DOL Increases Salary Basis Test for Exempt Workers

By Haley Morrison

After five years of fits and starts — which we covered here, here, here, and here — the federal Department of Labor (DOL) has finalized its regulations related to the salary basis test for the so-called white collar exemptions to overtime.

Effective January 1, 2020, the salary basis will increase from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). In other words, in order to properly be classified as an exempt “white collar” worker, the employee must earn at least this much, and still satisfy the “duties” tests that accompany the various exemptions.

The salary basis for exempt “highly compensated” employees also has been raised, from $100,000 per year to $107,432.

Also as of January 1, 2020, employers may include nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually, to satisfy up to 10% of the standard salary level.

With regard to the salary basis, employers must pay their exempt employees the higher of the state versus federal amount. In both Oregon and Washington, the state salary basis levels are lower than the new federal test. As such, except in limited circumstances, Oregon and Washington employers must follow the $684/week federal rule to maintain the exemption.

For California employers, however, the state salary basis is two times the minimum wage, which currently means $49,920 per year. Since that is higher than the federal test, employers must pay at least $49,920 per year to a California exempt employee.

What does this mean for your business? In anticipation of the January 1 effective date, employers should review their workforce to determine which employees currently classified as exempt make less than the minimum threshold of $35,568 (or, in California, $49,920). Those employees will either need a raise in their compensation in order to remain exempt, or be reclassified as non-exempt, and thus be eligible for overtime. In the latter circumstance, companies should message the transition carefully, and implement processes for the reclassified employees to start tracking their time. The workers who were formerly exempt may also need training regarding when and how they work, e.g., not working from home in the evening, or responding to emails in their “off duty” time. Employers should also review their policies and practices related to overtime work, and assess the potential financial impact of having additional overtime-eligible employees.

This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have further questions on this topic, please email a member of our Labor & Employment Practice Group, or the attorney with whom you normally consult.

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