The United States Department of Labor issued its final rule on the earnings threshold for exempt employees under the federal Fair Labor Standards Act (“FLSA”) on September 24, 2019 (the “Overtime Rule”). The Overtime Rule will require employers to pay overtime wages to a much larger group of employees than are presently eligible. The Overtime Rule will take effect on January 1, 2020.
Under the Overtime Rule, the minimum salary for exempt employees under the FLSA will increase from $455 per week to $684 per week. The $684 per week is equal to $35,568 per year. This means that, in general, salaried employees who do not earn at least $684 per week are eligible for overtime compensation if they work more than 40 hours in a week. The Department of Labor estimates that 1.2 million employees will now become eligible for overtime compensation. The Overtime Rule does not provide for automatic future increases of the salary threshold.
In addition, the Overtime Rule does not change the standard that, generally, exempt employees must not only meet the minimum salary test, but also the duties test as an executive, administrative or professional employee. However, “highly compensated” employees are exempt from most of the duties tests used to determine whether they are exempt under the FLSA. The highly compensated employee level, which is presently $100,000 per year, has been increased under the Overtime Rule to $107,432 per year.
Under the Overtime Rule, employers can use non-discretionary bonuses and incentive payments, including commissions, paid at least annually to satisfy up to 10% of the minimum salary level of $35,568 per year.
As you may recall, President Obama’s administration attempted to overhaul the FLSA’s salary threshold in 2016 by increasing the threshold to $913 per week and creating automatic future increases tied to inflation. The Obama Administration’s “final rule,” however, was enjoined by a United States District Court in the District of Texas and, therefore, never went into effect.
It is anticipated that there will be challenges to the Overtime Rule to attempt to further increase the salary threshold. However, unless such challenges are successful, the Overtime Rule will go into effect as of January 1, 2020.
In light of the increase to the salary threshold, employers are well-advised to review their exempt employee classifications to determine which employees will meet the increased salary threshold under the Overtime Rule and which employees will now be eligible to earn overtime. If you have any questions about the Overtime Rule, please contact one of the attorneys in the Labor, Employment and Benefits Practice Group.