtime rule take effect?
The new overtime rule takes effect January 1, 2020. If you currently have employees who earn more than $23,660/year but less than $35,568/year and are paid a salaried amount, be prepared to track hours and pay overtime wages (where applicable) or increase their salary amount to maintain exemption status as of January 1, 2020.
Does salary alone earn overtime exemption status?
Beyond having to earn $35,568/year ($684/week), a “white collar” employee must still meet one of the following exemption categories to be exempt from overtime wages: Executive, Administrative, Professional, Creative Professional, and Computer Employee.
What are the overtime exemption requirements?
In addition to being compensated on a salary basis of at least $35,568/year or $684/week, the DOL specifies that each condition must apply to qualify for one of the following exemptions:
Executive Exemption
- Primary duty: managing the company, department or subdivision.
- Regularly directs the work of at least 2+ full-time employees; and
- Has the authority to hire or fire other employees or make suggestions and recommendations as to the change of status of other employees.
Administrative Exemption
- Primary duty: performance of office or non-manual work directly related to the management or general business operations.
- Exercises discretion and independent judgment with respect to matters of significance.
Professional Exemption
- Primary duty: work requiring advanced knowledge (“predominantly intellectual in character”) and includes work requiring discretion and judgment.
- Advanced knowledge must be in a field of science or learning and be customarily acquired by a prolonged course of specialized intellectual instruction.
Creative Professional Exemption
- Primary duty: performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
Computer Employee Exemption
- Primary duty must consist of:
- The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
- The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
- The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
- A combination of the aforementioned duties, the performance of which requires the same level of skills.
What is the new minimum salary amount for highly compensated employees?
The new rule also includes an increase in the salary level for highly compensated employees to go from $100,000 to $107,432 annually. These employees may be exempt from overtime wages if:
- They’re paid at least $684/week as part of their minimum $107,432;
- Their primary duty is office or non-manual work; and
- They customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.
Are there any exemptions to overtime that don’t have a minimum salary requirement?
There are several FLSA exemption categories that don’t have minimum salary amounts, including Outside Sales Exemption, seasonal and recreational establishments, farmworkers, some drivers (and driver helpers), commissioned sales employees, and computer professionals. Learn more about these exempt categories here.
How do I prepare for the new overtime rule to take effect?
The DOL estimates more than 1.3 million workers will be eligible for overtime pay as a result of this final rule. If you are unsure whether or not an employee should be classified as exempt or need guidance with the transition, please contact your HR Consultant.
Related articles: