For the first time in 15 years, the US Department of Labor is updating the minimum weekly standard salary level for an employee to qualify as “exempt” from overtime requirements of the FLSA. The new threshold is an update of the minimum threshold that was last set in 2004. Since then, there have been no cost-of-living or other adjustments to these thresholds.
The DOL estimates that as a result of the final rule, 1.3 million currently exempt employees will become nonexempt (unless, of course, their weekly rates of pay are increased to meet or exceed the new minimum salary thresholds). No changes were made to the “duties” test for the exemptions.
The final rule, effective as of January 1, 2020, raises the “standard salary level” approximately 50% from the currently enforced level of $455 per week to a new minimum of $684 per week. This is equivalent to $35,568 per year ($17.10 per hour) for a full-time, full-year worker. The rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent ($3,557) of the standard salary level, in recognition of evolving pay practices. 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.
Readers may recall that an even larger increase was approved by the DOL under the Obama Administration in 2016, but the implementation of that rule was enjoined and later invalidated by a Texas federal judge on the grounds that the DOL overstepped its authority in its implementation of that rule. The U.S. Court of Appeals held the DOL’s appeal of that decision in abeyance pending further rulemaking regarding a revised salary threshold. This latest new rule was the result.
The net result is that employees who make less than the threshold and are classified as exempt must be reclassified as non-exempt (with the time recording and overtime premium pay requirements that go along with that nonexempt classification) or given a raise to hit that new threshold level. Employers also will need to update their Workplace Posters in light of the new rule.
An employer’s failure to comply with the new threshold may and likely will result in significant adverse consequences by way of action by the DOL or a private party lawsuit or collective action, resulting in the employees recovering back pay, liquidated damages (a penalty equal to the amount of the back pay) and payment of the employees’ attorneys fees which, in the collective action context, can easily exceed to backpay and liquidated damage award.
The Department’s final rule is available at http://www.dol.gov/whd/overtime2019.
Bill Egan is a Seasoned Employment Law Attorney backed by over 33 years of proven, veteran experience. He specializes in navigating businesses through conflict resolution in the workplace.