FEDERAL OVERTIME RULE UPDATE
The U.S. Department of Labor (DOL) on September 24, 2019, promulgated a final rule to introduce a new, long-awaited, rule for overtime pay.
The final DOL rule updates the salary level necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. The new salary level addresses increases in employee earnings since the minimum levels were last updated in 2004.
The FLSA requires employers to pay employees a minimum wage. For employees who work more than 40 hours in a week, the FSLA requires overtime pay of at least 1.5 times the regular rate of pay. An exemption, the “white collar” exemption, exempts from these minimum wage and overtime pay requirements “any employee employed in a bona fide executive, administrative, or professional capacity.” The FLSA allows the DOL to define the terms of the exemption. Since 1940, the regulations have generally required each of the following three tests: (1) the employee must be paid a fixed salary that is not subject to reduction because of variations in the work performed (the “salary basis test”); (2) the salary paid must meet a minimum specified level (the “salary level test”); and (3) the employee’s job duties must relate to executive, administrative, or professional duties (the “duty status” test). The DOL has long used the salary level test as a tool to help define the white collar exemption on the premise that employees paid less than the salary level are unlikely to be bona fide executive, administrative, or professional employees, and, conversely, that nearly all bona fide executive, administrative, and professional employees are paid at least the level specified.
In the newly promulgated rule, the Department of Labor:
- raised the “standard salary level” from the currently enforced level of $455 per week to $684 per week which equates to $35,568 per year;
- raised the total annual compensation requirement for “highly compensated employees” from the current level of $100,000 per year to $107,432 per year;
- allowed employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and
- revised the special salary levels for certain workers.
The final rule is effective on January 1, 2020. A complete description of the new rule can be found on the DOL website.
Bruce S. Asay
Associated Legal Group, LLC