Earlier this month, the Department of Labor (DOL) finally announced the new minimum salary for exempt white-collar employees. These new minimums will take effect on January 1, 2020. Read on for everything you need to know about the new ruling!
Exempt Executive, Administrative, Professional and Computer Employees (EAP)
Under this rule, employers must pay salaried exempt EAP employees 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”). However, employees must receive these payments 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.
- 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, but 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. (But who are still highly compensated!) For example, a highly-paid employee who does not qualify due to their job duties.
Employees classified as exempt under the HCE exemption must make at least $107,432 per year. Of that amount, employers must pay them at least $684 per week on a salary or fee basis, with no reduction for future incentive pay.
However, the remainder of their income may come from incentive pay. (For perspective, this can be up to nearly 67% if they make $107,432!)
And 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:
- Make a catch-up payment (in this case within one month).
- Retroactively remove the exemption and pay the employee for any overtime worked during the previous year.
California, New York, and soon Washington have laws in place that make the minimum salary for exempt employees higher than the new federal thresholds. Since employers must follow the law that is most beneficial to employees, the new federal minimums will not affect employers in these states.
Employers will need to evaluate any employees currently classified as exempt from overtime and earning less than $684 per week or $35,568 per year.
Once employers identify these employees, they will need to make a decision. Employers can either give these employees a raise to meet the new minimum salary to maintain their exemption or reclassify them as non-exempt. If they choose to reclassify, employers will also need to begin paying these employees overtime.
Even though navigating through these laws can be tricky, don’t forget that SDP is here to help keep you compliant. As an SDP client, you receive free access to our HR Support Center full of guides, checklists, and HR insights into this latest DOL ruling and anything else you may need help with!
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