U.S. Department of Labor announces final overtime exemption rule

The federal Fair Labor Standards Act (FLSA), the primary federal wage and hour law in the United States, generally sets minimum requirements that covered employers must pay minimum wages and overtime to covered employees. As is the case with most broad-reaching laws, the FLSA also comes with a series of exceptions, among these a set of exemptions under which certain executive, administrative, and professional employees need not be paid additional wages for overtime hours.

In order to qualify for this overtime exemption, both the employee’s job duties and earned compensation must meet certain requirements, including a minimum salary threshold. The current minimum threshold – $455 per week – has not been updated since 2004. (And changes to that minimum have been proposed and discussed for quite some time, including in this March 2019 post.)

Now, after these many years and many attempts, the USDOL approved final rules this week, updating the minimum compensation requirements for select overtime exemptions. These new rules, effective Jan. 1, 2020, will require covered employers to pay employees at least $684 per week in order to meet the salary level requirements of the overtime exemptions.

(Note: Meeting this minimum salary level is only one of several requirements to achieve exempt status. The USDOL’s final rules do not address or change other requirements, such as the requirement that pay be made on a salaried basis or the complex and fact-specific duties tests. Employers will still be responsible for assessing and meeting these additional requirements.)

What does this mean for employers?

Determining whether an employee is overtime exempt is a multi-part, fact-dependent question that employers must undertake. Simply paying an employee at least $684 per week is not sufficient, by itself, to relieve the employer from minimum wage and overtime responsibilities.

However, employees who are currently classified as exempt and who are not paid at least a minimum weekly salary of $684 on Jan. 1, 2020, will lose exempt status and become newly eligible for overtime.

Employers will need to assess whether they have employees who will be affected by the new minimum threshold and, if so, whether to convert these workers to nonexempt, overtime-eligible classifications or to raise their salaries to continue meeting the new minimum salary threshold.

Employers should review the USDOL’s Overtime Update for more information on this and other changes to the FLSA’s exemption requirements, including revisions to the annual compensation requirement for “highly compensated employees” and recognition of certain nondiscretionary bonuses and incentive payments in achieving the minimum threshold.

Disclaimer: The information provided in this post is provided for informational purposes only and should not be relied upon or construed as legal advice and does not create an attorney-client relationship. You should review with your legal advisors how the laws identified in this post may apply to your specific situation.

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