The Department of Labor (“DOL”) has revised its Overtime Rule that updates the earnings thresholds necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime pay requirements. The revisions largely mirror the DOL’s proposed changes from spring 2019. The new rule sets the salary threshold for white collar exemptions at $684 per week (or $35,568 per year). The new rule, and the new salary thresholds, take effect on January 1, 2020.

The threshold is slightly higher than the $35,308 proposed in the initial draft of the rule and is the first increase – not counting proposed changes in 2016 that were enjoined by a federal court – since 2004, when the DOL set the current threshold of $455 per week. According to a senior DOL official, the new regulations will make an estimated 1.3 million additional U.S. workers eligible for overtime pay. 

According to the DOL, the new salary threshold is intended to account for wage growth since the 2004 rulemaking by applying the same method and calculations they used to set the level in 2004 – using the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region. While the new rule does provide for automatic increases in the salary threshold, the DOL says it is reaffirming “its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking” because “lengthy delays between updates necessitate disruptively large increases when overdue updates finally occur.”

It also allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the required salary level. In other words, if an employee’s annual pay is less than the required threshold, an employer may to make a “catch-up” payment within one pay period of the end of the 52-week period of up to 10 percent of the employee’s total salary in order to satisfy the minimum salary threshold. The DOL does warn “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.”

The new rule also increases the salary basis for so-called “highly compensated employees” (employees for whom only a minimal showing is needed to establish they are exempt) from the current level of $100,000 to $107,432 per year, lower than in DOL's initial draft but still higher than the previous threshold of $100,000. Finally, and critically, the final rule does not change any of the existing job duties tests.
 
If you have questions about how this new rule impacts your business, reach out to a member of Spilman's Labor & Employment Team.