On Sept. 24, 2019, the U.S. Department of Labor (DOL) unveiled its final rule to update the Fair Labor Standards Act’s (FLSA) overtime exemptions for executive, administrative and professional workers. The final rule is similar to the proposed rule the agency issued in March 2019 and replaces a previously enjoined rule that was finalized by the DOL in 2016. The new rule will take effect on Jan. 1, 2020.
Increased Minimum Salary Threshold
The final rule raises the salary minimum for the executive, administrative and professional exemptions from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). While the increase is slightly higher than the threshold proposed in March ($679 per week, or $35,308 per year), the change has limited effect on many New York employers, as it is still significantly lower than the current minimum salary for these exemptions under New York law ($58,500 per year for New York City employers with 11 or more employees).
Increased Highly Compensated Employee Salary Threshold
The final rule also changes the salary minimum for exemption as a “highly compensated employee” (HCE) from $100,000 to $107,432 in total annual compensation. Although this is significantly lower than the threshold provided in the proposed rule ($147,414), the change still is noteworthy, and employers are encouraged to consider whether reclassification or compensation adjustments may be necessary for employees who have been classified as exempt under the HCE exemption.
Role of Nondiscretionary Bonuses
Much like the proposed rule, the final rule provides that up to 10 percent of the salary minimum can be satisfied through nondiscretionary bonuses, incentives and/or commissions that are paid annually or more frequently. The final rule also allows employers to make a “catch-up” payment at the end of the year to bring an employee up to the minimum salary, as long as the payment is made within one payday after the end of the 52-week period.
No Automatic Increases to Exempt Threshold and No Changes to Job Duties Test
Notably, the final rule does not provide for automatic minimum salary increases, meaning that any additional increases to the salary thresholds must first go through a new rulemaking process, including notice and comment periods. The final rule also does not alter the current job duties tests necessary to qualify for these exemptions under the FLSA.
What Employers Should Do
As the rule is set to take effect in just a few months, employers should review their classification of employees and determine how this rule may impact their businesses. This includes (1) reviewing the salary levels of employees currently classified as exempt under the executive, administrative or professional exemptions to determine whether they meet the new proposed annual minimum threshold, and whether any compensation adjustments will need to be made or individuals will need to be reclassified (although changes should not be necessary for employers in jurisdictions such as New York with higher salary thresholds); (2) identifying any employees classified as exempt under the HCE exemption and determining whether reclassification or compensation adjustments may be necessary; and (3) developing a plan to address these changes before the rule takes effect on Jan. 1, 2020.