On Tuesday, September 24, 2019, the United States Department of Labor announced a final rule change on overtime requirements under the Fair Labor Standards Act (FLSA). Employers should be aware of this new rule, which takes effect on January 1, 2020.
The new rule increases the earnings threshold required to qualify for a “white collar” exemption under the FLSA’s overtime requirements. The rule also increases the annual compensation level required to qualify as a “highly compensated” employee.
Salary Threshold Increases to $35,568
The current salary threshold to qualify under the executive, administrative, and professional employee exemptions under the FLSA is $455 per week, an amount that has not changed since 2004. Employers may remember that the Obama administration proposed a higher salary threshold in 2016, but a Texas federal district court invalidated that rule before it took effect. The new rule raises the weekly salary requirement to $684 per week, which equals $35,568 per year. The new rule also permits employers to use nondiscretionary bonuses and incentive payments (including commissions) paid on at least an annual basis to satisfy up to 10% of the minimum salary level. If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the DOL permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. Employers must be careful, however, because if they miss the catch-up payment or miscalculate the amount owed, the employee will be entitled to overtime pay for all overtime that he or she worked over the entire year.
Notably, the new rule does not alter the duties-test component of the overtime requirements.
Highly Compensated Employee Salary Threshold Increases to $107,432
The new rule also increases the total annual compensation level for “highly compensated employees” from $100,000 to $107,432. Highly compensated employees must receive the guaranteed minimum salary of $684 each week, but the remaining compensation may be in commissions, bonuses, or other type of compensation as long as it equals at least $107,432 for the year.
No Automatic Salary Updates
Unlike the 2016 rule that was overturned, the new rule does not contain a mechanism for periodically increasing the salary level. The DOL intends to propose further updates to the salary threshold; however, these updates would not be automatic and would continue to require notice-and-comment rulemaking.
Finally, special new salary levels will apply to certain U.S. territories and employees in the motion picture industry.