The Department of Labor (DOL) announced a new salary threshold that increases the minimum annual salary for exempt positions from $23,660 ($455 per week) to $35,568 ($684 per week). According to the DOL, this threshold is estimated to make 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act (FLSA). A similar change was supposed to take effect in 2016, but the rule was enjoined at the last minute before the effective date.
As we saw with the 2016 rule, employers can include up to 10% of an employee’s salary from non-discretionary bonuses, incentives and commissions in meeting the salary threshold. These payments must be paid at least annually. There will be no changes made to the FLSA’s “duties test.” This rule will take effect January 1, 2020.
Employers should start reviewing their compensation structures for the impact this will have. Employers may need to increase employee salaries, move some employees from exempt to nonexempt and consider any overtime they may now accrue, look at incentive options, restructure work to eliminate or minimize overtime, or a combination of these actions.
Employers should also watch out for wage compression which can occur if employers increase employee pay and salary range minimums, similar to what happened when Oregon changed its minimum wage law.
If your organization needs to evaluate its salary structure for the new overtime rules, Cascade is here to help. We offer extensive compensation services to ensure your organization is competitive and compliant.