On September 24, 2019, the Department of Labor (“DOL”) issued the final rule (the “New OT Rules”) that updates and revises the regulations which govern the exemptions from minimum wage and overtime pay requirements under the Fair Labor Standards Act (“FLSA”). Employers should carefully review the New OT Rules and the explanatory commentary. See Final Rule Announcement. The New OT Rules are set to become effective on January 1, 2020.

As you may recall, this is not the first time that the DOL has issued revised regulations regarding exemptions from the FLSA’s minimum wage and overtime requirements. See Department of Labor Releases New Overtime Rules (May 19, 2016). But the original set of “new” overtime rules were subjected to numerous legal challenges and their implementation was enjoined on a nation-wide basis. See Court Halts New Overtime Rules on Nationwide Basis (November 23, 2016). The DOL initially appealed the injunction but it ultimately decided to issue a revised set of regulations in lieu of continuing to litigate the enforceability of the 2016 rules. The New OT Rules expressly and formally rescind the rules that were issued in 2016.

The New OT Rules update the salary and compensation levels that qualify employees for an exemption from the FLSA’s minimum wage and overtime rules. Those changes include, but are not limited to, the following:

  • The “standard salary level” will increase from $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker).
  • The total annual compensation level to qualify for the “high compensated employee” (“HCE”) exemption will increase from $100,000 per year to $107,432 per year.

The New OT Rules allow employers to use non-discretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. However, the non-discretionary or incentive payments must be made at least annually to qualify for the credit. The rules also describe when an employer can properly use “catch-up” payments to maintain an employee’s exempt status during periods when the employee does not earn enough total compensation.

Finally, the New OT Rules include specialized rules relating to (a) salary levels for employees in U.S. Territories (such as Puerto Rico and the U.S. Virgin Islands) and (b) base rates of pay in the motion picture producing industry.

Key Takeaways

      1. The New OT Rules become effective January 1, 2020.
      1. The New OT Rules increase the standard salary level to $684 per week (i.e. $35,568 per year).
      1. The New OT Rules increase the qualifying compensation level for the HCE exemption to $107,432 per year.
      1. The New OT Rules allow employers to satisfy up to 10 percent of the qualifying salary level with annual non-discretionary bonuses and/or annual incentive payments.
      1. Employers should carefully review the New OT Rules and, as necessary, seek the advice of competent attorney to determine how best to come into compliance with them.