New DOL Overtime Rules - Part 2: Highly-Compensated Employees and Next Steps
In addition to the increase in weekly salary requirements for white-collar exempt employees that the DOL announced on September 24, 2019, they also announced increases to the salary requirement of highly-compensated employees. This change will also go into effect on January 1, 2020.
Highly-Compensated Employees:
Highly-compensated employees are those, even if they do not meet the duties test of other exemptions, paid a high enough salary to qualify for an exemption. The DOL is increasing the salary requirement for HCE’s to $107,432 per year from the current $100,000 per year. This must include a weekly salary of at least $684 that does not include nondiscretionary bonuses, incentive pay and/or commissions.
Employers can consider nondiscretionary bonuses, incentive pay and/or commissions toward the total annual salary requirement. Employers are also able to make a one-time “catch-up” payment of up to 10% of the total salary requirement as long as it is made within one pay period of the end of the 52-week period which the annual salary is based on.
The DOL estimates that 101,800 current HCE will be impacted unless their salary is increased.
Next steps for companies to take for all exempt employees:
- Identify which white-collar and HCE exempt employees will fall below the new salary levels.
- Review job descriptions to ensure exempt employees clearly meet the applicable duties requirement; if not, then the salary increase will not change their non-exempt status.
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- Calculate the costs and consider the options for employees that meet the job duties tests but will not meet the new salary requirements:
- Re-classify these employees as non-exempt: Consider the impacts such as having to track and record their time, pay overtime and minimum wage, include more time as compensable such as travel time, waiting time, etc.; or
- Increase these exempt employees’ salaries: Consider how these pay increases will impact your overall pay structure such as creating pay compression, impacting annual raises, etc.
- Review your plan with the employees impacted so they know what to expect.
- Document everything.
One more thing:
After the previous changes in 2004, there was a drastic increase in wage-and-hour claims from employees thinking they were misclassified and should be receiving overtime. While these changes are minor in comparison, as they are discussed in the public forum, employees may take the opportunity to see if they can benefit.
You can access more details about this rule change on the DOL Fact Sheet #17G or review the full rule on the Federal Registry.
As always, feel free to call the HR consultants at Affinity HR Group to help you with these changes and considering all the impacts to your business.
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