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USDOL Issues Long-Awaited Update to Overtime Rules: Salary Threshold for Exempt Status Increased

Today, September 24, 2019, the United States Department of Labor (USDOL) published its long-awaited Final Rule expanding overtime eligibility. Under the Final Rule, which will become effective on January 1, 2020, employers may have to pay overtime to employees who never previously qualified for overtime pay because they were classified as "exempt" under the Fair Labor Standards Act (FLSA).

Currently for a salaried employee to meet the threshold element of any of the "white-collar" overtime exemptions (e.g., executive, administrative, learned professional) under the FLSA, he/she must earn $455 a week (or $23,660 per year). Under the Final Rule, a salaried employee will have to earn $684 per week (or $35,568 per year) to be exempt from earning overtime pay.

One notable exemption applies to "highly compensated" employees (those employees currently compensated more than $100,000 annually who primarily perform office or non-manual work). The Final Rule increases the salary threshold to $107,432 annually for an employee to fall within the "highly compensated" employee exemption.

One benefit for employers under the Final Rule is that, for the first time, employers will be able to use non-discretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy 10 percent of the salary thresholds.

Another benefit for employers is that the USDOL did not make any change to the "duties" test applicable to each overtime exemption. Therefore, an employer may be able to rely upon its prior analysis as to each employee's actual duties when determining if the employee falls within a particular overtime exemption (provided that employee will meet the new salary thresholds).

Come January 1, 2020, however, employers may find that a significant number of employees, who were previously exempt from overtime pay, are entitled to earn overtime (in light of the increased salary thresholds) when they work more than 40 hours in a given work week.

It is imperative that employers begin to evaluate the status of their employees to determine whose status as exempt or non-exempt may be affected by an increase in the salary thresholds. From there, an employer must determine whether to raise any affected exempt employee to the requisite new salary level by January 1, 2020 so he/she remains exempt from overtime pay. If that is not practical, then the employer must determine whether any employee needs to be reclassified from exempt to non-exempt and paid an overtime premium for any hours worked over 40 in a work week (starting January 1, 2020) to comply with the Final Rule and the overtime obligation under the FLSA. An employer is also well-advised to review its non-discretionary bonus and incentive pay plans to determine whether they can use such payments towards meeting the new salary thresholds.

Connell Foley's employment law attorneys are available to assist employers with navigating all of the nuances that come with this significant change in the overtime exemption landscape, including reviewing job descriptions and essential job functions to provide counsel on whether the applicable “duties” test can be established, reviewing compensation information as to the “salary” test, and conducting managerial training to guide employers with implementation of best practices.

  • Partner

    Michael Shadiack is the Chair of Connell Foley’s Labor and Employment Practice Group. Representing a broad spectrum of employers and management personnel in the private and public sectors, he provides litigation defense and ...

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