U.S. Department of Labor Issues Final Overtime Rule

On September 24, 2019 the U.S. Department of Labor (DOL) announced a final rule to make 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act (FLSA).

The final rule updates the earnings thresholds necessary to exempt executive, administrative, or professional employees from the FLSA’s minimum wage and overtime pay requirements, and allows employers to count a portion of certain bonuses (and commissions) towards meeting the salary level. The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004. In the final rule, the Department is:

  • raising the “standard salary level” from the currently enforced level of $455 per week (equivalent to $23,660 a year) to $684 per week (equivalent to $35,568 per year for a full-year worker);
  • raising 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 nondiscretionary 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; and
  • revising the special salary levels for workers in U.S. territories and in the motion picture industry.

The final rule will be effective on January 1, 2020.

Employers must analyze their workforce.  An employee currently classified as exempt but making less than $684 per week ($35,568 per year) must either get a raise up to the new threshold, or have his/her classification changed to nonexempt and therefore eligible for overtime pay.

Keep in mind that, in addition to meeting the new salary threshold, exempt employees must also continue to meet the duties test which requires that exempt employees must perform work that is executive, administrative, or professional in nature.

The DOL estimates that 1.2 million additional workers will be entitled to minimum wage and overtime pay as a result of the increase to the standard salary level.  The DOL also estimates that an additional 101,800 workers will be entitled to overtime pay as a result of the increase to the highly compensated employees compensation level.

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