New Overtime Rule Raises Salary Cut-Off

Finally!  The DOL has announced the new Overtime Salary Threshold.  Employees who make less than $35,568 are now eligible for overtime pay under a final rule issued today by the U.S. Department of Labor (DOL). The final rule will take effect on January 1, 2020.

U.S. Department of Labor Issues Final Overtime Rule

Today the U.S. Department of Labor announced a final rule to make 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act (FLSA).

“For the first time in over 15 years, America’s workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans,” Acting U.S. Secretary of Labor Patrick Pizzella said. “This rule brings a common-sense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers.”

“Today’s rule is the thoughtful product informed by public comment, listening sessions, and long-standing calculations,” Wage and Hour Division Administrator Cheryl Stanton remarked. “The Wage and Hour Division now turns to help employers comply and ensure that workers will be receiving their overtime pay.”

The final rule updates the earnings thresholds necessary to exempt 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/commissions towards meeting the salary level. The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004. In the final rule, the Department is:

  • raising the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);
  • raising the total annual compensation level for “highly compensated employees (HCE)” from the currently-enforced level of $100,000 to $107,432 per year;
  • allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices; and
  • revising the special salary levels for workers in U.S. territories and in the motion picture industry.

The final rule will be effective on January 1, 2020.

The increases to the salary thresholds are long overdue in light of wage and salary growth since 2004. Nearly every person who commented on the Department’s 2017 Request for Information, participated at listening sessions in 2018 regarding the regulations, or commented on the Notice of Proposed Rulemaking agreed that the thresholds needed to be updated for this reason.

A 2016 final rule to change the overtime thresholds was enjoined by the U.S. District Court for the Eastern District of Texas on November 22, 2016, and was subsequently invalidated by that court. As of November 6, 2017, the U.S. Court of Appeals for the Fifth Circuit has held the appeal in abeyance pending further rulemaking regarding a revised salary threshold. As the 2016 final rule was invalidated, the Department has consistently enforced the 2004 level throughout the last 15 years.

Review Job Descriptions and Budgets

To ensure compliance with the new rules, employers should immediately take the following actions:

  • Pull data for exempt workers earning below the threshold
  • Review budgets, and consider what positions might need restructuring
  • Identify positions you might reclassify to nonexempt or give a salary increase
  • Weigh the cost of raising employee salaries above the new threshold against the cost of reclassifying employees as nonexempt and paying overtime
  • Forecast financial ramifications for changes in labor costs necessitated by changes in the rules
  • Consider when, practically speaking, you should implement changes

More information about the final rule, along with a Small Entity Compliance Guide, is available at www.dol.gov/whd/overtime2019/.

Please contact us with any questions.

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