It’s never too early to start planning for next year and the new federal overtime rule that takes effect January 1, 2020.
Starting next year, the minimum salary requirement for employees classified as salaried exempt under the executive and administrative white collar minimum wage and overtime exemptions will be $684.00 per week, or $35,568 per year. Employees earning less than that who are not covered by another overtime exemption (such as outside sales or the motor carrier overtime exemption) will be entitled to overtime pay. This change represents a significant increase from the current threshold of $455.00 per week or $23,600 per year, which DOL has not revised since 2004. The new rule also allows employers to apply non-discretionary bonuses or incentive payments, including commissions, towards up to 10% of the minimum salary requirement.
The Obama Administration attempted an even larger increase, but that proposal failed after the Trump administration walked away from a legal challenge, declining to defend the rule change. The new rule is a more modest one-time change, which the Department of Labor estimates will make approximately 1.3 million salaried workers eligible for overtime pay in the new year.
Maine is already ahead of the curve because it increased the salary threshold pursuant to a people’s referendum in 2016, as we previously discussed. Under that law, January 1 will usher in another increase in Maine, raising the minimum salary requirement from $33,000 to $36,000 per year, slightly more than the new federal rule. Unlike the new federal rule, Maine does not allow employers to apply nondiscretionary bonuses or other incentive payments toward the minimum salary requirement.
New York also previously enacted its own salary threshold that exceeds the new federal level. Many other states have either no minimum or very nominal salary thresholds, which means in those states, the new federal rule will set the bar. Among the states that will be subject to the new federal rule because they do not have a more generous state law are Rhode Island, New Hampshire, Vermont, and Connecticut.
We encourage our clients to start reviewing their salary structure now to determine if any salaried employees will no longer be exempt. We are available to strategize on potential changes and best practices to consider.
Please also keep in mind that in addition to satisfying the minimum salary, an employee must also satisfy the job duties test to be exempt from overtime pay under the white collar overtime exemptions.