The U.S. Department of Labor unveiled its long-awaited final rule on the overtime “white collar” exemptions on September 24, 2019. The regulations, at 20 CFR Part 541, were last updated in 2004, when the DOL increased the minimum salary level for exemption from $150 to $455 per week and made changes to the job duties employees must perform for exemption from the FLSA’s overtime requirements.
The DOL has been working overtime to update the regulations since 2015, when it proposed to increase the minimum salary level for exemption to $913 per week ($47,476 annualized). A Texas federal district court enjoined that rule in November 2016, but the Trump administration appealed the injunction to the U.S. Court of Appeals for the Fifth Circuit. While the appeal is still pending, now that the final rule has been issued, it is expected that the agency will soon move to dismiss the appeal as moot.
The final rule increases the minimum salary level for exemption to $684 per week ($35,568 annualized). The DOL will allow employers to pay up to 10% of that minimum level ($3,556.80) in commissions, bonuses, and other non-discretionary incentives. If incentive payments fall short by even $1, however, employers will owe overtime pay to shorted employees for the entire prior year. Under the final rule, employers will have only a single pay period for a final make-up payment to ensure exempt employees receive the full $35,568 for the year.
The final rule also increases from $100,000 to $107,432 the total annual compensation required for employees to qualify under the shorter highly compensated test. This level is significantly below the proposed level of $147,414, likely in response to public comments. Highly compensated employees must receive the guaranteed minimum salary of $684 each week, but the remaining compensation may be in commissions, bonuses, or any other type of compensation.
The DOL has abandoned its plans to update automatically the minimum salary and highly compensated levels in the future. Although the final rule does not include any new provisions regarding future increases, the DOL stated that its goal is to update the levels more regularly; any increases to the levels will come only after the DOL publishes notice of the proposed increases and provides the public with an opportunity to comment, as required under the Administrative Procedures Act.
The final rule will take effect on January 1, 2020.
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