On September 24, 2019, the U.S. Department of Labor announced a final rule that the agency estimates will make 1.3 million American workers newly eligible for overtime pay. Starting January 1, 2020, the salary threshold for an “exempt” employee under the Fair Labor Standards Act (“FLSA”) will increase from $455 per week ($23,660 annually) to $648 per week ($35,568 annually). Workers who do not earn at least $35,568 annually must be paid overtime. The Department of Labor will allow employers to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the $35,568 salary threshold.
For salaried employees earning more than $35,568 annually, the other rules for determining eligibility for overtime have not changed. DOL regulations establish three (3) main exemptions for “white-collar” employees – executive, administrative and professional. Salaried employees earning more than $35,568 annually need not be paid overtime if they perform all of the defined “duties” associated with one of these categories. The employee must perform each job duty under one of the exemption categories to satisfy this test. A job title alone is insufficient to establish the exempt status of an employee.
The DOL’s final rule also raises the total annual compensation requirement for “highly compensated employees” from $100,000 per year to $107,432 per year. To fall under this exemption, the employee must regularly perform any one or more of the exempt duties or responsibilities of an executive, professional or administrative employee. What should employers be doing now to prepare for these changes? If you have employees regularly working beyond 40 hours a week, take a fresh look at their duties and confirm that they satisfy the duties test under the FLSA. Prepare to make salary adjustments if necessary to satisfy the new salary threshold, or reallocate workloads so that non-exempt employees remain within a 40-hour work week. Penalties for non-compliance with the FLSA are severe, so plan ahead and start thinking about any staffing or compensation changes you may need to make for the upcoming year.