Last Tuesday, the United States Department of Labor (DOL) issued its highly anticipated final version of its overtime exemption rule. The Final Rule sets the annual salary threshold needed to qualify for the Fair Labor Standard Act’s (“FLSA”) white collar exemptions at $35,568 per year (or $684 per week). Currently, the salary threshold, which has not been updated since 2004, is $23,660 per year (or $455 per week).
The DOL estimates that the Final Rule will make 1.3 million currently exempt workers newly eligible for overtime pay under the FLSA. Generally, an employee will only be exempt from the FLSA’s overtime requirement if the employee performs duties that satisfy the tests for the FLSA’s executive, administrative, or professional “white collar” exemption and the employee is paid a salary that is greater than the minimum salary threshold. Thus, once the Final Rule is effective, employees who satisfy the “duties” test of the white collar exemptions will be eligible for overtime pay if they earn less than $684 per week.
Notably, in addition to increasing the salary threshold for the white collar exemptions, the Final Rule:
- Permits employers to count certain nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of a worker’s salary level; and
- Increases the total annual compensation threshold for “highly compensated employees” from $100,000 to $107,432 per year.
The Final Rule formally rescinds and replaces the Obama administration’s 2016 overtime rule, which was enjoined just before it would have become effective. Unlike the 2016 rule, the DOL did not alter the “duties” test of the white collar exemptions in the Final Rule.
The DOL’s Final Rule will take effect on January 1, 2020. With the issuance of the Final Rule, employers should review whether any of their exempt employees are paid less than the new salary threshold to ensure that they will be compliant with the new Rule when it becomes effective.