Effective January 1, 2020, the new salary threshold for white collar exemptions under federal wage and hour laws is $684 a week or $35,568 a year.
The United States Department of Labor (“U.S. DOL”) issued its final rule increasing the salary basis to $684 a week at the end of September. Employees who qualify for white collar exemptions, i.e., those who are exempt from overtime, are those employed in an executive, administrative, or professional capacity. There are two parts to the exemption: the salary test and the duties test. An employee must meet both to be exempt from overtime. This change, however, has no impact on the duties test.
For employers this increase has been long in the making. Since 2015 the U.S. DOL has gone back and forth on what the new salary threshold would be for the exemptions. Currently, the threshold is $455 a week, so the increase to $684 is significant (although in 2015 the increase was expected to be as high as $913 a week).
In some states, like New York, this increase will have virtually no impact since state wage and hour law already requires a higher salary threshold for exemption from overtime. At present in New York City, the salary test for large employers, i.e., employers with eleven or more employees, is $1,125 per week. However, in Connecticut, the salary threshold is $475 a week. Thus, this increase in federal law will have a significant impact for Connecticut employers.
Employers Need to Act Now – Do Not Wait!
Employers need to act now and analyze which exempt employees will no longer be exempt effective January 1st since they do not make enough per week to meet the salary test. Employers have numerous options here. They can increase the employee’s weekly compensation or they can convert the employee to a non-exempt employee who is paid hourly and is eligible for overtime. For employees though, the latter can be a tough pill to swallow. Those employees who historically have not tracked their hours might find the switch irritating. Worse yet, employees often view being salaried as a form of status and taking that away might be fraught with pushback.
Additionally, employers may find some exempt employees remain eligible for the exemption whereas others are not since their salary is too low. This is a dilemma! Should employers increase everyone to $684 a week; do they change all “exempt” employees to hourly; or do they let the salary test determine the exempt status of employees performing the same job? Or maybe the jobs can be changed such that the duties are different for exempt employees? Many strategic decisions must be made to address this change in the law and advanced planning is key. Employers should contact competent labor and employment counsel now to navigate this complicated area.
Brody and Associates regularly advises management on complying with state and federal employment laws including wage and hour laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
Additionally, if this article generated any additional questions for you, please contact us at info@brodyandassociates.com. We may address your question in a future blog post.
