New 2020 Salary Levels: Bonus & Incentive Payments & Commissions All Rising

calendar January 9, 2020

The U.S. Department of Labor (DOL) revealed a final ruling on Overtime "White Collar" exemptions. These regulations were last updated in 2004, when the DOL increased the minimum salary level for exemption from $150 to $455 per week and revised the job duties employees must perform for exemption from the FLSA's overtime requirements.

California employers need to understand the California rules for exempt status are generally more stringent than these Federal rules. For example employees must be paid two times the minimum wage to be exempt in California - so for employers with 'less than 25 employees' the minimum salary for an exempt employee is $45,760 per year. For employers with more than 25 employees, the minimum salary is $49,920. Also, remember that California minimum wages are going up $1.00 per hour on Jan. 1, 2020, which moves the 'large employer' minimum salary to qualify as exempt to $54,080 in 2020.

Several years later DOL proposed to increase the minimum salary level for exemption to $913 per week ($47,476 annualized). And now the 2020 ruling will increase the minimum salary level for exemption to $684 per week ($35,568 annualized).

The DOL allows employers to pay up to 10% of that minimum level ($3,556.80) in commissions, bonuses, and other non-discretionary incentives. NOTE: If incentive payments fall short by even $1, employers will owe overtime pay to shorted employees for the entire prior year. Under the final rule, employers will have only a single pay period for a final make-up payment to ensure exempt employees receive the full $35,568 for the year.

Highly Compensated Employees:

This 2020 ruling also increase the total annual compensation required for employees to qualify under the shorter Highly Compensated test from $100,000 to $107,432. Highly Compensated employees must receive the guaranteed minimum salary of $684 each week, but the remaining compensation may be paid in commissions, bonuses, or any other type of compensation.

In a related announcement, DOL passed a final rule making 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act (FLSA).

Noteworthy ... this rule updates the earnings thresholds necessary to exempt executive, administrative, or professional employees from the FLSA's minimum wage and overtime pay requirements. It also allows employers to count a portion of certain bonuses/commissions towards meeting the salary level.

DOL's New Parameters:

  • Raising the "standard salary level" from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker)
  • Increasing the total annual compensation level for "Highly Compensated Employees (HCE)" from the currently enforced level of $100,000 to $107,432 per year
  • Allowing employers to use non-discretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices
  • Revising the special salary levels for workers in U.S. territories and in the motion picture industry.

Click HERE for more information about the new salary and overtime regulations.


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