A new DOL regulation will soon impact how much employers have to compensate employees to remain exempt from eligibility for overtime pay under the Fair Labor Standards Act. 

The DOL’s new rule – which will go into effect on January 1, 2020, barring legal challenges – marks the first change to overtime eligibility thresholds since 2004.  The regulation:

  • Increases the minimum “standard salary level” from $455 per week to $684 per week – equivalent to $35,568 per year for a full-time worker.
  • Increases the total annual compensation requirement for “highly compensated employees” from $100,000 per year to $107,432 per year.
  • Allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level.
  • Revises the special salary levels for workers in U.S. territories and the motion picture industry.

DOL estimates that 1.3 million more workers will be eligible for overtime as a result of these salary threshold changes. 

The new rule makes no change in the familiar “duties test” also required to establish exempt status. 

This marks the second attempt in recent memory that DOL has promulgated changes in the FLSA’s minimum salary thresholds.  A rule adopted by DOL in 2016 would have resulted in more significant increases to the minimum salary levels, and included an automatic “escalation” provision under which the threshold would have increased every four years.  That rule was enjoined by a federal court in Texas shortly before its effective date, and was subsequently withdrawn by DOL.  The new rule does not expressly contemplate future increases.

Employers should take this opportunity to re-examine their policies regarding employee classification and compensation for both exempt and non-exempt employees.  Among other things, many companies may find it useful to conduct additional trainings on FLSA compliance, including ensuring that employees who will be converted to non-exempt status are familiar with company timekeeping and recording policies.