The Department of Labor (DOL) announced its Final Rule updating the exemption threshold under the Fair Labor Standards Act (FLSA) on Sept. 24, 2019. The Final Rule raises the standard salary level threshold for “white collar” employees from the $23,660 minimum established in 2004 to $35,568, or $684 per week. Employees earning less than $35,568 a year must be paid overtime for hours worked in excess of 40 each week. Above this salary level, eligibility for overtime varies based on job duties.

For highly compensated employees, the Final Rule sets the new salary threshold at $107,432 — an increase from the $100,000 mark set in the 2004 regulations. Employers may also use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the standard salary level, a change that has been retained from the 2016 proposed rule. The Final Rule does not impact the duties tests, which are part of the FLSA exemption analysis. The changes will take effect Jan. 1, 2020.

The new standard salary threshold is significantly less than the $47,476 threshold set forth in the 2016 regulations the Obama DOL issued (which were previously held invalid by a federal district court judge) and slightly higher than the threshold set in the proposed rulemaking earlier this year. The DOL estimates the new salary level will impact approximately 1.3 million workers — far fewer than 4.2 million workers estimated to become eligible for overtime under the Obama-era rule. Although the 2016 rule created a formula by which the salary threshold would increase automatically with inflation, the Final Rule does not include any such mechanism. Rather, the DOL has only stated that it “reaffirms its intent to update the standard salary level and [highly compensated employee] total annual compensation threshold more regularly in the future using notice-and-comment rulemaking.”

In anticipation of the 2020 implementation date, employers should review and evaluate the status of their current employees and identify any positions that should be updated. If you have questions about the proposed overtime rule, the classification of your employees, or other FLSA compliance issues, the attorneys in our Employment & Labor Practice Group can help you navigate these changes.