Salary Threshold for Exempt Employees Increases Effective January 1, 2020—Plan for More

09.26.19

The Final Regulation
As expected, the Department of Labor earlier this week announced its new proposed regulations increasing the minimum threshold for the salary basis for employees exempt from minimum wage and overtime under the executive, administrative, and professional (EAP) exemptions.

Most EAP exemptions require the employee to be paid on a salary basis, and currently that salary must be at least $455 per week. Effective January 1, 2020, however, the minimum salary level to be exempt will increase to $684 per week ($35,568 per year). Likewise, the rule increases the salary level for the highly compensated employee exemption to $107,432. Under the rule, employers may apply a limited portion of certain nondiscretionary commissions and bonuses to meet the minimum salary level for the exemptions.

Employers will recall that the DOL previously attempted to increase the minimum threshold to $47,476, which was made ineffective by a nationwide court injunction. The final regulation is very similar to the one proposing the increase in March, discussed here.

The increased salary levels are expected to affect about 1.3 million employees nationwide, a relatively modest number. For the Northwest, the changes will likely have the biggest impact in more rural areas given their generally lower overall costs of living.

Plan Now, and Washington Employers Must Think Differently
If employers have not yet done so, they should assess whether to increase exempt salary levels to the new level or to convert some employees to nonexempt status—January 1, 2020, will be here before we know it.

Washington employers must also stay tuned to future developments on this front under state law. The Washington Department of Labor and Industries expects to propose a new rule later this year that will increase the salary level for the state EAP exemptions to a level significantly above the new federal salary level, especially for employers with more than 50 employees, which will face as much as a $49,140 minimum threshold in a few months if the rule is adopted. This new state salary level, if implemented, will increase over several years (the length of the phase-in will depend on the size of the company), with the first increase scheduled to be effective July 1, 2020.

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