On September 24, 2019, the Department of Labor (“DOL”) issued a final rule on overtime exemption under the Fair Labor Standards Act (“FLSA”) that is likely to impact more than 1.3 million American workers and their employers. The rule, to take effect January 1, 2020, increases the salary that “white collar” employees must earn to be exempt from overtime and minimum wage requirements, raising the threshold from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). The final rule also raises the exemption threshold for “highly compensated employees,” who are still subject to a more minimal duties test, from $100,000 to $107,432 annually.

Are you prepared for January 1?

For employers to establish that an employee is exempt from overtime requirements under the “white collar exemption,” three criteria must be satisfied:

  1. The employee must be paid on a salary (not hourly) basis not subject to reduction based on quality or quantity of work;
  2. The employee must be paid at least $684 per week or $35,568 annually (the new “Salary Level Test”); and
  3. The employee’s primary job duty must involve the kind of work that qualifies as exempt, that is, they are employed in a bona fide executive, administrative, professional or computer position, as defined by the regulations.

The final rule issued by the DOL only modifies the Salary Level Test above; the other two criteria are unchanged.

In addition, under the new rule, up to 10% of an employee’s annual non-discretionary bonuses and/or incentive payments (including commissions) can be counted toward meeting the salary level as long as such bonuses and/or incentive payments are paid at least on an annual or more frequent basis. In addition, if an exempt employee does not earn enough in non-discretionary bonuses or incentive payments (including commissions) in a given year (a 52-week period) to retain the salary level required for exempt status, an employer may provide a “catch up” payment within one pay period at the end of the 52-week period. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.

It is imperative that employers promptly assess the impact the DOL’s new rule will have on their business and on their employees. By taking proactive steps now, employers may minimize the impact of the new overtime rules before they go into effect on January 1, 2020. For questions or assistance regarding the new rules, please feel free to contact us.