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Effective January 1, 2020, the minimum salary threshold for the executive, administrative, and professional exemptions (EAP exemptions) under the Fair Labor Standards Act (FLSA) will increase from $455 a week ($23,660 annually) to $684 a week ($35,568 annually).  In announcing this final rule, the Department of Labor (DOL) estimates it will make 1.3 million American workers newly eligible for overtime pay. [1]

In order to qualify for one of the EAP exemptions from overtime, employees must meet both the minimum salary threshold and the applicable exempt duties test, which includes a list of primary duties the employee must perform.  The duties test was not changed by the new final rule.

Employers with employees currently treated as EAP exempt whose salary falls below the new minimum salary threshold of $35,568 annually must either reclassify those positions as non-exempt and eligible for overtime pay, or raise employees’ annual salary above the minimum salary threshold before the January 1 effective date.  Failure to do so will result in those employees no longer satisfying the tests for exemption from overtime pay and will expose employers to significant liability.

Other notable changes that will be rolled out as part of the final rule include increasing the minimum annual compensation for the highly compensated employee exemption and permitting employers to credit nondiscretionary bonuses and incentive payments toward the EAP minimum salary threshold.  In particular, the minimum annual salary threshold for highly compensated employees will increase from $100,000 to $107,432.  When the new rule goes into effect, employers can use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the minimum salary level for the EAP exemptions. If an employee’s salary plus nondiscretionary bonus, incentive, and commission payments is less than the required salary amount at the end of the 52-week period, employers may make a final catch-up payment within one pay period after the end of that 52-week period. The catch-up payment counts only toward the prior year’s salary amount, not the salary amount for the year it was paid.

The DOL abandoned the previously proposed automatic increases to the minimum salary thresholds, but has indicated they will be updated more frequently through public rulemaking.

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