DOL Issues Final Rule Raising Overtime Exemption Salary Threshold
The U.S. Department of Labor has issued its long awaited final rule raising the salary threshold for overtime exemptions from $23,660 per year ($455 a week) to $35,568 per year ($684 a week). The new rule takes effect January 1, 2020. The increases set out in the new rule are much lower than those proposed by the DOL (and ultimately blocked by federal courts) during the Obama Administration.
Under the new rule, in order to qualify as exempt from overtime under the Fair Labor Standards Act, an employee earning at least $35,568 per year must also meet certain duties tests. The duties tests remain unchanged under the new rule. For employees earning less than $35,568 per year and/or who do not meet the duties test, an employee’s overtime pay must be at least 1.5 times his or her regular rate for any hours that exceed forty in a workweek.
The new rule also raises the salary threshold for highly compensated employees from $100,000 per year to $107,432 per year, provided $684.00 of this amount is paid weekly on either a salary or fee basis. A highly compensated employee must also meet a special duties test. This test also remains unchanged.
In addition, the new rule provides that non-discretionary bonuses and incentive payments (including commissions) paid on an annual (or more frequent) basis may be used to satisfy up to 10% of the standard salary level.
We recommend employers begin reviewing data for employees who are now classified as exempt or highly compensated but will be earning a salary below the new thresholds in 2020 so that the appropriate changes can be made before the new rule takes effect. In addition to requiring the reclassification of certain employees, the new rule may impact labor costs, time keeping systems, bonus structures, and job descriptions, classifications and duties.
