September 26, 2019Client Alert

The DOL Announces Final, Increased Overtime Thresholds

Yesterday, the U.S. Department of Labor (DOL) issued its final rule updating the salary threshold requirements for the “white collar” overtime exemptions under the Fair Labor Standards Act (FLSA). The final rule is substantially similar to the proposed rule changes we reported on in March of this year. The differences are noted below. 

The changes will go into effect January 1, 2020, and are expected to impact 1.3 million workers. Here are the highlights:

  • The final rule increases the current $455/week salary threshold (set in 2004) to $684/week for the Executive, Administrative, and Professional exemptions (EAP Exemptions), including Computer Professionals. The final threshold is $5 higher than the proposed threshold.
  • Thus, the threshold for the salary test would increase to $35,568 per year from the current $23,660. This new level is approximately the midpoint between the 2004 threshold and the Obama Administration’s court-invalidated proposal of $47,476.
  • The final rule also increases the “Highly Compensated Employee” (HCE) Exemption from $100,000 to $107,432 per year. Notably, this figure is substantially less than the $147,414 figure proposed in the DOL’s March 2019 proposed rule change.
  • The rule allows up to 10% of the required annual salary level for the EAP Exemptions to be satisfied through payment of non-discretionary bonuses and commissions. Employers may continue to include non-discretionary bonuses and incentive payments toward the HCE total annual compensation requirement. If an employee’s salary level does not meet the applicable exemption’s annualized threshold because his/her employment terminates before the end of the 52-week period, the employer has one pay period to make a catch up payment.
  • The rule revises the special salary levels for workers in U.S. territories, including American Samoa ($380/week) and Puerto Rico, U.S. Virgin Islands, Guam, and the Northern Mariana Islands ($455/week). The rule also sets a special base rate of $1,036 for the motion picture industry.
  • The DOL committed to update the FLSA’s salary thresholds more regularly, using notice-and-comment rulemaking. It declined to adopt the proposed rule’s rigid 4-year review period because it lacked flexibility to update the earnings thresholds in a manner that is tailored to wages and economic conditions.

Notably, the DOL:

  • Did not make any changes to the “duties tests” of the EAP or HCE Exemptions.
  • Did not establish different salary levels for different regions of the country.
  • Did not establish different salary levels for different types of employers, such as non-profits or educational institutions.
  • Did not revise recordkeeping requirements.
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