Bona fide administrative, executive, professional, and computer-related professional employees, as well as outside sales employees, are exempt "white collar" employees under the Fair Labor Standards Act (FLSA). This means they are not covered by the minimum wage, overtime, and certain recordkeeping requirements of the law. The tests for determining exempt status measure the actual duties and responsibilities of the employee, not the job title. The determination also depends on:
- The employee's primary duty;
- The employee's level of discretionary authority; and
- Whether a minimum salary requirement is met.
Rules Provide for Salary and Duties Tests
In 2004, the U.S. Department of Labor (DOL) Wage and Hour Division finalized sweeping changes to the regulations defining who is exempt as a "white collar" employee. The regulations updated salary levels used in determining exempt status for the first time since 1975, while the duties tests received their first overhaul since 1949.
The 2004 regulations provided that, in general, any employee earning less than $455 a week ($23,660 a year) is a nonexempt employee entitled to overtime pay, whether he or she is paid on an hourly or salary basis. Employees paid a salary above that level have to meet a duties test in order to be classified as an exempt executive, administrative, or professional employee. Employees paid at least $100,000 a year have to meet only one prong of the duties tests to qualify as exempt.
A 2016 final rule that would have raised the overtime threshold to $913 per week was invalidated by a court order.
In September 2019, the DOL released final rules to increase the minimum salary level from $455 to $684 per week beginning in 2020. Employees paid a salary above that level still have to meet a duties test to be classified as an exempt executive, administrative, or professional employee. The final rules also increase the amount highly compensated employees (HCEs) must be paid from $100,000 to $107,432 a year.
Highlights From September 2019 Final Rule
Effective January 1, 2020, the final rule:
- Raises the salary threshold to $684 a week or $35,568 a year (up from $455 a week or $23,660 a year). This translates to a salary threshold of $1,368 for employees paid on a biweekly basis, $1,482 for employees paid on a semimonthly basis, and $2,964 for employees paid monthly. The rule sets the standard salary level at the 20th percentile of earnings of full-time salaried workers in the lowest-wage region (the South) and/or in the retail industry nationally.
- Raises the total annual compensation requirement for highly compensated employees (HCEs) to $107,432 (up from $100,000 per year). The rule sets the total annual compensation level at the 80th percentile of full-time salaried workers nationally. As part of an exempt HCE's annual compensation, the employee must receive at least the new standard salary amount of $684 per week on a salary or fee basis (without regard to the payment of nondiscretionary bonuses and incentive payments).
- Allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level. Employers must pay exempt employees 90% of the standard salary level ($615.60 per week), and if at the end of the 52-week period the salary paid plus the additional payments do not equal the standard salary level for 52 weeks ($35,568), the employer would have one pay period to make up for the shortfall (up to 10% of the standard salary level, $3,556.80).
- Revises the special salary levels for workers in U.S. territories. The rule sets the salary threshold at $455 per week in Puerto Rico, the Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands. In American Samoa, the salary threshold is set at $380 per week.
- Revises the special salary level for workers in the motion picture industry. The special weekly base rate for the motion picture industry increases to $1,043 per week (or a proportionate amount based on the number of days worked).
The final rule does not make changes to the job duties test, and it does not include a provision to automatically adjust the salary threshold. While it declined to adopt its earlier proposal to adjust the standard salary and HCE thresholds every four years, the DOL reaffirmed its intent to update the standard salary level and HCE total annual compensation threshold more regularly in the future using the notice and comment rulemaking process.
U.S. Department of Labor, Wage and Hour Division