Just a few years ago, employers were preparing to follow what were to become new overtime rules that were going into effect near the end of the Obama administration. Those rules were sidetracked by an unexpected court ruling that struck the new rules down and declared them to be unenforceable. Since that time, employers have been waiting on what, if anything, the United States Department of Labor (“USDOL”) would do with this issue with a new administration in power in Washington, D.C. We received that answer this week on September 24, 2019 when the USDOL promulgated new final rules that will apply to overtime eligibility determinations starting in 2020.
The new provisions update the Fair Labor Standards Act’s (FLSA) regulations and minimum salary thresholds needed for executive, administrative, and professional employees to be exempt from overtime. These final rules will go into effect on January 1, 2020.
Here are the changes that are being made by the new rules:
- The standard salary threshold for classifying an employee as exempt from overtime increases to $684 per week ($35,568 annually), up from $455 per week ($23,660 annually).
- The minimum salary threshold for the Highly Compensated Employee (HCE) exemption increases to $107,432 annually, up from $100,000.
- Nondiscretionary bonuses, incentive pay, and commissions, may make up to 10 percent of this standard income threshold, as long as they are paid at least annually.
- Special salary levels for workers in United States territories and the motion picture industry will be revised.
So, what should employers do while waiting for the new rules to go into effect? Like many employers did when the overtime rules were expected to change during the Obama administration, employers should conduct an audit of its workforce and determine how these regulations might affect your current payroll practices. It is believed by the USDOL that, due to these new regulations, an additional 1.3 million employees will be now eligible for overtime. Therefore, if you have employees who were classified as exempt because of their meeting the older salary test standard, employers will now need to decide if they want to raise what those employees are being paid to the higher 2020 salary level to maintain the exemption or reclassify those employees as non-exempt moving forward.
Ralph R. Smith, 3rd is Co-Chair of the Employment and Labor Practice Group. He practices in employment litigation and preventative employment practices, including counseling employers on the creation of employment policies, non-compete and trade secret agreements, and training employers to avoid employment-related litigation. He represents both companies and individuals in related complex commercial litigation before federal states courts and administrative agencies in labor and employment cases including race, gender, age, national origin, disability and workplace harassment and discrimination matters, wage-and-hour disputes, restrictive covenants, grievances, arbitration, drug testing, and employment related contract issues.