On September 24, 2019, the U.S. Department of Labor announced a final rule, updating Section 13(a)(1) of the FLSA, which exempts certain employees from overtime protection.

Under the current rules, an employee is exempt from overtime protection if they are paid on a salary basis; perform exempt job duties (executive, professional, or administrative); and are paid at least the standard salary level of $23,600 per year ($455 per week). An employee is also exempt from overtime pay if they qualify as a highly compensated employee, which is an employee making over $100,000 per year.

Under the new rule, the Department is raising the standard salary level to $35,568 per year ($684 per week) and is raising the total annual compensation requirement for highly compensated employees to $107,432 per year. To be exempt as a highly compensated employee, one must also receive at least the new standard salary amount of $684 per week on a salary or fee basis.

Additionally, the updated rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level. The final rule also allows employers to make a catch up payment to employees who have not earned enough in non-discretionary bonus or incentive payments to retain exempt status. This payment must come within one pay period of the end of the 52-week period and it may only be for up to 10 percent of the total standard salary level for the preceding 52-week period.

Overall, the Department estimates that 1.2 million additional workers will be entitled to overtime pay as a result of the increase to the standard salary level and an additional 101,800 workers will be entitled to overtime pay as a result of the increase to highly compensated employee threshold. This final rule will become effective on January 1, 2020.

Authored by Paul Wilk

Department of Labor Overtime Rule Update

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