On September 24, 2019, the U.S. Department of Labor (“DOL”) issued the final rule on the salary threshold, making 1.3 million American workers newly eligible for overtime pay. The final rule raises the standard salary level up from its current level of $455 per week to $684 per week ($35,568 per year for a full-year worker) under the Fair Labor Standards Act (“FLSA”). The rule also raises the total annual compensation requirement for “highly compensated employees” from the current level of $100,000 per year to $107,432 per year. In addition, for the first time, employers will be allowed to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level for purposes of determining the salary level for exemption from overtime. The final rule also revises the special salary levels for workers in the motion picture industry and workers in U.S. territories.
The final rule will mark the first time the DOL has raised overtime thresholds since 2004. This new rule is less drastic than a similar measure the DOL approved during the Obama Administration in 2016. The Obama-era rule was blocked by a federal district court shortly before going into effect, and will be officially rescinded as part of the new final rule. While a similar outcome is possible for the new final rule, it is unlikely. The final rule is set to become effective on January 1, 2020.
Employers should plan now for this change by reviewing their exempt employees’ salaries to determine if any employees will need to be reclassified as nonexempt and, if so, what the potential overtime costs will be. In some circumstances, such as where an employee performs exempt duties but has a salary less than the new salary threshold, it may be more cost effective to give the employee a weekly salary increase in order to maintain the exemption for that employee.
As always, employers should consult their labor and employment law counsel for specific advice about whether certain employees are exempt or non-exempt from overtime payments.