Today, the Department of Labor’s Wage and Hour Division issued a final rule regarding the threshold amount of salary necessary to exempt an employer from the obligation to pay overtime. The threshold since 2004 was $455 per week or $23,660 per year. The new rule raises that level to $684 per week or $35,568 per year. That means that if an employee is paid a salary of that amount, they may qualify to be exempt from overtime under the executive, administrative or professional categories (if they meet the duties requirements as well). This new rule is expected to affect over a million workers across the country and goes into effect on January 1, 2020.

Recent Past History

In 2016, the Obama administration proposed a change to the 2004 rule to increase the threshold to $47,476. Litigation ensued and a federal court in Texas issued an injunction, upheld by the Fifth Circuit, putting a hold on that rule. The justification for the new rule is based on calculations that wages have risen by 50% since 2004, hence the 50% increase in the salary standard.

Other Changes to the Rule

In addition to increasing the salary threshold, the new rule also raises the total annual compensation level necessary to meet the “highly compensated” exemption from overtime (we wrote about that recently). The new level is $107,432 per year.

The new rule also allows employers to use annual nondiscretionary bonuses, incentive payments and commissions to satisfy up to 10% of the standard salary level for all exemptions.

What Does This Mean?

Numerous employers had already decided to follow the Obama administrative rule and had adjusted their exempt thresholds to the $47,476 amount. It appears that they may now lower that level to $35,568. That being said, it is important to note that the amount of salary is not the ONLY thing that has to be shown to qualify for this exemption. Employers still must meet the duties requirements under each exemption category.

Overall, the new rule should be a good excuse for employers to do a self-audit of how their employees are classified.