The United States Department of Labor on September 24, 2019, issued a final rule increasing to $35,568 the minimum annual salary requirement that many employees need to meet to be exempt from being paid overtime. The final rule goes into effect on January 1, 2020. The DOL estimates that the changes in the rule will render 1.3 million American workers newly eligible for overtime pay.
The change impacts workers who have been classified as exempt from overtime under the Fair Labor Standards Act via the executive, administrative, or professional exemptions. Currently, in order for employees to qualify for such exemptions, they must make at least $455 per week, or $23,660 per year. The final rule increases the salary level to $684 per week, or $35,568 annually.
The final DOL rule also increases the salary level to $107,432 for workers classified as exempt from overtime under the highly compensated worker exemption. The current salary level for such employees is $100,000.
Notably, in addition to increasing the salary level for the exemptions mentioned above, the DOL rule updated the current regulations to permit employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the annual salary requirement. In order to qualify, such payments must be paid on an annual or more frequent basis.
The new rule did not change the job duties portion of the FLSA exemptions. Nor does the new DOL rule include an automatic annual increase to the minimum salary requirement. The rule also does not address the various methodologies for calculating overtime like the fluctuating workweek or provide employers any additional flexibility in compensating non-exempt employees.
As many employers may recall, the DOL’s final rule comes after the Obama administration previously attempted to raise the salary level to $47,476 for the executive, administrative, and professional exemptions. The Obama administration’s rule was enjoined from being implemented by a federal court shortly before it was set to become effective. The final DOL rule issued on September 24, 2019, supersedes the rule issued under the Obama administration.
Employers should analyze their workforce to determine whether employees classified as exempt from overtime under the executive, administrative, professional, or highly compensated worker exemptions meet the increased salary level requirement. If such employees do not, employers will need to increase the employees’ compensation by January 1, 2020, pay the employees overtime starting then, or otherwise modify the job classification or compensation structure for the employees.
If you have any questions regarding complying with this new rule or need assistance in evaluating job classifications or implementing the DOL rule, please feel free to contact John McKenzie, Steve Beiting, or any other K|W|W attorney.