January 1, 2020 marked the start of a new year, a new decade, and new rules affecting the payment of overtime wages and who can be exempt from overtime wage pay.
New Salary Requirement
Several of the exemptions from overtime pay require that an employee receive a minimum weekly salary. Until recently, employers who paid their employers a weekly salary of at least $455 (or $23,660 in salary per year) could use one or more of the exemptions to avoid paying overtime to employees whose job duties satisfied the requirements of one or more of the exemptions.
On January 1, 2020, the minimum salary (threshold) increased from $455 per week to $684 per week (or $35,568 per year). The previous weekly salary (of $455 per week) had not changed in over fifteen (15) years, and so the increase that has already gone into effect on January 1, 2020, marks a significant change for employees and employers alike.
The United States Department of Labor (U.S. D.O.L.) estimated that over 1.2 million people will now be eligible to receive overtime pay calculated at one and one-half times their regular rate of pay as a result of the increase in the weekly salary threshold necessary to quality for the administrative, computer, executive, or other exemptions that require the payment of a fixed weekly salary.
The salary level test does not apply to outside sales employees, teachers, and employees practicing law or medicine. Academic administrative employees may qualify for exemption either by satisfying the standard salary level test or, alternatively, being paid on a salary basis at a rate at least equal to the entrance salary for teachers in the educational establishment by which the employee is employed.
New Highly Compensated Employee Amount
Another change in the law that went into effect on January 1, 2020 that should allow more people to recover overtime pay involved the annual pay necessary to exempt highly compensated employees. Employees who received over $100,000 in wages used to be exempt from overtime pay until January 1, 2020 – when the annual salary requirement increased to $107,432 per year.
Nondiscretionary bonuses and incentive payments (including commissions) may be counted toward the $107,432 highly compensated employee’s total annual compensation requirement, but the employer must pay at least the full standard salary level of $684 per week on a salary or fee basis to qualify for this exemption. If an employee’s total compensation in a given annual period fails to meet the $107,432 threshold, an employer may make a “catch-up” payment within one month of the end of the annual period. Any such catch-up payment counts only toward the prior year’s total annual compensation. If such a catch-up payment is not made within the timeframe allotted, the exemption is lost and overtime premium pay must be paid in any week the employee worked more than 40 hours.
New Rules About Counting Non-Discretionary Bonuses
Previously, non-discretionary bonuses did not count towards satisfying the weekly (or annual) salary requirement, which means that an employer could not make a payment at the end of the year to increase the annual salary of an employee up to a level that rendered the employee exempt.
As of January 1, 2020, employers are now allowed to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard or special salary levels. For example, employers may use these payments to satisfy up to $68 of the $684 per week threshold, but must still pay at least $616 per week on a salary basis. An employer may now make one catch-up payment in the pay period for the next year to make up any difference between the salary paid and any shortfall in the $35,568 salary required to qualify for an exemption.
More information about the particulars of the changes in the law can be found at the DOL’s website.
Employers who violate the law and do not properly pay the overtime wages earned by an employee are not only responsible for paying the overtime wages that should have been paid, but these employers can be required to pay double the amount owed (known as liquidated damages), in addition to having to pay the employees’ attorneys’ fees and costs.
At the FairLaw Firm, I frequently counsel and litigate issues involving who is and who is not entitled to overtime pay under the FLSA. The FairLaw Firm handles these cases for employees on contingency and offers free consultations. You can also submit your claim for evaluation through the website.