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DOL Finalizes New Overtime Rule

September 27, 2019 by Morgan Elwell

On Tuesday, September 24, 2019, the United States Department of Labor announced a final rule change on overtime requirements under the Fair Labor Standards Act  (FLSA).  Employers should be aware of this new rule, which takes effect on January 1, 2020.

The new rule increases the earnings threshold required to qualify for a “white collar” exemption under the FLSA’s overtime requirements.  The rule also increases the annual compensation level required to qualify as a “highly compensated” employee.

Salary Threshold Increases to $35,568

The current salary threshold to qualify under the executive, administrative, and professional employee exemptions under the FLSA is $455 per week, an amount that has not changed since 2004.  Employers may remember that the Obama administration proposed a higher salary threshold in 2016, but a Texas federal district court invalidated that rule before it took effect.  The new rule raises the weekly salary requirement to $684 per week, which equals $35,568 per year.  The new rule also permits employers to use nondiscretionary bonuses and incentive payments (including commissions) paid on at least an annual basis to satisfy up to 10% of the minimum salary level.  If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the DOL permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period.  Employers must be careful, however, because if they miss the catch-up payment or miscalculate the amount owed, the employee will be entitled to overtime pay for all overtime that he or she worked over the entire year.

Notably, the new rule does not alter the duties-test component of the overtime requirements.

Highly Compensated Employee Salary Threshold Increases to $107,432

The new rule also increases the total annual compensation level for “highly compensated employees” from $100,000 to $107,432.  Highly compensated employees must receive the guaranteed minimum salary of $684 each week, but the remaining compensation may be in commissions, bonuses, or other type of compensation as long as it equals at least $107,432 for the year.

No Automatic Salary Updates

Unlike the 2016 rule that was overturned, the new rule does not contain a mechanism for periodically increasing the salary level.  The DOL intends to propose further updates to the salary threshold; however, these updates would not be automatic and would continue to require notice-and-comment rulemaking.

Finally, special new salary levels will apply to certain U.S. territories and employees in the motion picture industry.

Employers should take note (and update their policies and procedures) to comply with this new legal requirement. For assistance with this and other employment matters, contact the OFP Labor and Employment group, or the professional who typically handles your matters at 703-218-2100.

Disclaimer: The information contained herein is provided for informational purposes only and should not be construed as legal advice on any subject matter. This information contained herein is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice. Any information contained in this article is not intended to be a substitute for legal counsel. No one should act or refrain from acting on the basis of any content included in this article but should instead seek the appropriate legal advice on the particular facts and circumstances at issue from a properly licensed attorney. The author expressly disclaims all liability in respect to actions taken or not taken based on any of the contents of this article. This article contains general information and may not reflect current legal developments.

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