New provisions to the Fair Labor Standards Act took effect on January 1, 2020. The changes update how the law categorizes exempt employees, who do not receive overtime. The 2020 changes supersede proposed rules from 2016 that did not take effect. In fact, this is the first change to FLSA exemption thresholds in 15 years.
Learn how the updates may affect your paycheck this year.
New exemption thresholds
The law uses salary as one factor to determine whether a person receives overtime pay. As of 2020, employers will consider a person exempt from overtime pay if he or she earns more than $35,568 per year or $648 per week. This threshold applies to exempt professional, administrative, executive and computer-based employees. Previously, the threshold was $23,660 per year or $455 per week.
The new provisions also increase the threshold for exempt highly compensated employees. People in this category must make at least $107,432 to be exempt, a rise from the previous limit of $100,000. Employees who work for the movie industry and individuals who work in the U.S. territories are subject to special changes.
Items that count toward exemption
In addition to salary, the Department of Labor will add the employee’s commissions, incentive payments and bonuses when determining up to 10% of the exemption threshold. Employees who have fallen under the exemption status in a 12-month period can catch up through an additional payment in one end-of-year pay period.
The duties test is still the main component of the exemption determination. These guidelines have not changed in the new 2020 ruling.
Both employers and employees should confirm that they have the correct categorization based on updated exemption guidelines. Those who updated employee exemption status based on the proposed 2016 guidelines may already be in compliance. The Department of Labor reports that under the new law, 1.3 million additional Americans may be able to receive overtime pay in 2020.