In September, the United States Department of Labor published the final rule raising the minimum amount of salary required to be paid to exempt executive, administrative and professional employees under the Fair Labor Standards Act. This rule goes into effect January 1, 2020.
The new minimum salary will be $684 per week, which is equivalent to $35,568 annually. The $684 per week may be paid in equivalent amounts for periods longer than a week: bi-weekly–$1,368, semi-monthly–$1,482 and monthly–$2,964.
In general, the Fair Labor Standards Act (FLSA) requires covered employers to pay employees, working more than 40 hours in a workweek, an overtime premium. There are a number of exceptions to this rule. One exception is sometimes referred to as the “white collar” or “EAP” exemption. To meet this exemption three things are required. First, the “duties test,” under which an employee’s job must primarily involve executive, administrative or professional duties, must be met. Second, the employee must be paid a predetermined fixed salary not subject to reduction for such things as hours worked in the workweek, the “salary basis test.” Third, the amount of the salary must meet a certain amount under the “salary level test.” This third test is impacted by the new rule. The new rule does not change the “duties test.”
The salary level and salary basis tests do not apply to certain employees, including: outside sales employees, doctors, lawyers, teachers and certain computer occupations.
There are special salary levels established for employees in U.S. Territories. There is also a special base rate for those in the motion picture producing industry.
The new rule allows up to 10% of that salary to be made up of non-discretionary bonuses, incentive payments and commissions, if paid at least annually. If an employer is using commissions, non-discretionary bonuses and incentive payments to meet the salary level, then the employee must be paid at least 90% of the level in any week in which the employee performs any work.
There is also a catch-up rule if an employee does not earn sufficient bonuses, commissions or incentive payments to meet the required salary level in the 52-week period. The catch-up payment is made within one pay period after the end of the 52-week period. (This catch-up payment will only count toward the prior 52-week period; it may not count toward the amount in the period in which it is paid).
Additionally, the 2004 version of the rule incorporated a Highly Compensated Employee (HCE) test. This combined a modified duties test with a higher level of compensation, at the time $100,000, for an employee to be considered exempt. The new rule sets the level of compensation for the HCE test at $107,432. Thus, to fall within this exemption, the employee must be paid on a salary basis; customarily and regularly perform one or more of the exempt duties of an executive, administrative or professional employee; and be paid $107,432 annually. The HCE test does not allow employers to credit nondiscretionary bonuses, commissions or incentive payments toward the salary level requirement.