Mid-Atlantic Health Law TOPICS

The Department of Labor’s (DOL) final rules implementing new salary thresholds for overtime exemption become effective January 1, 2020.

To be exempt from being paid overtime at 1.5 times the regular rate to the extent an employee works more than 40 hours per week, an employee must satisfy two tests: (1) the employee’s primary duties must involve those executive, administrative or professional duties set forth in DOL’s regulations (so-called white- collar duties), and (2) the employee must be paid on a salary basis at or above a minimum level (except for physicians, lawyers and teachers, who are exempt regardless of whether they are paid a salary or the level of that salary).

A. New Salary Thresholds

Under current regulations, the minimum salary level is $455 per week ($23,660 per year for a full-time worker). The new rule is $684 per week ($35,568 per year). 

Such a higher threshold could be significant for many industries, including health care. For example, some presently exempt salaried managers may make more than $23,660 per year, but less than $35,568 per year.

In addition, some people who do not meet all of the existing white-collar duties tests are still currently exempt if they make at least $100,000 per year. Now, the DOL is raising that threshold to $107,432.

B. Computer Employees

The salary threshold for computer employees to be exempt will also be raised to the white-collar level of $684 per week ($35,568 per year). Alternatively, employers may pay exempt computer employees at the rate of $27.63 per hour, which is the hourly rate under the current regulations. Potentially exempt computer employees include computer systems analysts, computer programmers, software engineers and other similarly skilled workers in the computer field.

C. Bonus Payments and Commissions

The final rule will permit employers to count “non-discretionary” bonus and incentive payments (including commissions) that are paid at least annually to satisfy up to 10% of the standard salary level. Most such payments will be considered “non-discretionary” when the employer states in advance that it will make the payment if the employee fulfills specified conditions.

If an employee does not earn enough non-discretionary bonus or incentive payments in a given year (52-week period) to obtain exempt status, the DOL rule will permit employers to make a “catch-up” payment. Such payments must be made within one pay period of the end of the 52-week period. The payment may be up to 10% of the total standard salary for the preceding 52-week period and may only be counted toward the prior year’s salary amount, not toward the salary amount in the year in which it is paid.

D. What Should Employers Do?

Employers should review the status of all employees currently classified as exempt from overtime pay who make less than the new salary thresholds for white-collar, highly compensated and computer employees. Employers have a number of available options to address the changes, including:

(1) Raising salaries and/or adjusting non-discretionary bonuses or incentive payments to retain exempt status;

(2) Reorganizing workloads and/or adjusting schedules to avoid (or limit) non-exempt employees from working more than 40 hours in a week;

(3) Converting the employee to an hourly rate;

(4) Paying a fixed salary, which covers the straight time pay for a fluctuating number of hours per week pursuant to DOL regulations (under this method, overtime for hours worked over 40 in a week is paid at 0.5 times the employee’s fluctuating regular rate); and

(5) Setting a salary and paying overtime (at 1.5 times the regular rate) for work over 40 hours per week that will result in paying the employee about the same amount (for a projected number of hours) as the employee had previously been paid.

Charles R. Bacharach
(410) 576-4169 • cbacharach@gfrlaw.com