Updated: Dec 26, 2019
Here we go again…we think. The Department of Labor’s new wage and hour rules will be going into effect January 1, 2020 and will raise the standard salary level, the compensation level for highly compensated employees, and allow some additional compensation to be included in the calculations.
Similar changes were proposed three years ago, however just days before taking effect, the courts put a stop to their implementation. This time it looks like the rules are here to stay, and frankly, it’s about time.
The biggest impact will be made by raising the standard salary level from $455 to $684 per week, which is equivalent to $35,568 annually. This means employees classified as exempt under the Executive, Administrative and Professional Employee exemptions must make at least $684 a week to qualify for the salary part of the exemption. The “duties test” has not changed.
Additionally, the DOL will now allow employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10% of the standard salary level.
These changes are good for a few reasons.
First, the last time the salary level was increased was 2004. While the cost of living has increased substantially since then, the salary threshold for exempt employees has not.
Second, the prior proposed changes from 2016 would have more than doubled the standard salary level. This would have been a very hard pill to swallow for many businesses, and in particular small businesses. The new rules make the increase in salary level much more practical.
Finally, the new rule will give some flexibility to employers by being able to include nondiscretionary bonuses and incentive payments/commissions in the salary level, which will not reduce how much an exempt employee can make, but take into consideration more of the income paid by the employer.
Before the new year, employers need to evaluate their workforce and ensure that any exempt employee is making at least $684 during a workweek. The salary must still be earned on a weekly basis without any reductions due to the quality or quantity of work performed.
If employees are not making this amount, there are a few options employers must take into consideration before 1/1/20:
· Pay employees at least $615.60 per week, and ensure the other 10% is paid in nondiscretionary bonuses or incentive payments (including commissions)
· Increase their pay to at least $684 per week
· Convert them to an hourly employee and ensure they are paid overtime for any hours worked over 40 in a workweek
Employers must also take into consideration the impact on employees already making this amount and the “raises” other employees may be getting to qualify them for the exemption status.
Should employees covered by the Fair Labor Standards Act not meet the standard salary level, they must receive at least time and a half the regular rate of pay for all hours worked over 40 in a workweek.
Other changes made with the implementation of the new rules include increasing the compensation level for “highly compensated employees” to $107,432 annually and additional changes to salary levels for workers in US territories and the motion picture industry. You can review the details of the changes, as well as specific rules regarding the treatment of nondiscretionary bonuses and incentive payments, by clicking here.
In the end, the changes to the wage and hour regulations have been a long time coming and will benefit employees, while still making it reasonable and manageable for the employer.