U.S. Department of Labor issues final rule for FLSA overtime pay

On Sept. 24, 2019, the U.S. Department of Labor (DOL) released a new final rule for white collar overtime exceptions under the Fair Labor Standards Act (FLSA). It is expected to go into effect Jan. 1, 2020. This new rule raises the salary threshold for overtime pay from $23,660 or $455/week to $35,568 or $684/week, which is slightly more than the proposed rule that had recommended an increase to $35,308 or $679/week. According to the DOL, this new salary threshold will make an additional 1.3 million employees eligible for overtime pay when working more than 40 hours in one week.

In addition to raising the salary threshold, the final rule also increases the total annual compensation level for “highly compensated employees” from $100,000 to $107,432. This is significantly less than the proposed rule’s recommended level of $147,414. The new rule allows employers to use nondiscretionary bonuses and incentive payments, including commissions, which can be paid annually to satisfy up to 10% of the standard salary levels. The final rule does not provide for automatic adjustments of the salary thresholds but the DOL indicated that it is expected to issue proposals to update the thresholds every four years.  

As welcome news to employers, the final rule makes no changes to the duties test. As many employers recall, an earlier attempt to increase the salary thresholds by the Obama administration was halted by court challenge just before its effective date of Dec. 1, 2016. This new rule may likewise face court challenge but because the increases were modest and tracked earlier through unchallenged methodology from 2004, it is expected the new rule will survive and go into effective on Jan. 1, 2020. Failing to comply can be costly. Wage and hour litigation under the FLSA is expensive, particularly with statutory penalties, and employees can recover their litigation costs and reasonable attorneys’ fees.

Employers should prepare to be in compliance on Jan. 2, 2020, by reviewing their employees’ pay to determine whether their currently exempt employees’ salaries will meet the new thresholds and to ensure that they are paying these employees on a salary basis. Employers should also use this time to test their employee classifications to make sure that each exempt position satisfies the white collar duties tests.  

Questions regarding employees’ classifications or the application of the new rule should be directed to one of Chuhak & Tecson’s Employment attorneys. 

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Jeralyn H. Baran, Principal