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It has been 15 years since the salary threshold for “white collar” and “highly compensated” overtime exemptions was last set. On September 24, 2019, following up on a proposed rule issued earlier this year, the U.S. Department of Labor issued a rule to raise the compensation bar effective January 1, 2020.

The current minimum salary (or fees) level required for white collar exemptions — for workers defined as executive, professional, administrative and computer employees—is $455 per week ($23,660/year; $1,971/month; $910/biweekly). The new minimum compensation level for these exemptions is $684 per week ($35,568/year; $2,736/month; $1,368 biweekly).

The current level for the “highly compensated employee” exemption is $100,000 per year of total compensation. The new minimum level for the HCE exemption is $107,432 per year.

The DOL estimates the rule change will reclassify an estimated 1.2 million workers currently exempt from federal overtime requirements and may result in a pay increase for others over the new threshold.

The new rule also permits employers to use nondiscretionary bonuses and incentive payments, such as commissions, that are paid annually or more frequently, to satisfy up to 10% of the standard compensation level. The new rule also revises special compensation levels for workers in U.S. territories and in the motion picture industry.

The rule change presents employers with challenges and opportunities. Employers should act now to develop plans to reclassify or modify impacted positions currently classified as exempt from overtime. Employers should audit their current minimum salary or fees level of compensation as well as payroll deductions from salary, fees, or commissions to ensure compensation paid meets the bona fide compensation test. Employers must be prepared to resolve potential problems created with respect to other employees if the employer decides to increase salary or fees to retain the exemption.

Employers sometimes have categories of employees who are misclassified as exempt from overtime even if paid the current correct level of compensation. This usually occurs because exemption rules are difficult to navigate. Misclassification carries significant risk in that employers are effectively held strictly liable for misclassifying employees. The new rule presents an opportunity to take care of existing misclassification issues without raising a red flag.

As part of the overtime exemption evaluation, employers also should audit compliance with the various “duties tests” for overtime exemptions. As part of the evaluation, employers should audit job descriptions as well as how the actual work is performed by all employees classified as exempt.