01/6/2020 Tags: Announcements, In the News

Recently, the U.S. Department of Labor announced increases to the minimum salary requirements for executive, administrative, and professional overtime exemptions.

Starting Jan. 1, 2020, the new minimum is $35,568 annually, up from $23,660. Salaried employees who make less than this new amount will likely be eligible for overtime pay at 1.5 times their base rate.

Along with this change, the minimum compensation for highly compensated employees will also increase to $107,432, which is up slightly from the previous $100,000 amount. This total includes nondiscretionary compensation — like commissions — which may amount to up to 10% of an employee’s total salary.

As part of this process, the DOL plans to reassess and — likely increase — these levels every four years. It’s estimated that the change will impact 1.2 million exempt workers and 102,000 highly compensated employees. The most susceptible industries are retail, hospitality and the nonprofit sector.

For your exempt employees who don’t earn enough to satisfy the new minimum salary thresholds, you can increase their salary to meet the new threshold or change their status to non-exempt.

But each option comes with its own set of challenges:

  • For employees you want to adjust to non-exempt, keep in mind the amount of overtime they are likely to work before you determine their new hourly rate. Over or underestimating overtime could have a significant impact on your employees’ salaries.
  • If you decide to give your staff a pay increase to meet the new thresholds, consider the number of employees you’ll need to pay more. Those pay increases will need to become part of your annual budget and will likely continue to increase as the salary threshold does.
  • If you do raise workers’ salaries, you could create a morale issue for those whose salaries don’t increase, which could cause valued employees to leave.
  • Raises could also impact employees who are part of a protected category. For example, if a male associate received a raise and was suddenly making only a few hundred dollars less than a female manager, it could result in a case of gender discrimination.

In addition to these federal changes, South Dakota’s new minimum wage starting Jan. 1, 2020, for non-tipped employees is $9.30 an hour and $4.65 an hour for tipped employees.

If you have any questions about these changes, don’t hesitate to reach out to us.

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