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Salary Increase for White-Collar Overtime Exemption Takes Effect January 1

    Client Alerts
  • September 30, 2019

Last week, the U.S. Department of Labor’s Wage and Hour Division adopted final regulations revising the salary requirements for employers that claim the executive, administrative, or professional exemptions from the minimum wage and overtime provisions of the Fair Labor Standards Act. The new minimum annual salary will increase from the current $23,660 level to $35,568 (or $684 per week) and, absent judicial intervention, will take effect January 1, 2020.

The final rule follows similar regulations issued under the Obama administration, which would have increased the minimum salary to $47,476. Those rules were enjoined by a federal court shortly before they took effect. The Trump DOL withdrew those regulations in favor of a March proposal that favored a less drastic increase. The new salary level is the same as that contained in the proposed rule.

Non-discretionary bonuses can make up to 10 percent of the required salary level. If the employee does not earn enough of a bonus to reach the minimum salary, the employer will have an opportunity to make a catch-up payment by the first pay period following the end of the year. DOL did not make any changes to the duties tests for the exemptions.

The final rule also increases the minimum annual salary for the highly compensated exemption from $100,000 to $107,432, a substantially lower amount than that contained in the March proposed rules. This salary level allows employers to claim exempt status for employees who meet some but not all of the duties requirements for the white-collar exemptions. 

The Obama DOL regulations would have included annual increases in these minimum salaries tied to inflation. The March proposed rules discarded this automatic increase in favor of a scheduled review of the salary levels every four years. The final regulations deleted this requirement, meaning that there is no mechanism for revisiting the salary levels on a specific schedule in future years.

The current minimum salary has been significantly eroded by inflation, and business interest groups did not raise many objections to the revised increase. Practically, the large majority of salaried exempt workers already make more than the new minimum, with the notable exception of many employers in the nonprofit sector. For exempt employees who do not earn the new minimum, employers have the choice of increasing salaries or reclassifying them as non-exempt and paying overtime where applicable.