Minimum Wage, Overtime Exemption: Labor Department Imposes Salary Threshold Hike

The new $35,568 threshold, effective January 1, 2020, is applicable to all employees who an employer seeks to classify as exempt as an executive, administrative, or professional employee.

On September 24, 2019, the U.S. Department of Labor (DOL) announced a new rule that, on January 1, 2020, will increase the salary threshold – from $23,660 to $35,568 – for employees that are exempt from minimum wage and overtime. The rule also increases the salary threshold for employees classified as “highly compensated” employees from $134,004 to $107,432.

• See Final Rule: Overtime Update (U.S. Department of Labor)

The benefits to an employer of classifying an employee as exempt employee pursuant to the Fair Labor Standards Act (FLSA) is that the employee loses certain FLSA protections, such as overtime pay, federal minimum wage pay, and applicable record-keeping requirements.

The new $35,568 threshold will be applicable to all employees who an employer seeks to classify as exempt as an executive, administrative, or professional employee. This new salary requirement is substantially higher than the current threshold of $23,660 but not as high as the 2016 proposed increase to $47,476. Although the new threshold may appear to be relatively low, the DOL anticipates that the new rule will expand overtime eligibility to approximately 1.3 million workers. In calculating the new salary threshold for the rule, the DOL applied the same methodology it used for the 2004 rule, which set the salary level at approximately the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (the South) and in the retail sector.

Employees who do not meet the work duties and responsibilities requirements set forth by the FLSA’s executive, administrative, or professional exemptions may be classified as exempt if the easier-to-meet requirements of the exemption for highly compensated employees are satisfied.

Misclassification of employees can have significant adverse consequences to an employer, including payment of unpaid back wages, liquidated damages, and attorney’s fees. Employers should review the salary levels of their employees currently classified as exempt employees to determine whether this proposed rule will impact them.

Employers should keep in mind that this rule impacts only federal classification analysis, and they remain obligated to comply with state or local rules addressing minimum wage and overtime pay requirements.