Department of Labor Issues Final Overtime Exemption Rule

On Tuesday, September 24, 2019, the U.S. Department of Labor issued its much-awaited final rule governing the salary level for overtime exemptions under the Fair Labor Standards Act (FLSA). The increased salary threshold will apply to white collar employees falling within the Administrative, Executive, and Professional exemptions, and the final rule also provides guidance as to the highly compensated exemption. The long-awaited new threshold takes effect January 1, 2020.

Importantly, the final rule does not change the “duties” test and preserves the requirement that, to be classified as exempt from overtime, an employee must meet both the salary and the duties test.

Effective January 1, 2020, the new rule will:

• Increase the salary threshold for the overtime exemptions to $35,568 ($684/week);
• Increase the salary threshold for “highly compensated employees” to $107,432;
• Establish specified salary thresholds for employees in certain U.S. territories (generally lower) and those employed in the motion picture industry (generally higher); and
• Allow the inclusion of certain nondiscretionary bonuses and incentive payments to constitute up to 10% of the salary threshold.

The new rule increases the salary threshold for the first time since 2004. Notably, however, the final rule does not contain a provision for automatic future increases to the salary threshold, something both the 2016 and 2019 proposed rules contained. Also notable, the final threshold for highly compensated employees is approximately $40,000 lower than proposed in March 2019, a stark shift from the expected and far lower even than the $134,004 threshold proposed in 2016.

The takeaway for employers is that now is the time to audit their workforce, taking time to evaluate whether currently exempt employees will meet the new salary threshold as well as whether employees classified as exempt continue to meet the duties test.

Employers should consult with counsel to ensure compliance with both this new rule as well as state and local laws, which may differ significantly.