The U.S. Department of Labor (DOL) on Sept. 24 issued its long-awaited final rule update for overtime pay, making an additional 1.3 million workers newly eligible.
Under the Fair Labor Standards Act (FLSA), the new overtime rule raises the pay threshold for exempt workers to $35,568 per year ($684 per week) from its current level of $23,660 per year ($455 per week). The final rule goes into effect Jan. 1, 2020.
Employees must be paid a salary of at least the minimum salary threshold amount and meet certain duties tests to be exempt from overtime under the FLSA. If either the salary threshold or the duties test is not met, the employee must be paid overtime at 1 ½ times their regular hourly rate for any hours worked in excess of 40 hours in a workweek.
This is the first change to the federal minimum salary threshold for overtime pay since 2004. Ultimately, more than a million employees will be eligible to receive overtime pay for working more than 40 hours in a week as a result of this change, according to the DOL.
“For the first time in over 15 years, America’s workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans,” acting U.S. Secretary of Labor Patrick Pizzella said in a release. “This rule brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers.”
FLSA Overtime Rule from DOL
In addition to increasing the minimum salary threshold for overtime pay, the DOL’s final rule also:
- Increases the total annual compensation level for a “highly compensated employee” from $100,000 to $107,432 per year;
- Allows companies to use nondiscretionary bonuses, incentive payments and commissions (all paid at least annually) to satisfy up to 10 percent of the standard salary level; and
- Revises special salary levels for workers in U.S. territories and in the movie business
The new rule does not include automatic adjustments to the salary threshold level. However according to the final rule, the “Department affirmed its intention to issue a proposal to update the earnings threshold every four years, unless the Secretary determines that economic or other factors warrant forestalling such an update.”
The new overtime rules don’t go as far as the Obama-era decision to double the salary threshold to $47,000 which was met with significant drama from the business and legislative community. In a subsequent legal dispute over this change, a federal judge in Texas ruled the change invalid in 2017, holding that the DOL exceeded its authority. If it had been implemented, the initiative would have covered four times as many workers.
In the wake of this final rule from the DOL, employers should review data for any of its exempt workers making less than the new salary threshold level and determine what changes should be implemented. Employers have a little over three months to review and analyze the best approach for their workforce before the rule is effective on January 1, 2020.