CLIENT ALERT: DOL Final Rule: Overtime Exemptions and Salary Thresholds Update

Yesterday the Department of Labor announced a final rule updating the earnings thresholds necessary to exempt executive, administrative, or professional employees from the FLSA’s minimum wage and overtime pay requirements, and allowing employers to count a portion of certain bonuses (and commissions) towards meeting the salary level.

The FLSA requires that covered, non-exempt workers are paid overtime—one and a half times their regular rate of pay—for all time worked in excess of 40 hours within any given seven-day workweek (with some work period differences for police and fire). When classifying workers as either exempt or non-exempt from overtime requirements, an employer must first determine whether an employee is paid on a salaried, and not hourly basis, and meets the salary minimum to be considered exempt under the FLSA’s executive, administrative and professional exemptions, also known collectively as the “white collar exemptions.” Employees earning more than the minimum must still meet the duties tests of the exemptions in order to be classified as exempt.

The final rule increases the minimum salary threshold for the white collar exemptions from $23,660 ($455 per week) to $35,568 a year ($684 per week). The final rule also allows employers to count certain nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the minimum salary threshold. This means employers need to look both at an employee’s yearly salary and any objective payments when determining their classification under the overtime rules. Additionally, the final rule permits an employer to make a catch-up payment at the end of the year to bring an employee up to the minimum salary threshold.

The final rule also increases the salary threshold for the Highly Compensated Employee (“HCE”) exemption from $100,000 to $107,432 per year. Employees who qualify under the HCE exemption are subject to a less stringent duties test.

The new final rule is effective January 1, 2020, but employers with exempt employees who make less than the salary thresholds listed above are advised to take action now to prepare for the implementation of the rule, either by reclassifying these employees as nonexempt, or by raising their compensation above the new minimum. The DOL published a fact sheet addressing the final rule that can be referenced here.

Employers with questions or those that would like assistance preparing for these changes should contact Sheila Gladstone, Chair of the Firm’s Employment Practice Group. If you would like additional information or have questions related to this article or other matters, please contact Sheila at 512.322.5863 or sgladstone@lglawfirm.com.