On Tuesday, September 24, 2019, the U.S. Department of Labor released final updates to the regulations setting the thresholds for the executive, administrative, and professional employee overtime exemptions. The final rule is set to go into effect on January 1, 2020.

The Fair Labor Standards Act (FLSA) requires covered employers to pay certain employees, who work more than 40 hours in a week, overtime premium pay equal to at least 1.5 times their regular rate of pay.

The Department’s new rule raises the currently enforced salary level for exemption, thus extending overtime protection to more workers. The salary threshold under the current law is $455 per week ($23,660 annually). Under the new rule, employees with a salary below $679 per week (equivalent to $35,308 per year) will have to be paid overtime if they work more than 40 hours per week.

In addition to the above, the new rule includes the following:

• Under the current rule, “highly compensated employees” are exempt from overtime. The new rule includes an increase to the total annual compensation requirement for highly compensated employees from the currently-enforced level of $100,000 to $107,432 per year, which is significantly less than the $147,414 proposed earlier this year.
• The Department of Labor intends to update the standard salary and highly compensated employee total annual compensation levels more regularly. The Department currently enforces a salary level set in 2004.
• In recognition of evolving practices in compensation, the Department will permit employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.
• If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the Department will permit the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.
• There are no changes to the job duties test.

This new rule will go into effect in a couple of months. Now is the time for employers to review their compensation structures and analyze the portion of their workforce that may be eligible for overtime once the new rule goes into effect. This article is meant to educate the reader on the general parameters of the new DOL rule and is not intended to act as legal advice. Lamb McErlane PC can assist you in understanding how this rule may apply to your specific circumstances and we encourage you to seek legal advice on this topic.

Mary-Ellen H. Allen is co-chair of the Employment Law Department of Lamb McErlane PC and a member of the Litigation Department. She concentrates her practice in employment law and commercial litigation. mallen@lambmcerlane.com / 610-701-4420.

This publication is for general information and should not be construed as legal advice on any subject matter.