Effective January 1, 2020, U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) will implement new thresholds for exemption from both the overtime and minimum wage provisions of the Fair Labor Standards Act (FLSA). The long-awaited updates to the rule will set the salary level at a minimum of $684 per week ($35,568 annualized) for exempt executive, administrative and professional employees under section 13(a)(1) of the FLSA. The threshold for highly compensated employees will also increase to $107,432. Keep in mind that the day-to-day duties of an employee must also fall within the applicable exemption.
In addition to finalizing the salary amount test for exempt employees and the total annual compensation requirement for highly compensated employees, following are other key points of the final rule to keep in mind:
- It allows employers to apply non-discretionary bonus and other incentive payments to satisfy up to 10 percent of the standard salary level, so long as such non-discretionary payments are paid at least annually.
- It does not include an automatic increase; thus, increases will require additional rulemaking.
- The final overtime (part 541) rule does not make any changes to any of the duties tests for these exemptions.
The DOL has been working to update these regulations since 2015, when it proposed to increase the minimum salary level for exemption to $913 per week ($47,476 annualized). Extensive litigation ensued as employer-aligned interests brought suit challenging the 2016 final overtime rule. A Texas judge eventually enjoined the rule and it never went into effect. Future legal challenges may also arise surrounding the 2019 final overtime rule.
In the interim, employers should review the classification of employees to ensure they are properly classified as exempt or nonexempt, meeting not only the new salary threshold for exempt employees, but also the duties test of the applicable exemption. The lawyers at Faulkner Law Offices, PLLC have decades of experience in wage and hour matters and stand ready to assist.