Department of Labor Raises Annual Salary Threshold in Final Version of Overtime Exemption Rule

On Tuesday, September 24, 2019, the Department of Labor revealed the final version of its overtime exemption rule. The final rule updates the earnings thresholds necessary to exempt executive, administrative, and professional employees from the Fair Labor Standards Act’s minimum wage and overtime pay requirements. It also allows employers to count a portion of certain bonuses/commissions towards meeting the salary level. This final rule will take effect on January 1, 2020.

According to the Department of Labor, the new rule is: (1) raising the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker); (2) raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year; (3) allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and (4) revising the special salary levels for workers in U.S. territories and the motion picture industry.

Additionally, according to the Department of Labor the change in the rule will allow 1.3 million American workers to newly qualify for overtime pay. According to acting U.S. Secretary of Labor Patrick Pizzella, "For the first time in over 15 years, America's workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans.” He also remarked, “This rule brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers."

In 2017, under the Obama Administration Overtime Rule proposal, many businesses went through the process of analyzing and adjusting compensation level changes for certain exempt and non-exempt employees using the threshold amounts of $47,000 and $134,000. Some employers decided to make some additional increases at that time, even after the effective date for the change was enjoined at the last minute. Employers who didn’t make any changes may want to go back and review information gathered in 2017, and determine whether they want to make changes under this final version of the rule.

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Special thanks to Calesia Henson of Stites & Harbison for assisting in the research and drafting of this alert.