New DOL Rule Increases Salary Basis Threshold
Employers may need to give some exempt employees a raise come 2020. This week, the federal Department of Labor (“DOL”) released its new Final Rule on the minimum salary an employer needs to pay an exempt employee in order to satisfy the “salary basis” test.
Currently, an employer must pay an exempt employee a salary of at least $455 per week ($23,660 annually). Effective January 1, 2020, that level increases to $684 per week ($35,568 annually). That’s nearly a $12,000 increase, which would be about a 50% raise for an exempt employee who current makes the minimum threshold salary.
The new Rule, however, pales in comparison to what the DOL proposed, and was about to implement in 2016, before a court put a hold on that Rule (the DOL ultimately withdrew the Rule). That Rule sought to more than double the current threshold, and increase the minimum salary to $47,476.
Critics (mostly on the employer side) argued that the rationale used to justify such a significant jump in the salary basis was flawed, and that its effect would be to hurt businesses and employees alike. The new Rule took most of those concerns into account, inasmuch as there is much more consensus among business and employee advocates as to the propriety of the new Rule. To that end, although there is certainly a possibility that a court could hold up implementation of the Rule, there is less chance that an advocacy group will seek to stop this Rule.
What Should Employers Do Now?
We suggest that, as with any Rules that are not yet effective, you review and prepare for the new Rule. We also suggest that you not actually implement anything until the effective date of January 1, 2020. That way, in the event the Rule gets put on hold, you are not put in the uncomfortable position of deciding whether to take away a raise that you have already given an employee.
The new Rule has a few other interesting aspects:
- It allows employers to use non-discretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10% of the $35,568 threshold. This 10% can be paid up until the first pay period of the following calendar year and be applied retroactively to the preceding year’s threshold amount. This reflects the fact that many exempt employees make a significant amount of their income from incentive-based programs.
- As opposed to the blocked Rule, the new Rule does not automatically increase the threshold salary amount after a period of time. This automatic increase was of considerable concern to employers. Instead, the DOL is tasked with considering inflation and staying on top of keeping the salary amount in line with increases in the cost of living.
- In a minor change reflecting the fact that this is not as significant an issue, the Rule increases the total annual compensation level for “highly compensated employees” from $100,000 to $107,432 per year.
If you have questions about this new Rule, please contact your Henderson Franklin attorney, or employment law shareholder Scott Atwood by phone, 239-344-1287 or email, firstname.lastname@example.org.