Last week the U.S. Department of Labor (USDOL) announced that the new salary level test for the administrative, executive, and professional employees exemptions from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”) would become effective on January 1, 2020. On and after that date, for an employee to satisfy the requirements of one of those exemptions (commonly known as the “white collar” exemptions), they must be paid a salary of at least $684 per week, or $35,568 per year. A new compensation standard for an employee to qualify for the highly compensated exemption will also take effect on that date. That new standard is the payment of a minimum of $107,432 in total annual compensation, at least $35,568 of which must be in the form of a salary.
The above salary and total compensation levels are different than the ones initially proposed by the USDOL in March of this year. The salary level for the three “white collar” exemptions was increased slightly from $679 a week, or $35, 308 a year, while the total compensation level for the highly compensated exemption was significantly reduced from the proposed $147,414 a year. Perhaps, most importantly, the ability of an employer to pay up to 10% of the required salary level in the form of an annual nondiscretionary bonus or incentive payment, including commissions, was retained. The ability of the employer to make a “catch up” payment of up to 10% of the required salary level during the first pay period of the following calendar year, if the salary paid to the employee during the calendar year was not sufficient to satisfy that requirement, also remains.
As noted in my earlier blog post on the proposed rule, those two changes from the exiting rule will give employers more flexibility. They will now be able to wait until near, or even after, the end of the calendar year to determine the mix of nondiscretionary bonuses and incentive payments that may be needed to meet the minimum salary requirement for the employees they want to treat as exempt from the FLSA’s overtime pay requirements. This flexibility will become even more important as the required salary level rises in the coming years. It has been 16 years since that level was last increased, and the USDOL has announced its intention to “more regularly” update it going forward.
The USDOL estimates that the new salary level will affect 1.3 million workers who meet the current minimum salary requirement under the affected exemptions, but do not meet the new salary level requirement. Agency owners need to determine if any of their employees fall into this group of workers and if so, what they will do about it. In making this determination, agency owners must keep in mind that just paying an employee the required minimum salary will not qualify them as exempt from the FLSA’s overtime pay requirements. The employee must also meet the job duties requirements of one of the above exemptions, which have not changed. Whether customer service representatives and producers would meet any of those requirements was a subject I addressed in a few blog posts in 2016 (click here for the last such post which has links to previous posts).
The USDOL has issued an opinion letter that describes in great detail what is required for customer service representatives to qualify for the administrative employee exemption (click here for an explanation of the opinion letter). Unfortunately, no such opinion letter exists for producers. Their most likely exemption is the highly compensated employee one, but that would require the payment of a salary of at least $35,568 and total annual compensation of at least $107,432. The producer could no longer be compensated on a commission only basis, which many agency owners will not like, and many producers will probably not make the required minimum amount of compensation, in any event.