Important Changes to the Salary Thresholds for Exempt Employees by The U.S. Department of Labor

On September 24, 2019, the United States Department of Labor announced new exempt employee salary limit rules that go into effect on January 1, 2020.  Employers must ensure that exempt employees meet this threshold by January 1, 2020 or move their employees to non-exempt status making them eligible for overtime. The State of Pennsylvania has also been looking into the possibility of increasing these thresholds to even higher salary levels. A change in these state regulations came very close this year and is likely to be revisited in 2020.

The key provisions of the Federal Rules going into effect on January 1, 2020 are:

1. The standard salary level is increasing from $455/ week ($23,600 annually) to $684/week ($35,568/year for a full-year worker); and
2. The highly compensated employee salary threshold is increasing  from $100,000 to $107,432 per year.
3. Employers may use non-discretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10 percent of the standard salary level.
4. There are no automatic future increases. However, the DOL has stated the intention to upgrade the limits more regularly.
5. There was no change to the duties test.

As you may recall the U.S. Department of Labor attempted to make more sweeping changes to the exempt employee threshold in 2016 that would change the standard salary threshold to $913/week ($47,467 annually), impose automatic yearly increases, and change the duties test, but this change was eventually enjoined by a Texas Federal District Court. It is possible that this new rule will also see challenges, but with its more modest scope, it is more likely to survive those challenges.