On September 27, 2019, the Department of Labor (“DOL”) issued its final rule modifying previous overtime exemptions to the Fair Labor Standards Act (“FLSA”). The final rule will go into effect on January 1, 2020. It will increase the minimum salary that employees must be paid to qualify for certain white-collar and highly compensated exemptions. The new thresholds account for inflation and wage increases since the thresholds were last updated in early 2004.
The key changes instituted in DOL’s new rules are:
- The salary threshold for the white-collar exemption (executives, administrative professionals, etc.) increases from $23,660 a year to $35,568 a year. The increase is noticeably less than the $47,476 a year exemption that was part of the Obama-era rules that never took effect.
- The salary threshold for the highly compensated employee exemption increases from $100,000 a year to $107,432 a year. Similarly, this increase is lower than the $147,414 a year threshold proposed by the Obama administration.
- The wage thresholds for the white-collar and highly compensated exemptions will not be subject to automatic increases.
- Employers will be permitted to use annual non-discretionary bonuses and incentive payments to satisfy up to 10% of the standard wage level. Under the pre-existing rules, employers are not permitted to include any type of bonuses or incentive compensation in calculating whether an employee’s compensation meets the white-collar exemption threshold.
- There are no changes to the duties tests under the new rule for the white-collar and highly compensated exemptions.
To reduce the threat of litigation, Holden Litigation recommends employers evaluate employees who are classified as exempt to ensure such employees meet both the pre-existing duties test and the new salary thresholds. Employees who do not meet the salary threshold must either be re-classified as non-exempt or increase their compensation to meet the new thresholds. If you need any assistance or have any questions, please contact one of Holden Litigation’s employment law attorneys.
Link to the new rule: https://www.federalregister.gov/documents/2019/09/27/2019-20353/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and
Stuart Ashworth, Partner