After over three years of waiting, on September 24th, 2019 the Department of Labor released its long-awaited final overtime rule, increasing the standard salary threshold for exempt status to $684 per week (up from the current $455 per week floor), or $35,568 per year on an annual basis. The new rule takes effect on January 1st, 2020, providing the first overtime salary adjustment in more than 10 years.
Overview of the New Rule
Effective January 1, 2020:
- Employees must be paid a salary of at least $684 a week ($35,568 annually) and meet certain duties tests to be exempt from overtime under the federal Fair Labor Standards Act (FLSA). If they are paid less than the threshold or do not meet the tests, they must be paid time and a half for all time worked beyond 40 hours in a workweek.
- Nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may be used to satisfy up to 10 percent of the standard salary level.
- The salary threshold for highly compensated employees increases to $107,432 a year, up from $100,000. Of this amount, $684 must be paid weekly on a salary or fee basis. Highly compensated employees are eligible for exempt status if they meet a reduced duties test. The duties test previously used for determining exempt status will not change with the new rule.
The new rule does not include automatic adjustments to the exempt salary threshold. However, the DOL plans to update thresholds more regularly in the future.
Considerations for Employers
In light of this new rule, employers should audit their files and identify any exempt workers who are earning below the new threshold amount. They should also examine employees’ job descriptions to ensure that those descriptions accurately depict the true duties of each position and review whether all employees are correctly classified as exempt or non-exempt under the FLSA, as well as the Service Contract Act.