On September 24, 2019, the United States Department of Labor (DOL) issued a final rule on the long-anticipated updates to the “white collar” overtime exemptions under the Fair Labor Standards Act (FLSA).
The final rule, which becomes effective January 1, 2020, increases the “standard salary level” for “white collar” overtime exemptions from the prior minimum of $455 per week ($23,660 per year) to $648 per week ($35,568 per year for full-year workers). As a result, all executive, administrative, and professional employees who earn less than $35,568 each year will become newly eligible for overtime pay if employers do not increase their salaries. The DOL estimates this rule, which is the first salary threshold update to the “white collar” overtime exemptions since 2004, will affect 1.3 million workers.
Although prior revisions to the rule included a mechanism for automatically increasing the threshold every three years, the final rule does not include any automatic increases. However, it does state that the DOL “intends to update these thresholds more regularly in the future.”
Other Changes in the Rule
Effective January 1, 2020, the DOL’s update to the rule also:
- raises the total annual compensation requirement for “highly compensated employees” (those who receive an exemption from the FLSA’s overtime requirements based upon a reduced duties test and higher earnings) from $100,000 to $107,432; employees who earn less than $107,432 each year will now have to qualify under another exemption or receive increased compensation in order to keep their exempt status effective;
- 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; and
- revises the special salary levels for workers in U.S. territories and the motion picture industry.
What Does Not Change?
Notably, the final rule does not alter any of the job “duties” tests. Employers who have analyzed executive, administrative, and professional positions to determine whether they qualify as exempt only need to confirm that these “white collar” positions meet the new salary requirement for overtime exemptions.
Next Steps for Employers
Employers should be wary of the short timeframe to achieve compliance under this final rule which takes effect January 1, 2020. Industries like education, wholesale and retail, and professional services, as well as the nonprofit and local government sectors, are likely to be most impacted by the DOL's final rule. However, all employers need to pay attention to the final rule’s requirements and compliance deadline.
Like prior proposed updates to the “white collar” overtime exemptions, there may be litigation challenges to the DOL’s final rule, but employers should not delay in using the next few months to prepare.