Salary Limits Increased for Overtime Exemptions
Beginning January 1, 2020, employers in the United States will be required to increase the salary paid to executive, administrative and professional employees, and other highly compensated employees above a new minimum level, or the employees will be entitled to receive time and one-half their hourly rate for all hours worked over 40 per week. Executive, administrative, or professional employees ("EAP"), outside salespeople, and certain computer employees must be paid at least $684 per week or $35,568 per year in order to be exempt from overtime. Highly compensated employees who do not qualify as EAP employees are exempt from overtime if they earn $107,432 per year or more.
This new overtime rule will allow employers to use up to ten percent of an employee's non-discretionary bonuses to satisfy the salary level requirements if the employee receives this incentive pay at least once during a given year or a 52-week period. If the non-discretionary bonuses are not enough to meet the salary level requirements to obtain an overtime exemption, the employer is permitted to make a "catch up payment" within one pay period at the end of the 52-week period to avoid losing that employee's exempt status. However, this catch up payment applies only toward the prior years' salary, not toward the salary amount in the year in which it is paid.
As MacDonald Illig has pointed out in previous client alerts about this topic, employers have a range of options for responding to this new overtime rule. If an employee is newly entitled to overtime pay, an employer may:
- Increase the salary of the employee who meets the duties test to at least the new salary level to retain exempt status;
- Pay an overtime premium of one and on-half times the employee's regular rate for any overtime hours worked;
- Reduce or eliminate overtime hours or implement controls to limit overtime hours;
- Reduce the amount of pay allocated to base pay (provided that employees still earn the applicable hourly minimum wage, and add pay to account for overtime for hours worked, thereby holding total weekly pay constant; or
- Some combination of the above.
Nothing in the new rule requires employers to change employees' pay to hourly from salaried even if an employee's classification changes from exempt to overtime eligible.
If you have questions about the impact of the new overtime rule or how to implement any of the requirements mentioned above, contact a member of MacDonald Illig's Employment and Labor Practice Group.
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