What is the federal overtime salary threshold in 2021?

On January 1, 2020, the Department of Labor’s final rule that raises the salary threshold requirement for overtime exemption took effect.

If you have salaried employees in 2021, you may be impacted by the change, which raised the overtime salary threshold to $684 a week, or $35,568 per year.

Here’s an in-depth look at the DOL overtime rule, and a few steps on how to adapt. 

Remember this is not official legal advice. If you have any concerns, it’s best to consult an employment lawyer. 

What was the salary threshold for overtime in 2019?

The FLSA (Fair Labor Standards Act) employment law requires all employers to give eligible (or “non-exempt”) workers at least the minimum wage for hours worked. If they work more than 40 hours in a workweek, then hours in excess of 40 are considered overtime hours and they must be paid at least minimum wage and overtime pay for the extra hours.

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The previous overtime rule stipulated that the pay threshold was $455 per week or $23,660 per year. This means that anyone who made this amount of money (or less) needed to be paid overtime wages if they worked more than 40 hours per week. 

Who is “exempt” from overtime payments?

Federal law considers all employees “non-exempt” from overtime pay unless they meet certain requirements. Generally, workers who are “exempt” from overtime pay are executive, administrative, professional, computer and outside sales employees. 

The  federal Fair Labor Standards Act gives three tests—all of which an employee must pass—to determine whether or not a worker is eligible for overtime pay: 

    1. Salary-level test: If an administrative, professional, executive or professional computer employee’s weekly salary meets the minimum requirement—which is $455 per week until January 1—they are exempt from overtime pay. 
    2. Salary-basis test: The employee must be paid a fixed salary that cannot go up or down based on the quantity—or quality—of their work. 
    3. Duties test: The employee’s work duties must be considered executive, administrative, or professional duties in nature. 

What kind of duties satisfy the third test? 

  • Employees with executive duties manage an enterprise, a department, or a subdivision of an enterprise. They also regularly direct at least two employees’ work and either have the authority to hire or fire or are able to suggest or recommend doing so. 
  • Employees with administrative duties primarily perform office or non-manual work directly related to the business operations of the employer or the employer’s customers. To be considered exempt, their primary duties must include using discretion and independent judgment when it comes to significant matters. 
  • If an employee has professional duties, their work requires advanced knowledge in a certain type of field that is the result of specialized instruction or study. Or, they must be skilled in highly specialized fields such as computer analytics or engineering. 

How did overtime laws change in 2020?

The U.S. Department of Labor announced their long-awaited update on the overtime rule in September of 2020. The new overtime rule means that 1.3 million workers who did not previously have overtime eligibility will now be non-exempt.

However, more than just the salary threshold is changing with the new year. Let’s take a look at all of the updates. 

1. Administrative, Professional, and Executive Exemption Minimum Salary

The minimum salary requirement for administrative, professional, and executive exemptions increased from $455 per week to $684 per week, or $35,568 per year on January 1, 2020. 

In order for employees to be exempt from overtime, they must earn at least $684 as a weekly salary. They must also satisfy the other exemption tests. Computer professionals may also be paid hourly if it is at least $27.63 per hour. 

Your state government may also have further requirements when it comes to paying overtime. Be sure to check your local laws to ensure you are staying compliant on both the federal and state levels. 

2. Nondiscretionary Bonuses and Incentives in Minimum Salary Requirement

The final overtime rule allows employers to include non-discretionary bonuses, commissions, and incentive payments to satisfy up to 10% of the salary requirement, as long as the employer pays them annually at the minimum. 

Employers can also make a final “catch-up” payment that brings the employee’s earnings to the minimum requirement within one pay period after the end of the year. 

This means that while you must pay the employee at least 90% of the minimum salary throughout the year, (including nondiscretionary bonuses, incentive payments, and commissions), you have one pay period after the year to compensate the employee for any shortfalls that would classify them as non-exempt. 

What are my compliance options under the new law?

If you have employees who the government previously considered exempt but don’t fall into that category, you can either:

  • Raise their salary to fall under the minimum requirement. If you choose to take this route, make sure they still pass all three tests
  • Elect to reclassify the impacted employees as non-exempt and pay them overtime when necessary. 

What should I do once the new overtime laws take effect? 

First things first, evaluate your options and estimate how much each route will cost you. You can also choose different options for different employees. Does the employee typically work late? You might consider raising their salary. Does the employee typically work 40 hours a week? Reclassifying them might be the best option. 

Revisiting your timekeeping policy to ensure accurate records is a good idea if you plan on reclassifying employees. Newly non-exempt employees may not know how to track hours worked, so make sure they know how to record their working hours properly.

[Looking for an updated, easy solution to timekeeping? Homebase can help with that.]

Make sure to not only implement the changes. But also communicate the new federal overtime law and what it means with impacted employees as soon as possible. There might even be state laws stipulating when you need to do so, so check into that.

Need help with overtime policies and other business-related concerns? Homebase HR and Compliance gives you live access to certified HR experts who can review your existing policies and answer any questions you may have.

Remember this is not official legal advice. If you have any concerns, it’s best to consult an employment lawyer. 

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