The U.S. Department of Labor (“DOL”) issued a final rule that will redefine which white-collar workers are exempt from the overtime provisions of the Fair Labor Standards Act (the “FLSA”). The new rule is effective January 1, 2020 and will increase the number of employees who are eligible for overtime pay. Employers have a short window of time to determine whether any of their employees will be affected.
The FLSA classifies employees as exempt and non-exempt. Exempt employees are not entitled to overtime pay. Non-exempt employees are eligible for overtime pay and must receive at least one and a half times their regular pay rate for hours worked over 40 in a work week. The DOL’s final rule applies to “white collar exemptions” (administration, executive and professional exemptions). The final rule includes the following significant changes for white collar exempt employees:
- The salary threshold increased from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). Employees currently classified as exempt based on the $455 per week threshold likely will not qualify as exempt under the new rule if they earn less than $684 per week.
- Employers are allowed to use, for the first time, certain non-discretionary bonuses and incentive payments to satisfy up to 10% of the new salary threshold.
- The threshold for highly compensated employees (HCEs) increased from $100,000 to $107,432 annually, with at least $684 being paid in weekly salary basis.
As a result of the changes, more than a million of American worker’s exemption status will change. Some employees that were previously exempt must now be reclassified to non-exempt and will be eligible for overtime pay. Employers must assess which employees will be affected and how the change will affect the balance sheet. Notably, the new rule does not change the job duties test.
It is likely that many previously exempt employees will suddenly be overtime eligible. It is important to assess the status of your employees now to ensure compliance with the new rule before it takes effect on January 1. As former General Counsel, I am familiar with the internal analysis required for compliance. Contact me for opinions and strategies for implementing required changes under the new rule.