DOL Announces Final Rule Increasing Salary Thresholds to Qualify for Overtime Exemption
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DOL Announces Final Rule Increasing Salary Thresholds to Qualify for Overtime Exemption

Key Takeaways:

  • DOL updates earnings thresholds necessary to exempt employees, who perform certain job duties and meet a certain pay threshold, from minimum wage and overtime pay requirements

  • An estimated 1.3 million more American workers will be eligible for overtime pay under the FLSA

  • DOL’s final rule takes effect January 1, 2020

On September 24, 2019, the Department of Labor announced a final rule updating the earnings thresholds necessary to exempt executive, administrative, professional, outside sales, and computer employees from minimum wage and overtime pay requirements under the Fair Labor Standards Act (FLSA). Effective January 1, 2020, an estimated 1.3 million more American workers will be eligible for overtime pay (but this is less than would have been eligible under the previously proposed 2016 rule that was enjoined).

Under the white-collar exemption, the FLSA exempts employees from overtime pay requirements if they perform certain job duties and meet a minimum weekly pay threshold. Highly compensated employees, who are more likely to be bona fide executive, administrative, and professional employees, are also subject to the exemption based on a higher compensation level paired with a less stringent job duties test.

Notably, the final rule:

  • Raises the standard salary level from $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
  • Raises the total annual compensation requirement for highly compensated employees from $100,000 per year to $107,432 per year;
  • Allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10 percent of the standard salary level; and
  • Revises the special salary levels for workers in U.S. territories and the motion picture industry

The new rule accounts for growth in employee earnings since the earnings threshold were last updated in 2004 (updates in 2016 were court enjoined based on flawed methodology for setting the thresholds and an appeal of this injunction was held in abeyance pending further DOL rulemaking on the salary thresholds). The new standard salary level is based on current data regarding the 20th percentile of full-time salaried workers in the south and/or in the retail industry nationally. The new highly compensated employee total annual compensation level is equal to the annualized value of the 80th percentile of earnings of full-time salaried workers nationally based on current data (but without inflating to January 2020 as initially proposed).

The threshold will be updated at more regular intervals going forward.

While the new standard salary level uses the same methodology applied when setting the 2004 thresholds currently in effect, legal challenges to the new level are anticipated based on arguments that the methodology used to set the level is flawed. In the meantime, employers will have to determine whether they will reclassify workers as non-exempt consistent with the new thresholds or increase employee pay to meet the new exemption thresholds.

Also, please keep in mind that depending on where your workers are located, specific state thresholds may apply. For example, New York state has been operating under increased thresholds for some time now for employees located in New York state.

If you have any questions about DOL rules, or how to classify employees, please contact: