The U.S. Department of Labor announced this week a final rule making an additional estimated 1.2 million workers eligible for overtime pay. The final rule, effective January 1, 2020, marks the first update to the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime pay thresholds in 15 years.
The final rule updates the “white collar” or “highly compensated employee” earnings thresholds necessary to exempt executive, administrative, or professional employees from the FLSA minimum wage and overtime pay requirements and allows employers to allocate a portion of certain bonuses and commissions towards meeting the salary level threshold.
The U.S. Department of Labor has identified the following key provisions of the final rule:
- raising the “standard salary level” from $455 to $684 per week (equivalent to $35,568 per year);
- raising the total annual compensation level for a “highly compensated employee” from $100,000 to $107,432; and
- allowing employers to use non discretionary bonuses and incentive payments, including commissions, that are paid annually to satisfy up to 10% of the standard salary level.
Recommendations for Employers Before January 1, 2020
The first step for employers to take before the new rule is implemented is to analyze the status of all employees who earn below the new salary threshold but were previously exempt. In these cases, employers must consider whether to reclassify those employees as nonexempt hourly workers or increase their salaries over the new threshold to keep them eligible for one of the “white collar” exemptions. If the employer prefers to increase salaries, it should reevaluate whether the employees’ job duties qualify them for the exemption, which includes analyzing whether the employee’s primary duty includes performing office or non-manual work and whether the employee regularly performs at least one of the exempt duties or responsibilities of an exempt executive (e.g. management or authority to hire and fire employees), administrative (e.g. exercising discretion and independent judgment on significant matter related to general business operations) or professional (e.g. performing work requiring advanced knowledge with specialized instruction).
Many employers undertook this analysis in 2016 in preparation for a rule enacted by the Obama administration that enjoined by the U.S. District Court for the Eastern District of Texas in November 2016, later invalidated by that court, and an appeal of the decision suspended pending further rulemaking. It is possible a similar challenge may follow this rule but employers should nonetheless act promptly to be compliant before the new year.
The Department of Labor has also indicated an intent to update the standard salary and “highly compensated employee” compensation levels more regularly in the future through notice-and-comment rulemaking.