Yesterday, the U.S. Department of Labor announced here that it will issue a final overtime rule today. Most notably, the DOL is updating the earnings thresholds necessary to exempt executive, administrative and professional employees (EAPs) from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements.
Below, I’ll address that new salary level and just about everything else that employers need to know about this new rule:
- What is the new salary level? The DOL is raising the “standard salary level” from the currently enforced level of $455 per week ($23,660 per year for a full-year worker) to $684 per week (equivalent to $35,568 per year for a full-year worker). (The DOL is also raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year).
- Why $35,568? It is the standard salary level to the 20th percentile of full-time salaried workers in the lowest-wage Census Region (the South) and/or in the retail industry nationally using current data.
- Does that mean that all employees earning a salary of $35,568 or more per year are exempt from the OT rules? No. Salary level is just one of the boxes that employers must check before an employee qualifies as an EAP. Here are the others. (Note: EAP employees must receive a salary; piece rate or hourly employees don’t qualify regardless of income).
- What if we pay our employees nondiscretionary bonuses or other incentive payments? The final rule permits employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.
- How many individuals will these new overtime rules impact? 1.3 million American workers will be newly eligible for overtime pay.
- In a nutshell, what are the overtime rules? The FLSA requires that covered employers pay minimum wage ($7.25) and overtime (time and a half on more than 40 hours worked in a workweek) to employees unless they are exempt from these requirements. The exemptions are few and narrowly construed. Most of them require, among other things, that an employee is paid a certain amount in salary.
- Will the FLSA duties test change too? No. “Primary duty” will continue to mean the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.
- How does the final rule differ from the proposed rule? Not much. More on that here.
- When will the final rule take effect? The DOL has set an effective date of January 1, 2020, for the final rule.
- Will the salary-level exemption shoot up nearly $12,000 all at once? Yes.
- Many states and business groups sued last time to block the new OT rules. Might that happen again? We’ll see. There was some chatter about it earlier this year.
- What else can we do to get ready for these changes? If you have currently exempt employees making less than $684/week, you’ve got some decisions to make. That is, do you raise salaries? Convert them to hourly? Keep them at their current salary (and limit OT opportunities)? Or violate the law and clutch your pearls? Now is also a good time to ensure that employees are currently classified correctly (exempt versus non-exempt; employee versus independent contractor; etc.). Plus, you’ll want to make sure that any changes you make comply with state law too.
If ever there was a time to involve an employment lawyer in your HR and business planning, this is the one. Violations of the FLSA carry stiff penalties and often result in class/collective action litigation.