09/26/2019

DOL Issues Final Overtime Rule

The rule will take effect on Jan. 1, 2020

On Sept. 24, 2019, the U.S. Department of Labor (DOL) made the long-awaited announcement on the Final Overtime Rule, which increases the earnings thresholds necessary for the Executive, Administrative, Professional, and Highly Compensated Employee exemptions from the Fair Labor Standards Act (FLSA). The rule will take effect on Jan. 1, 2020.

Summary of the final rule:

1. The minimum salary threshold for the executive, administrative and professional exemption statuses was raised from $455 to $684 per week or $26,660 to $35,568 per year;
2. The total annual compensation requirement for highly-compensated employee (HCEs) increased from $100,000 to $107,432 per year;
3. Employers are permitted to use non-discretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the minimum salary threshold;
4. There were no changes to the duties tests;
5. The DOL stated it would update earnings thresholds more regularly, but no schedule was released; and,
6. In this final rule, the DOL rescinds the 2016 final rule.

Why all the hype?

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, record-keeping, and youth employment standards affecting employees in the private sector and Federal, State, and local governments. If an employee meets certain conditions they may be exempt from overtime and/or minimum wage. Employee exemption types included in the Final Rule are: executive, administrative, professional (EAP) and are only exempt from overtime. To qualify for the exemption, employees must meet certain duties tests and be paid on a salary basis not less than $455 per week (effective 1/1/2020: $684 per week or $35,568 per year). Be careful, job titles do not determine exempt status.

History of the Final Rule

In 2016, the DOL under President Barack Obama issued the previous final rule, which would have raised the salaried earnings threshold from $455 per week to $913 per week or $23,660 to $47,476 annually. Several states and business groups challenged the rule. The 2016 rule was blocked just days before it was to take effect by a Texas federal district court issuing a preliminary injunction, leaving the nation in limbo for three (3) years.  With the issuance of the 2019 final rule, the 2016 rule has been rescinded.

As an employer, what should you do?

Analyze your current pay plans and determine if each position’s exemption status will still apply. If you have questions, contact your human resources representative.