The U.S. Department of Labor (the “DOL”) has issued a final rule to expand worker eligibility for overtime compensation under the Fair Labor Standards Act (“FLSA”). The new rule increases the salary thresholds required for white-collar and highly compensated exemptions. It does not address the duties tests, which remain the same. Though the new salary thresholds are greater than at present, they are far less than the DOL’s rule announced back in May of 2016, the implementation of which was enjoined, nationwide; then with the election of a new President, stalled; and eventually rescinded by the DOL, until now.
Under the mid-May 2016 Obama administration rule, the salary threshold would have increased from $455/week ($23,660 annually) to $913/week ($47,476 annually) for the white-collar exemptions and from $100,000 a year to $134,004 a year for highly compensated individuals.
The final rule announced on September 24, 2019, increases the earnings threshold required to exempt highly compensated employees, and executive, administrative, or professional employees, from the FLSA’s minimum wage and overtime pay requirements and allows employers to count a portion of certain bonuses and commissions towards meeting the salary level for executive, administrative, or professional employees, but not for highly compensated employees.
In particular, the DOL’s final rule makes the following key changes:
- The minimum compensation for so-called highly compensated employees has increased from $100,000 to $107,432 per year (with at least $684 being paid on a weekly basis, while the remainder of the total annual compensation may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation);
- The standard salary level for white-collar employees has increased from $455 to $684 per week, which is equivalent to $35,568 per year; and
- Employers will now be permitted to use non-discretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to (but no greater than) 10% of the standard salary level for white-collar employees.
There are two additional items of note. First, if a white-collar exempt employee does not earn enough in total compensation (base salary, non-discretionary bonuses, and incentive payments, including commissions) in a given 52-week period to retain their exempt status, the final rule permits employers to make a “catch-up” payment within a single pay period at the end of the 52-week period. However, the catch-up amount may not exceed 10% of the standard salary level (calculating to $3,556.80 per year, at present). If the employer chooses not to make the catch-up payment, the employee will be entitled to overtime pay for any overtime hours worked during the previous 52-week period. Employers therefore will be well-advised to keep track particularly of those employees who are being paid at a rate that is close to the standard salary level, as revised by the final rule, so as to avoid the possibility of having to pay overtime for the prior 52-week period.
Second, employers may not use non-discretionary bonuses and incentive payments (including commissions) to satisfy the required minimum weekly salary payment ($684) for highly compensated employees.
Finally, the DOL declined to adopt a mechanism that would automatically update the salary threshold in the future but stated its intent to update the regulations more consistently.
The final rule takes effect January 1, 2020.
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