The U.S. Department of Labor’s final overtime rule, published September 27, 2019, raises the standard salary threshold for executive, administrative and professional exemptions from $455 to $684 a week, effective January 1, 2020. The new level is $35,568 over a full year. For small employers using bonuses or commissions, the rule also offers a limited way to count those payments toward the threshold—but requires most of the amount to arrive as salary and gives employers only one pay period to make up an annual shortfall. [S1]
Payroll budgets based on the March proposal need a small correction. The proposed standard was $679 a week, or $35,308 annually; the final figure is $5 a week higher. The proposal already contemplated an annual bonus credit. September’s final rule keeps that approach, rather than turning the entire salary requirement into an annual earnings test. [S1][S3]
Meeting the dollar threshold does not settle an employee’s classification. The standard exemption generally also requires payment on a salary basis and qualifying job duties, and the final rule leaves the duties tests unchanged. The rule’s background notes that some occupations, including teachers, doctors, lawyers and outside sales employees, are not subject to these salary tests. More protective state rules also remain a separate consideration. A business should not treat $35,568 as a universal line separating every exempt employee from every overtime-eligible employee. [S1]
Under the new standard-salary provision, nondiscretionary bonuses, incentives and commissions paid at least annually can satisfy up to 10 percent of the threshold. Employers must still pay at least 90 percent on a salary basis. Discretionary bonuses, benefit contributions, board and lodging cannot fill the gap. The cap limits the amount credited toward the threshold, not the total bonus an employee may receive. This credit does not apply to the separate highly compensated employee exemption, which retains the full $684 weekly salary-or-fee minimum. [S1]
For illustration, a full-year employee paid at the minimum salary portion would receive $615.60 a week in salary: 90 percent of $684. Over 52 weeks, that produces $32,011.20 in salary and leaves $3,556.80 to be met through qualifying payments. Those figures illustrate the salary-level calculation only; they do not establish that a particular employee passes the duties or salary-basis tests. Promising a bonus is not the same as paying enough to meet the annual requirement. [S1]
If salary and qualifying payments fall short by the last pay period of the designated year, the employer may make a final catch-up payment no later than the next pay period after year-end. That payment counts only toward the prior year, not the year in which it is paid. For a business relying on incentive pay, that is a reason to reconcile payroll before year-end. The same payment cannot close the old year’s gap and fund the new year’s minimum. [S1]
Employers may choose any 52-week period, such as a fiscal year or an employee’s hiring anniversary. Without another period identified in advance, the calendar year applies. Employees hired after the period begins or leaving before it ends can qualify on a prorated amount based on weeks employed. When employment ends, the rule allows a final catch-up within one pay period after departure; an employer whose annual bonus date falls later cannot wait until then. [S1]
Source documents
- Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees — Final rulehttps://www.govinfo.gov/content/pkg/FR-2019-09-27/html/2019-20353.htm
- Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees — Proposed rulehttps://www.govinfo.gov/content/pkg/FR-2019-03-22/html/2019-04514.htm