The Department of Labor has announced the new minimum salary for certain exempt white-collar employees. The final rule is very close to the proposed rule we reported on in March. The new minimums will take effect January 1, 2020.

Exempt Executive, Administrative, Professional and Computer Employees (EAP)

Salaried exempt EAP employees must be paid at least $684 per week on a salary basis (an increase from the current minimum of $455 per week). This is the equivalent of $35,568 per year.

Up to 10% of this minimum may come from non-discretionary bonuses, incentive payments, and commissions (collectively, “incentive pay”), so long as these payments are received on at least an annual basis. If an employee does not earn enough incentive pay to meet the minimum by the end of the year, the employer has two options: pay the difference with a “catch-up” payment within one pay period after the end of the 52-week year, or retroactively remove the exemption and pay the employee for any overtime worked during that same year.

Teachers, practicing lawyers, practicing doctors, and outside salespeople are exempt from these minimums under federal law, though may be subject to state minimums.

Exempt Highly Compensated Employees (HCE)

The HCE exemption is intended for employees who don’t quite qualify for the EAP exemptions due to their job duties, but who happen to be paid extremely well. This exemption is used much less commonly than the others.

Employees classified as exempt under the HCE exemption must make at least $107,432 per year. Of that amount, at least $684 per week must be paid on a salary or fee basis, with no reduction for future incentive pay. The remainder of their income, however—nearly 67% if they make $107,432—may come from incentive pay. If the employee does not earn enough in incentive pay to meet the minimum by the end of the year, the employer has the same two options as with EAP employees. They can make a catch-up payment (in this case within one month) or retroactively remove the exemption and pay the employee for any overtime worked during the previous year.

State Law

California, New York, and soon Washington have laws in place that make the minimum salary for exempt employees higher than the new federal thresholds.

Multistate employers may be able to apply the new FLSA rule in some jurisdictions, but not others. These employers should consider compliance for those states that have laws in place that make the minimum salary for exempt employees higher than the new federal threshold. A separate compliance program that meets the requirements for the rest of the country can be used. This type of an approach will permit an employer to meet the most generous policy requirements for all locations and be compliant with both state law and the FLSA, which would make it more cost effective.

The general rule in employment law is that businesses must comply with the rule that provides the most protection for the employee. In states that have their own exemption tests— i.e. California—the employer must satisfy whichever salary threshold is greater, whether it’s the federal or state rate.

What Now?

Employers need to evaluate anyone who they currently classify as exempt from overtime and pay less than $684 per week or $35,568 per year. Once these employees are identified, employers need to choose between giving them a raise to meet the new minimum and maintain the exemption or reclassifying them as non-exempt and paying overtime. This is an example of a conversation we would be having with you if you are taking advantage of HR Advisor with Payroll Network. We offer assistance with guidance, planning options, and recommendations on reviewing potentially affected positions to ensure compliance with the DOL’s proposed overtime rules.

We have also created numerous resources to help employers navigate this decision-making process and implement changes—just search FLSA Changes in the HR Support Center.

Please reach out to HRadvisor@payrollnetwork.com if you are interested in learning more about how we can help your company handle Human Resources support.