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New Year...New Overtime Rules!

January 02, 2020

Along with the fireworks and other celebrations that welcomed the New Year, January 1, 2020 also marked the beginning of new increased salary threshold requirements that employers must meet to claim overtime exemptions for employees under the Fair Labor Standards Act (FLSA). Employers who have not already made adjustments to the new standards face some significant compliance decisions.   

As previously reported in eLABORate, back in September the U.S. Department of Labor issued a much-anticipated final rule updating the salary thresholds necessary to exempt executive, administrative and professional employees from the minimum wage and overtime pay requirements of the FLSA. The DOL also updated the total annual compensation requirement for “highly compensated employees.” The updates are more modest than the Obama-era updates that were issued in 2016 but subsequently blocked by a federal court in Texas after prolonged litigation.

The new rule now in effect makes three significant changes to the salary/compensation needed for employees to fall under the exemptions for overtime pay requirements:

  • Employees must be paid on a salary basis of at least $684.00 per week (or $35,568.00 per year). The previous requirement had been $455.00 per week (or $23,660 per year).
  • For employers to claim the “highly compensated exemption”, employees must be paid at least $107,432.00 per year, a slight increase over the previous requirement of $100,000.00.
  • The new Rule allows employers the option of using nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level so long as these are paid at least annually.

Unlike the Obama-era attempts to revise the Rule, the DOL’s final rule does not include automatic updates to the new salary thresholds. Instead, the DOL intends to update the salary thresholds with greater regularity than in the past, using notice-and-comment rulemaking. The new Rule does not alter the duties tests that apply to the various overtime exemptions, which also must be met.

Employers who are currently treating employees as exempt but not meeting the new salary requirements have a number of options, including:

  • Increase the pay of the employees to at least $684.00 per week to maintain the exemption and similarly increase the salary of any highly compensated employees to at least $107,432.00 per year.
  • Convert any employees currently treated as exempt to hourly employees, and pay overtime and/or adjust schedules and take other steps to limit overtime work by employees. Overtime is time and a half (or 1.5 times) the employee’s regular rate of pay for any hours worked over 40 during a workweek.

Employers who improperly or mistakenly claim exemptions under the FLSA run a significant risk of costly litigation over unpaid overtime. Employers unsure of whether they are properly claiming exemptions under the FLSA should consult with their legal counsel.