The Department of Labor recently announced a change to its rules as to who is completely exempt from overtime. The Rule change will become effective January 1, 2020. This exemption is in regards to employees that are totally exempt from overtime and not the partial overtime exemption that is available to gins on a seasonal basis.
Under the current (old) rule, to be exempt an employee has to make at least $455 per week ($23,660 annually) paid on a salary basis. The New Rule changes that to a minimum $684 per week ($35,568 annually) also paid on a salary basis. The rest of the rules remain the same. The Obama administration had proposed a similar rule change but that was blocked by the courts and ultimately repealed. That previous (Obama era) proposal was to increase it to $913 per week. This seems much more reasonable (almost exactly half way).
As a refresher, in order for an employee to qualify for this total exemption from overtime, often referred to as the “administrative exemption”, the employee must meet three criteria. The first is to be paid on a salary basis. This means the employee must be paid the same amount each week or pay period. Salaried employees ARE NOT automatically exempt. Salaried-Non Exempt employees is the subject of a whole other article.
The second test is that of how much the employee makes. As mentioned earlier, this is what is changing. Beginning January 1, 2020, in order for an employee to qualify for the exemption, they must make at least $684 per week. Ninety percent of that must be in base salary and ten percent can come from bonuses or fees.
The third test (duties) is the one that is most often overlooked or misunderstood by small business. To qualify, the employee must have as their “primary duty” one of a handful of duties. These include Executive, Administrative, Professional, Computer, or Outside sales. For small business the most common are the administrative employees.
To qualify for the administrative employee exemption under the standard test, all of the
following duties requirements must be satisfied:
• The employee’s primary duty must be the performance of office or non-manual work
directly related to the management or general business operations of the employer or the
employer’s customers; and
• The employee’s primary duty must include the exercise of discretion and independent
judgment with respect to matters of significance.
The Department of Labor has laid all this out on its page about the rule change. https://www.dol.gov/whd/overtime2019/ is a dedicated site with resources that should help employers understand the tests that the Wage and Hour division will be looking at if you get audited.
If you are confused by anything here, please don’t hesitate to call.