The U.S. Department of Labor (DOL) announced its Final Overtime Rule on September 24.
Effective January 1, 2020, the minimum annual salary for an exempt employee will be $35,568 (or $684 per week).
We submitted comments expressing support for moving forward with a modest increase to the minimum salary for exempt employees just as DOL proposed. We are pleased that DOL did just that.
"We believe that nonprofit employees should only be exempt from overtime if they carry out duties that are integral to a nonprofit’s ability to operate, generate revenue, and carry out its programs successfully...Increasing the salary level [as proposed] ensures that exemption is not used for just any position where an employee may work more than 40 hours with any regularity." - Mark Turner, Senior Director of Public Policy
Unfortunately, the proposed rule is silent on whether reimbursement rates under federal grants and contracts can be automatically adjusted or renegotiated based on increased salaries or increased overtime pay.
Nor does the rule clarify the duties test or other existing aspects of the rule that are confusing for many nonprofits.
About the Rule
Effective Jan. 1, 2020, the final rule adjusts the minimum salary that exempts executive, administrative, and professional employees from overtime pay as follows:
- Increases the minimum salary for exempt employees to $35,568 per year or $684 per week. Currently, this is $23,360 per year (or $455 per week).
- Raises the salary for Highly Compensated Employees (HCE) to $107,432 per year and $684 of this must be paid weekly on a salary or fee basis. Currently, this is $100,000.
- Allows nondiscretionary bonuses and incentive payments to count for up to 10 percent of the standard salary level.
The U.S. Department of Labor announced its intention to update these levels on a regular basis going forward but did not set a regular schedule.
The 2019 rule supersedes the final rule issued by DOL in 2016 that would have set the salary level for exempt employee at $47,476 per year. That rule did not take effect due to a November 2016 injunction by a federal district court.
Learn How Nonprofits are Covered by the Fair Labor Standards Act (FLSA)
FLSA coverage applies to all employees who work for certain covered "enterprises" (businesses or organizations) or employees who regularly engage in interstate commerce.
For an employee to be exempt from overtime pay, DOL regulations have required three tests to be met:
1. The employee must be paid a predetermined and fixed salary that is not reduced based on changes in the quality or quantity of work performed.
2. The amount of salary paid must meet a minimum specified amount ($684 per week or $35,568 in 2020).
3. The employee's job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.